Celsius’ bankruptcy filing last week surprised almost no one. Once a platform freezes client assets, it’s usually over.
But just because the collapse of this crypto company didn’t come as a surprise doesn’t mean it wasn’t a big deal for the industry.
In October 2021, CEO Alex Mashinsky highlighted that the crypto firm had $25 billion in assets under management.
As of May, despite the collapse in cryptocurrency prices, the firm managed about $11.8 billion in assets, according to the website.
The company had an additional $8 billion in customer loans, making it one of the world’s biggest names in crypto-lending.
Celsius is now left with $167 million in cash, which it says will provide it with “ample liquidity” to support its operations during the restructuring process.
Meanwhile, the company owes its users about $4.7 billion according to the bankruptcy filing — and there’s a roughly $1.2 billion hole in its balance sheet.
The fall of Celsius marks the third largest bankruptcy in the crypto ecosystem in the space of two weeks, and is being seen as the Lehman Brothers moment of crypto – comparing the contagion effect of a collapsing crypto-bank to the collapse of a major Wall Street bank that ultimately started the financial crisis. crisis and the mortgage crisis of 2008.
Regardless of whether the Celsius collapse foreshadows a larger collapse of the broader crypto ecosystem, the days of clients recording double-digit returns annually are over.
For the company, promising these big returns as a means of attracting new users was largely responsible for its eventual downfall.
Three weeks after Celsius halted all withdrawals due to “extreme market conditions”—and just days before the company finally filed for bankruptcy protection—the platform continued to advertise in bold letters on its website annual returns of nearly 19%, which he paid weekly.
“Transfer your crypto to Celsius and get a return of 18.63% in minutes,” the site read on July 3. Promises like these helped attract new users quickly, and the company had 1.7 million customers at the end of June.
The company’s bankruptcy filing shows that Celsius also had more than 100,000 creditors, some of whom lent the platform cash without any collateral to support the deal.
These creditors will likely get their money back first, if there is anything to get in the end.
In filing for bankruptcy, Celsius clarified that “most operations will be suspended until further notice” and that it “has not asked the authorities to allow customer withdrawals at that time.”
Also, the company clarifies in its terms and conditions that any digital asset transferred to the platform constitutes a loan from use to Celsius.
Because there was no collateral from Celsius, customer funds were essentially just unsecured loans on the platform.
The company’s main problem was that almost 20% of the returns it offered to clients were not real.
In a lawsuit, Celsius is accused of operating a Ponzi scheme, in which it paid old depositors with money it received from new users.
Celsius also invested its capital in other platforms that offer equally high returns in order to maintain its business model.
Source: Capital
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