Cryptocurrency lending platform Celsius Network has become the latest in a fast expanding line-up of companies to be toppled by the ongoing crash in digital assets.
Celsius announced on 13 July that it had filed for Chapter 11 bankruptcy, shortly after the freezing of withdrawals and transfers between the platform’s accounts last month.
“Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps and transfer on its platform to stabilise its business and protect its customers,” said a special committee of the company’s board of directors in making the bankruptcy announcement.
According to Celsius it has USD$167 million in cash on hand to provide liquidity for operations during the process of restructuring.
Just prior to the bankruptcy announcement Celsius’s management was still struggling to keep the lending platform afloat by paying off its copious debts burden.
This included making repayments of $81.6 million out of its $90 million debt to Aave, which enabled it to recover 400,000 Ethereum it had previously provided as collateral.
Celsius had also completely paid off its loan from Maker for a total of 23,000 WBTC, worth approximately $440 million.
Celsius Network was first founded in 2017 by Alex Mashinky, Daniel Leon and Nuke Goldstein, as a new form of financial intermediation platform based around the use of cryptocurrencies as assets and collateral.
Its business model involved users making deposits of cryptocurrencies and digital assets into a wallet provided by Celsius Network, in return for yields considerably higher than those offered by mainstream investment options.
Depositors could earn as much as 6.2% interest on a single bitcoin, while Celsius would also pay customers up to 17% on various cryptocurrency deposits.
On the other side of the intermediation equation, Celsius Network would make loans to customers against collateral in the form of cryptocurrencies, with borrowers paying interest anywhere between zero and 8.95% on bitcoin-backed loans.
Celsius saw extremely rapid growth in the five years after its founding, with nearly USD$12 billion in asset under management as of May 2022, as well as $8 billion in loans to clients. The company’s operations were managed from the United States and the United Kingdom, while it also had major offices in Serbia and Israel.
The company is believed to have run aground due to losses incurred on its decentralised finance (DeFi) operations, as well as the ongoing digital assets crash that has roiled crypto investors around the globe.
Celsius sustained more than $350 million in losses on more than $1 billion in assets used for DeFi operations, according to a report from blockchain analytic firm Arkham Intelligence.
This included the provision of $530 million in corporate funds to an asset manager identified by Arkham as Jason Stone, CEO of investment firm KeyFi, for the purposes of “high-risk leveraged crypto trading strategies.”
According to Arkham the trades led to total apparent losses of $350 million, following forced liquidations of $61 million, amidst the crash in global crypto market since the start of the year.
The total market capitalisation of the global cryptocurrency market has fallen to just over $0.9 trillion as of 14 July, after previously approaching hitting peak of around $3 trillion in November last year.