Celsius crypto lender platform, one of the leading companies in the decentralised finance sector, has stopped all withdrawals, swaps and transfers on its platform.
In a Celsius blog post to its community published a few hours ago, the company writes; “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.”
Terra fallout spreads – where will it end?
The major crypto lender that facilitates the lending out of crypto for interest, has been under pressure since the DeFi sector was undermined by the failure of the TerraUSD stablecoin.
Although there had been doubts about the resilience of Celsius’s business, news of what appears to be its imminent demise has shattered already fragile sentiment in the crypto space.
Cryptoassets are a highly volatile unregulated investment product.
Celsius has been subject to outflows since the terra implosion, with deposited asset values falling to less than half what they were in December 2021 – from $24 billion to less than $12 billion.
On 11 May chief executive Alex Mashinsky stated in a tweet: “Notwithstanding the extreme market volatility, Celsius has not experienced any significant losses and all funds are safe.”
That was followed on 19 May with another tweet from Mashinsky, in which he claimed that Celsius had “minimal exposure” to UST or LUNA, but clearly many depositors decided not to take the risk.
For more on how the company’s lending model works, take a look back at our article on is Celsius Network safe to use for more information and background.
Celsius hit by an old-fashioned bank run
However, the fall in value of deposits does not necessarily mean a fall in nominal number of deposits, or at least that was the hope of those who still have assets on deposit at the lender. Now it appears all too evident that Celsius has become the subject of basically what is an old-fashioned bank run as depositors flee, or try to.
As with real banks faced with a run on deposits, Celsius has been forced to issue statements asserting its solvency and the quality of its assets. In the Medium post referenced above it states: “Celsius has valuable assets and we are working diligently to meet our obligations.”
At the time of writing, Celsius Network token, CEL, has dropped 53% since 2am UTC to $0.96.
NEXO offer to buy up Celsius assets
In a letter published in the past hour or so NEXO – another big lender in the crypto industry and a fierce rival in the “crypto banks” sector – has offered to buy Celsius Network.
In part the Nexo letter makes known the intent to purchase through: “the possible acquisition of certain remaining qualifying assets, mainly collateralized loan receivables secured by corresponding collateral assets, brand assets and customer database of the business (the “Business”) of Celsius Network LLC and Celsius Lending LLC”.
The moves from Celsius’s rival is unlikely to be a welcome one. With this audacious move, Nexo may be looking to signal to the market that it is in a much stronger financial position than Celsius. As we reported in April, Nexo and Mastercard have announced a partnership to launch a credit card.
End for Celsius, new beginning for stronger competitors?
Celsius’s troubles – which could prove terminal – have helped to push bitcoin as low as $24,063 in the European session, with selling likely to gather pace when US market participants rise from their slumbers.
As with all downturns. it provides stronger companies and investors with excellent opportunities to snap up bargains. However, with the lack of clarity around which crypto lenders will be next to fall and how this crucial part of the DeFi scene will affect other layers, buying now could be akin to trying to catch a falling knife.
It is still far from clear whether the crypto complex has reached the point of capitulation.
The collapse of terraUSD, LUNA and now Celsius, if this plays out as expected, is sure to increase pressure on central banks such as the U.S. Federal Reserve to introduce regulations to govern DeFi, especially stablecoins and lending products.
The Bank of England has already signalled its intention to bring stablecoins within the regulatory perimeter.
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