Terra in May, Celsius in June? Why the heat is on after withdrawals halt, $200M to FTX

There’s no easy way to say this, but current crypto-market conditions can only be described as ‘extreme.’ In fact, ongoing corrections saw the price of Ether and other cryptocurrencies tumble, with many seeing significant liquidations within the market.

Implications of a further fall could see nearly $500 million of on-chain collateral facing liquidation. The stETH/ETH pool asset ratio has already been party to an unbalanced condition… Now, what is next?

Pausing YOUR flow

.@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2

— Celsius (@CelsiusNetwork) June 13, 2022

Popular crypto-lending and staking platform Celsius is indeed facing the heat of the harsh conditions. According to its latest announcement, the platform has paused all withdrawals, swaps, and transfers between accounts on its platform due to “extreme market conditions.”

“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, swaps, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.”

That being said, customers WILL “continue to accrue rewards during the pause.”

Even so, there are legitimate concerns to be had. For instance, the firm reportedly had about $12 billion in customer assets as of May across 1.7 million users. If things go south, anything could happen.

Unstaking the staked, for?

Even though the platform has halted withdrawals to stabilize liquidity and operations, claims on social media suggest the network might be facing a liquidity crisis.

Celsius was previously rumoured to be a seller of stETH to restore liquidity to user withdrawals, something that may trigger liquidations. Just as the news poured in, Celsius reported yet another exodus, as highlighted by Colin Wu.

According to the same, the platform unstaked nearly $250 million worth of Wrapped Bitcoin from Aave and sent it to the FTX exchange. In addition to WBTC, it appears that a lot of ETH worth millions saw an exodus to FTX as well.

Update: Celsius has transferred about 104,000 ETH to FTX in the past three days, including about 50,000 ETH today, 12,000 ETH yesterday, and 42,000 ETH the day before yesterday. In addition, Celsius also transferred about 9,500 WBTC to FTX today.https://t.co/RaiJTJIVm9https://t.co/1RQaa9fT3u

— Wu Blockchain (@WuBlockchain) June 13, 2022

However, all of those tokens have been sent to the FTX exchange for an unknown reason. Nevertheless, the Celsius team’s plans with unstaked tokens still remain unclear.

Two possible moves come into play here, as highlighted by a 13 June tweet below –

I can think of two possible explanations:

1) Borrowing from FTX against this collateral to move their leverage off-chain
2) Selling assets

What other possible explanations might there be?

— Dirty Bubble Media: 🌡⏰💣 (@MikeBurgersburg) June 13, 2022

Nevertheless, one would have to wait and watch until the platform explains the said move. Until then, the crypto-market could see more sell-offs i.e. if the Celsius Network continues to sell more and more assets to maintain its liquidity obligations. In fact, something as bad as the Terra fiasco may come into play too.

Another concern connected to this case is the platform’s insolvency in their ETH positions. Only 27% of Celsius’s ETH is liquid, the rest is either stETH or 288,000 ETH staked in an ETH 2.0 contract. This makes all this ETH inaccessible for at least a year. Indeed, not a promising scenario here…

50k ETH/week, Celsius will run out of liquid ETH in around 5 weeks.

It is impossible for Celsius to honor redemptions after that without realizing massive losses due to stETH's illiquidity. Eventually, they will be forced to gate all redemptions.

Not looking good.

— yieldchad (@yieldchad) June 5, 2022

Furthermore, CEL, Celsius’s own token, has dropped by more than 90% over the last 24 hours. It was trading at $0.2, at the time of writing.


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