In this article, I would like to highlight the recent crypto crash especially on Ethereum.
As many of you may hear about the recent staked Ethereum depegging which lead to the recent Ethereum crash. It seems that in light of these all, Celsius which is one of the largest crypto lending platform, has a hand to play in this.
To top it off, Celsius decided to pause withdrawals on the platform. Now I do have some Bitcoin on Celsius but it is very minimal say about 300 SGD but there are people who put their entire life savings in it. Hopefully this will get resolve soon.
Now you will find yourself asking these 3 questions which will also decide the future of crypto in the following weeks:
1. Is celsius insolvent, or do they just need time to meet obligations?
2. Which companies were lending to Celsius?
3. How does this impact tether?
The thing is Celsius might have turned against the big boys by exiting UST earlier than all of them. You try to exit before the others? They go after you: Short CEL, liquidate staked ethereum and then, bankrun.
If Bitcoin does hit 22.4k USD, a lot of things can poised bad for Celsius as it supposedly needs to liquidate dBTC on maker.
Also, recently, it has been reported that Celsius sent out 320 million dollars in crypto to ftx. Is it a flight to safety ? Is it a move to sell staked Ethereum ?
Celsius is one of Lido’s principal clients and, as such, one of the largest holders of stETH. The problem? Staked ETH is always supposed to be worth 1 ETH—and it hasn’t been for some time now.
Staked ETH represents Ethereum that’s been locked up on the Ethereum 2.0 beacon chain—a network that will soon be merged with the Ethereum mainnet in a highly anticipated upgrade that transitions the blockchain to proof of stake. Normally, users would need a minimum of 32 ETH (worth roughly $40,000) to participate in ETH 2.0 staking and earn rewards. But Lido Finance makes it possible for users to stake any amount of ETH. And because it’s “liquid staking,” it gives users stETH tokens in return.
That stETH can then be lent, staked, and traded for other tokens.
Celsius does precisely that with its own clients' funds. But now, a day after Celsius paused customer withdrawals, swaps, and transfers—”to put Celsius in a better position to honor, over time, its withdrawal obligations,” the company said—there’s growing concern over the lending company’s exposure to stETH.
The company has at least $475 million worth of stETH in a public wallet
Celsius works by staking customer deposits, in this case Ethereum, in yield generating decentralized finance (DeFi) protocols like Lido. In return, Celsius receives stETH, which increases in value as the deposits earn rewards. Celsius makes money by paying its customers their promised rate of return, recently that’s been between 6% to 8% on ETH deposits, and keeps the rest.
Selling large quantities of stETH to get more liquid ETH would cause its price to drop even more, which would further compound the liquidity crunch that Celsius is already facing.
The value proposition for Celsius depositors is that they are promised a fixed rate of return on their ETH and leave it to the company to figure out how to reliably generate that return.
But that strategy starts to come apart if stETH loses parity with ETH (it has) at the same time that there are a lot of Celsius depositors looking to withdraw their ETH (they are) because Celsius doesn’t appear to have enough liquid ETH to meet all of its obligations.
A lot of questions asked. Investing is always a grey area. So, invest safe.
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