A Deep Dive Into Celsius’ Recent Problems, Can the Protocol Rise From Its Ruins?

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DeFi
A Deep Dive Into Celsius’ Recent Problems, Can the Protocol Rise From Its Ruins?

Losses, debts, investors losing faith, we could say Celsius has been one of the most hard-hit startups in the current crypto winter period. The crypto world is somewhat calling for Celsius’ head on a platter, owing to the huge chunks of debts in loans. Developer support has dwindled in dismay, investors are backing away, and the depths of the popular network’s pockets is getting smaller by the day. With so much at stake, will Celsius be able to pull through? Or has this once-promising project been doomed from the start? Let’s take a closer look and see what’s going on.

What Went Wrong? 

Celsius troubles started on June 12th when they halted all investors’ withdrawals and swaps. As a decentralized network, Celsius has no obligations to reveal its financial position like traditional companies. 

Reports indicate that Celsius started taking highly leveraged loans from DeFi protocols like Lido, MakerDao, Compound, and Aave to maintain liquidity. They acquired billions in liabilities from different protocols. Automated protocols set collateral margin thresholds, which, if surpassed, the loan positions are liquidated.

These loans and margin positions became a considerable problem when crypto markets began a downtrend, with BTC going to $28k. However, they became an even bigger issue when Celsius announced halting withdrawals. BTC plunged, losing nearly 20% between 12th and 13th June. The risk of Celsius liquidation increased with the plunge in BTC. A Wu Blockchain tweet said: 

“An address suspected to be Celsius… borrowed 278 million DAI in the Maker protocol by staking 17,919.37 WBTC… If BTC falls to $22,584, the position will face liquidation.”

A Coordinated Attack

As the network continued to suffer, further developments highlighted a possibility of a coordinated attack meant to cause FUD around the project. Some Twitter users claimed that some financial institutions were behind this attack on the Celsius network. 

One Twitter user, PopFlop, tweeted on July 4th: 

“Why were the FUDDERS focusing only on #CelsiusNetwork? If it was not an attack on Celsius, the FUD would have been equal across all platforms, not just Celsius. To my knowledge, Celsius do not leverage; if you know otherwise, bring proof. This was an attack.”

Some crypto enthusiasts blame FTX for Celsius’ current position. FTX’s name has constantly appeared in the midst of the network’s deep dilemma. For instance, recent claims indicate that FTX offered to help Celsius but later noticed a $2 billion deficit in their balance sheets. The rumors caused problems for Celsius and the $CEL token, increasing calls for liquidation. 

Simon Dixon, a Celsius investor, recently said:

“I smell a rat in the leverage boom & deleverage crash. It ends with banks buying up crypto companies & stripping them of their assets before CBDC rollout.”

Content Creators Used to Spread FUD

There have been claims that some crypto-focused content creators are partly to blame for the FUD around Celsius. Many content creators have been used to spread rumors and lies, causing FUD around the project. Newportgardener, a crypto enthusiast, said on July 3rd:

“I’ve been so frustrated that all the YouTubers changed their affiliate links to FTX and say bad sh** about Celsius now.”

Cryptoslate, a popular crypto-focused news outlet, claimed to have received info that some social media content creators were paid to spread FUD around Celsius. Plan C announced a $20 million bounty for anyone with information and evidence about the rumors. Considering the situation, it’s likely that some 3rd party is fighting hard to cause FUD around Celsius.

Celsius Solving Problems, Pays Loans

Initially, industry experts called for Celsius liquidation, claiming that insolvency is unavoidable, while others fear the situation is overhyped. Recent events, however, indicate that since June 13th Celsius took charge of dealing with its troubles.

On June 13th, Celsius added around 2k WBTC collateral to the Marker lending protocol, lowering the liquidation risk. Celsius continued to pay its BTC loans, reducing liquidation risk

On 14th, Celsius added 2041.48 WBTC to its collateral, reducing its liquidation to $18388 per BTC. Later the same day, Celsius added around 2001.76 WBTC increasing their collateral to 23962.

Over the past few weeks, Celsius has been settling its BTC debts. On July 4th, Watcherguru tweeted, “Celsius Network has paid off another $50 million towards its #Bitcoin loan. Their liquidation price has dropped to $8,840.” Later on the 4th, Celsius paid off another $64 million towards its #Bitcoin loan, reducing the liquidation price to $4,967. 

On July 7th, Watcherguru tweeted, “Celsius Network has completely paid off its #Bitcoin loan. Their liquidation price has dropped to $0.00.” After settling the total DAI debt owed to MakerDAO, Celsius has no liquidation risk. 

According to sources, paying all its debts could be part of the restructuring plans of the Celsius network, with plans to rebuild the team and make depositors whole. 

Aside from dealing with the DAI loan, Celsius is working to pay off all its remaining loans successfully. A WatcherGuru tweet sent on July 8th states, “Celsius Network pays off $22.2 million towards its loan from Aave & Compound, dropping its debt to $235 million.” 

While the network is settling its debts, recent reports indicate that Tether “liquidated its loan with Celsius Network without losses to the company and minimizing the impact on the market.” The liquidation of position easily caused losses for the Celsius network. However, by continually paying its debts, Celsius is slowly redeeming itself, setting up for recovery. 

The crypto lender also “deposited $500 million in WBTC… to crypto exchange FTX.” Reports indicate that if Celsius sells all its BTC at the current price, it will suffer over $1 billion in losses.

Community Short-Squeezing Campaign

To protect the Celsius token and boost confidence, the Celsius community began a short squeezing campaign, which often targets to squeeze out short-sellers. Short squeezing was popularized in 2021 when the stock of GameStop was short squeezed and gained massive value.

In Mid June, the Celsius community began the campaign, which drove the token’s price high in a few minutes. If you look at the token’s price charts, you realize that sometimes on the 13th, $CEL token prices plunged to merely $0.17. On 21st, the token gained value, hitting $1.53. The token is currently trading at $0.903 because of the shorting campaign. $CEL gained over 500% in 30 minutes and over 800% to its 1-month high. 

The #CelShortSqueeze hashtag gained massive adoption in a few hours, with many investors participating in the campaign. Many investors feel this campaign is working correctly and will help save Celsius from the shackles of the FTX exchange. 

For instance, when writing this report, a crypto user called @mind_bitcoin claimed that “this is actually getting really interesting. FTX has 4.3 million CEL left, and the withdrawals are increasing.”

Concluding Remarks

The biggest question is, what’s in store for Celsius’s future? At the moment, the investigation around the foul play claims is ongoing. Anyone with evidence showing that this was a planned attack should produce it. 

The Celsius network is currently undertaking a restructuring process. A few days ago, the network cut off about 150 staff members. While the network appears to be on the brink of death, Celsius could survive with proper restructuring. Their continuous settling of debts is evidence of intent to rise again.

Wayne Jones

Wayne is an all-rounded cryptocurrency writer who has written for several publications in the fintech industry. Having graduated from the University of Essex Colchester, he developed a passion for blockchain technology and has been curious about how the blockchain can modify the traditional financial industry.