- The Celsius collapse was due to a domino effect caused by Terra Luna’s collapse.
- According to Bankruptcy filing, $4.5 Billion was owed to roughly 1.7 Million customers
2022 was not the best year for the crypto market. Many big crypto players like Terra Luna, Voyager, and Three Arrow Capital collapsed this year. Many experts believe that these collapses triggered the phenomenon that we call the crypto winter. Apart from all these collapses, there was a company that was a big market mover, and its crash had a substantial impact on the market.
Yes, we are talking about “Celsius.” In this article, we will not only learn about what Celsius was and what impact it had on the market, but we will also cover every minute factor that was responsible for the collapse of this crypto giant. To gain a clearer and more organised understanding of this phenomenon, we will use a timeline. So let’s dive into the story of Celsius.
What is Celsius?
We all are aware of banks and how useful they are. They not only allow us to keep our money safe but also provide us with interest and loans. But banks had no limitation; they do not accept cryptocurrencies. So, where will a person who owns assets in the form of crypto go? Will he convert all his assets into dollars first to seek all the services of a bank? NO! Celsius was the solution.
Celsius was the bank of Cryptocurrencies. It allows users to deposit their cryptocurrencies in order to earn interest; they can even collateralize their crypto assets to get loans. It provided many perks like quick transfers, less transaction fees, and even it could provide loans in dollars.
Celsius has four pillars
- Lenders – These depositors deposited their crypto assets in return for some interest.
- Borrowers – Traders borrowed assets in order to get margin trade leverage on short and long positions.
- Celsius Platform – It was the manager of all, which decided trading fees and managed risk.
- External Exchange – It executed trades.
With a strong network, this platform reported a user base of 1.7 million users and $11.7 billion in assets under management. This report was released by Celsius just two months before its collapse.
This might have created a curiosity in your mind about what happened in those two months that triggered the collapse of this Crypto Giant. Let’s Understand.
The Collapse
This collapse was really uncertain because Celsius was performing very well a few months before its collapse. What happened that triggered the collapse of such an entity? There should be a solid reason behind it, and the reason was the collapse of Terra LUNA. As Terra LUNAcollapsed,investors suffered $40 Million in losses, and the whole crypto market suffered a loss of $300 Million.
Celsius collapsed because of the domino effect caused by the collapse of Terra Luna. Investors started withdrawing funds rapidly from Celsius.
- On June 12, 2022 – Celsius froze withdrawals, swaps, and transfers. All user assets were frozen. This instilled fear in the mind of investors that the company had become insolvent. As a consequence, its cryptocurrency plummeted by 70%.
- On June 30, 2022, Celsius hired restructuring experts Alvarez and Marshal.
- July 3, 2022, the firm laid off 23% of its workforce.
July 7, 2022, a DeFi aggregator called KeyFi filed a lawsuit against the company in New York Supreme Court.The allegation was that Celsius engaged in market manipulation and also failed to implement the basic accounting controls to protect the deposits.KeyFi CEO also accused Celsius of lacking an investment strategy and having no oversight.
- On July 13, 2022, Celsius filed for bankruptcy protection under Chapter 11 in the US bankruptcy court for the southern district of New York.
- On the same day, it also paused any types of withdrawals , swaps, and money transfers to protect its customers. In such circumstances, active users will get all their assets back, and inactive users will be left empty-handed.
- July 14, 2022, a court filing from the Celsius advisory partner Kirkland & Ellis Mevels revealed that the company has a hole of $1.3 Billion in its balance sheet.
This is how Celsius Collapsed
