Celsius Insolvency: Here is how Celsius fell apart and why bankruptcy may be the only option for the crypto lending startup
On June 12, Celsius Network, one of the largest players in the crypto lending space, announced it was freezing all withdrawals and transfers for all of its 1.7 million crypto customers due to what the crypto startup described as “extreme market conditions.”
The news sent shockwaves to the crypto market, causing bitcoin and other cryptocurrencies to fall by as much as 10 percent. The following day, Bitcoin tumbled below $21,000 for the first since 2020 as the crypto market topped $2 trillion.
In a memo to clients on Monday, Celsius said: “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts.”
To stay afloat, Celsius said that it’s looking into restructuring its operations, following announcements on June 12 that it “[needs] to stabilize liquidity and operations” and take “take steps to preserve and protect assets.” The beleaguered startup has reportedly hired lawyers with expertise in restructuring and insolvency to help it navigate the current market and remedy its financial woes.
As of mid-May, Celsius held approximately $12 billion in assets. People familiar with the ongoing situation also told the Wall Street Journal that Celsius had hired restructuring lawyers after the account freeze and is considering alternative financing from investors and is open to a different financial structure.
However, that’s not stopped users and investors from asking this simple question: How did we get here? How come no one saw the writing on the wall? To answer these questions, it is critical to understand the people behind the company.
Celsius was founded in 2017 by Alex Mashinsky and S. Daniel Leon. The five-year-old cryptocurrency lending platform offers crypto investors higher-than-average interest rates on their deposits. As of May, Celsius has more than $8 billion lent out to clients and almost $12 billion in assets under management, its website said, down by more than half from October, and had processed a total of $8.2 billion worth of loans.
The first thing everyone should know about Alex is that he claimed to have a lot of experience. According to a 1999 article referenced on The US Securities and Exchange Commission (SEC) website, Alex “tried importing urea from Russia, selling Indonesian gold to Switzerland and brokering poisonous sodium cyanide excavated in China for use by gold miners in the U.S.”
“He [Alex] tried importing urea from Russia, selling Indonesian gold to Switzerland and brokering poisonous sodium cyanide excavated in China for use by gold miners in the U.S. The cyanide business collapsed in 1989 as Mashinsky watched the Tiananmen Square crackdown on CNN.”
These businesses eventually failed and Alex pivoted. That was not all. According to Alex’s own personal website, Alex claimed to be “the founder of eight startups and three Unicorns.” He also claimed to have invented voice over internet protocol (VOIP) technology.
“Alex has raised more than $1.5B with over $3B+ in exits, 50+ patents, and now leads the Celsius team with over $25B in crypto assets,” he said on his website.
It lets you earn interest on your crypto and instantly borrow against it. That startup has built the next generation of decentralized lending and borrowing products leveraging cryptocurrency. Celsius Network addresses the financial needs of today’s consumers worldwide through a high-interest income and low-cost lending accessible via a mobile app.
However, according to a tweet from Dirty Bubble Media, citing a Celsius insider, “Celsius is recalling loans to their institutional borrowers.”
But the current situation with Celsius seems to be a lot more precarious. According to a Reddit user, Celsius has stopped accepting its own token ( $CEL ) for interest payments. In an alleged and undated letter sent to one of its users, Celsius said,
“Currently, we are not accepting CEL as an available interest payment option.”
— Kyle Torpey (@kyletorpey) June 17, 2022
But Celsius woes seem to be a lot deeper than we were first made aware of. CoffeeZilla, a Youtuber known for exposing scams, said that “Celsius had further issues with an ETH2.0 derivative on DEFI pools where they found themselves stuck either keeping their staked ETH2 or selling a derivative worth less.”
In a related report, CoinDesk explained how ‘Staked Ether’ became the focus of crypto stress and how it spread from Celsius to Three Arrows. Another crypto news outlet also suggested that bankruptcy may be the only option left for Celsius.
In the video below, CoffeeZilla went into greater detail about why Celsius fell apart. Enjoy!