About the same time Bitcoin dipped to its lowest weekly close (roughly US$26k) since December 2020, one of the biggest crypto-lending platforms in the space, Celsius, decided to pause all customer withdrawals, swaps, and transfers.

Cue a huge sell-off in the CEL token, not to mention plenty more pain for the entire market (currently close to three billion USD has been wiped out since Friday), plus growing fears of the next major-player domino to fall.

Note, those are largely just fears for now, but after what happened with Terra LUNA, panic regarding potential financial complications for Celsius are beginning to spread like [insert latest Greek-alphabet-named variant here] across Crypto Twitter.

“We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” the widely used crypto fintech wrote in a blog post on Medium. “We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets. Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers.”

After the Celsius announcement, CEL tanked more than 70 per cent in the early hours of Monday morning, from about  US$0.49 down to below $0.15, according to CoinGecko. At the time of writing, the token is changing paper hands for about $0.19, down around 97 per cent from its $8.05 all-time high of a year ago.

Launched in 2017, Celsius offers its customers high yield for crypto deposits, which it lends out to other crypto firms – a model other large players, such as BlockFi and Nexo, have also adopted.

Over the past year, all three firms have come under fire from regulators such as the US Securities and Exchange Commission (SEC), which views them as unregistered securities. The Coinbase exchange had planned to introduce its own similar service it dubbed Lend, but abandoned the project last September after facing regulatory, and legal, heat from the SEC.

 

Staked ETH and the Celsius liquidity crunch

The worrying move can be put down to what’s being described by some as a “liquidity crunch” and a form of “bank run” on the platform with panicked users rushing to withdraw their funds.

There are some underlying factors at play:

• Right now, there is an imbalance in the price of staked Ethereum (stETH), meaning that it’s trading at less than one ETH, as you can see from the Uniswap image below. Staked ETH is a Lido Finance product that enables liquid staking for ETH 2.0 – the upcoming iteration of Ethereum, currently in testing phase.

• The thing about that is, Celsius has been one of stETH’s heaviest users. Celsius has been previously rumoured to sell stETH in large amounts to help restore liquidity to its users’ withdrawals. With the current stETH depegging, the implication is that Celsius is significantly down on its investments/stETH trade.

• At the time of writing, Celsius has reportedly been transferring large amounts of ETH and wBTC (wrapped Bitcoin) to the FTX crypto exchange. BTC is currently trading down 12.5% in the past 24 hours, while ETH is down more than 15%.

Note: this is a developing story… 

 

 

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