Is Celsius Network collapsing like Terra’s LUNA? | Cryptocurrency

  • The Celsius Network token plunged nearly 40% overnight after the project locked up more than $12 billion in cryptocurrency assets.
  • Due to extreme market conditions, Celsius has suspended all withdrawals, trades and transfers between accounts.
  • Experts note that Celsius Network has consistently pulled out of its DeFi positions to stake stablecoins and recover from the liquidity crunch.

Celsius, one of the leading crypto lending platforms, is suffering from a liquidity crunch as the crypto market continues to slide. The project unstacked $247 million of AAVE-wrapped Bitcoin and sent it to the FTX exchange. The constant withdrawals from DeFi positions and the resumption of protocols have raised red flags in the crypto community.

Celsius halts withdrawals citing extreme market conditions

Celsius Network announced on June 13, 2022 that all withdrawals, exchanges and transfers between accounts had been suspended. Celsius cited the action as a step to put the project in a better position to meet its withdrawal obligations.

The project informed users that this action was taken in the best interest of the community, to stabilize liquidity and operations while protecting assets. The project confirmed that customers will also accumulate rewards during the break period.

Crypto pundits Twitter pointed out that Celsius was going through a supposed liquidity crunch.

Celsius paid users 30% interest per week

Users put capital on Celsius, the network uses capital from its platform to fund its own investment and cover loans it makes to other users. Celsius Network pays users up to 30% interest per week. But the recent liquidity crunch the network is facing has diminished potential returns for users.

The network confirmed that users will continue to receive interest during the pause period.

Why Celsius Could Collapse Like Terraform Labs’ LUNA and UST

Crypto lender Celsius Network may follow sister Terraform Labs tokens LUNA and UST and crash after recent announcements of suspended withdrawals.

Celsius Network’s CEL price fell nearly 40% in response to the announcement. The crypto community has identified red flags in Celsius Network’s main DeFi wallet, transactions that the project has yet to explain to its users.

Two key Celsius Networks moves that remain unexplained:

  • Celsius exited its DeFi positions (WBTC staked on AAVE) and replaced it with stablecoins like USDC.
  • Celsius Network has sent $320 million in Ethereum to the FTX exchange.

Cryptocurrency experts and analysts claim that Celsius Network is working hard to deal with the current liquidity crunch the project is facing. The argument is that if Celsius fails, the project could sell a

large stack of staked ETH (stETH provided by Lido DeFi lending platform), which would drive the token away from ETH.

$247 million in WBTC was sent to the FTX exchange

As of June 4, 2022, Celsius Network held $3.8 billion in assets across multiple DeFi protocols and wallets, and $1.18 billion in debt from AAVE, Compound, and Maker. The project exhausted previously identified DeFi positions to fund their main DeFi wallet.

Celsius Network’s DeFi main wallet balance fell from $5.6 billion in Ethereum, WBTC and other tokens to $10,514, with massive withdrawals of WBTC from AAVE and $247 million transferred to the FTX exchange.

Cryptocurrency expert and proponent @MikeBurgersBurg investigated the withdrawals and shared insights in a recent tweet:

@yieldchad, a crypto analyst, claims,

Celsius has lost the customers’ money and must write down the value of all deposits or they are subject to a bank run.

The debate over whether or not Celsius is technically insolvent has been raging since the first week of June 2022.

While withdrawals from major DeFi wallets can be likened to a bank run, Celsius has yet to explain the decision and purpose of replacing the WBTC and ETH withdrawn from AAVE with stablecoins like USDC.

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Is Celsius Network collapsing like Terra’s LUNA? | Cryptocurrency

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