Celsius offer to compete with crypto loans with the Wall Street failed due to risky bets

The co -founder of Celsius Network, Alex Mashinsky, was in defiant mood on Twitter last weekend. When asked by a user, why he has so many enemies, Mashinsky announced: "Because I win and give everything to my community". Days later, his crypto investment company is in a crisis after blocking customer withdrawals, a step that shook the cryptoma markets.

The abrupt stop of the returns underlines the risks for investors who have plunged into complex digital investment products that offer high returns. Celsius claimed to have 1.7 million private customers, including in the United States, Great Britain and Israel, and gained a reputation to complete aggressive bets with the money of his inserts.

The investment group, which is largely unregulated beyond the spherical licenses in a handful of US states, had grown to up to $ 24 billion in managed crypto assets in December last year. Shortly after winning investments by Canada's second largest pension fund, the Caisse de Dépôt et Placement du Québec (CDPQ), and Westcap, a fund under the direction of the former Blackstone and Airbnb manager Laurence Tosi, the company recorded an increase in inflows.

Celsius is a simple company that helps everyday investors achieve “financial freedom” that is not available in mainstream financing.

"Crypto is the first time in history that the average Joe Goldman Sachs and Morgan Stanley is ahead," said Mashinsky in a September interview with the Financial Times.

However,

Celsiuss Leiden are in complex, risky shops that are typically hidden in the guts of Wall Street.

The group, which was founded in 2017, rode the recent crypto bull run to become one of the best-known companies that offers customers who have their digital assets stunned, breathtaking returns of up to 18 percent. Similar to a bank, Celsius customers are unsecured lenders, although they have no state-supported insurance for their funds in the slightly regulated crypto world.

Celsius used these deposits in loans to large crypto marketmakers and hedge funds as well as so-called decentralized financial projects. According to the matter, several market participants pursued politics of granting Celsius no loans, even if they had taken out loans there.

When crypto prices collapsed this year, Celsius was hit by withdrawals, which has been deducted from the platform a total of $ 2.5 billion since March. In May, the company had a fortune of only $ 12 billion, half of what it had done at the beginning of the year. As a result, she ceased to disclose the managed total assets; However, CDPQ announced the FT that Celsius had suffered a “strong volume of withdrawals” from customers in the past few weeks. Celsius did not answer on Monday to a request for comment.

The crypto loan has also been challenged by several state US supervisory authorities in the past few months who argue that its deposit accounts were unregulated securities. Celsius said in April that "ongoing talks with the US supervisory authorities" had held new deposits from US private investors to stop on its profitable accounts.

The final pressure came last week with a serious liquidity mismatch that Celsius had created. The company borrowed ether ether - an important digital token - from users and then blocked huge sums of the asset indefinitely in a new version of the cryptocurrency that is currently under construction and has learned delays. The locking of ether in the new version brought rewards that would finally be published.

Celsius had locked the ether directly, but also through a service called Lido, which publishes a derivative of the blocked ether, known as the "Staked Ethereum" or Steth, which is easy to act and should be treated as one-to-one equivalent itself. It used this Steth as security for further loans and, according to public blockchain data, placed a value of 450 million Dollar ready on a platform called Aave.

owner of Steth sold the derivative last week due to concerns about delays in the introduction of the new Ethereum network, the most important digital ledger in which ether is traded. The sale has withdrawn the main trading pool for derivative liquidity, so Celsius, according to Kryptoanalysten, was unable to exchange his Steth for ordinary ether in order to meet customer withdrawal inquiries without suffering without major losses.

aggravated that the company could be forced to store additional collateral for AAVE or to be liquidated by the price of Steth.

The group said on Monday that it would suspend the payments due to "extreme market conditions" and said that the decision was made to "bring Celsius into a better position in order to meet his payouts over time".

The company's own crypto token CEL fell to only 30 cents in the course of the recent problems. It was traded at almost $ 8 last June. The wider crypto market was also hit by Celsius' problems, with Bitcoin falling by about 25 percent since Friday and trading below $ 23,000.

Celsius has managed to free itself from previous bottlenecks, all of which were described in detail by a growing group of online critics who have been warning of the risks for months that Celsius received. Among them were an American blogger, CJ Block, who writes under the pseudonym Mike Burgersburg, and a Bitcoin entrepreneur Cory clipped.

"You invested your money in all possible risky bets. In the best case, you were like a hedge fund that used private money," said Block, who recently completed his medical studies after having spent months to analyze the positions of Celsius based on blockchain data.

in May Celsius pulled $ 500 million out of the Terra ecosystem, shortly before it collapsed, and thus contributed to the rush to the outputs that brought the Terra stable and the associated luna token collapse. The company had a more difficult time last year when it lost 900 Bitcoin, which had stored it with a crypto venture called Badger Dao, which was then hacked. Celsius was also the owner of large quantities of Steth, which were spent by another company, stakehound and practically worthless, as stakehound the keys to the underlying ether lost.

Max Boons, founder of the crypto broker B2C2, compared crypto loan with banks that have to carefully coordinate their assets and liabilities in order to remain solvent.

"Banks have learned from past crises and are now quite careful and differentiated with their asset liabitality matches. It is a skill set and I don't know the extent to which the crypto loan market has already learned," he said.

Additional reporting by Josephine Cumbo