The Celsius crisis reveals problems due to low liquidity in bear markets

The Celsius crisis reveals problems due to low liquidity in bear markets – Mail Bonus

After a one-week hiatus of user audits, exchanges and transfers, the company said it was holding an open discussion with regulators and officials and will continue to work with them on this hiatus. Celsius has not yet commented on when the company intends to stabilize its operations. Celsius has also paused Twitter Spaces and Ask-Me-Anything (AMA) meetings “to focus on navigating these unprecedented challenges.

Although Celsius has refrained from communicating, the media and social media have been buzzing with news and speculation about the company’s past, present and future. One of the most interesting developments is a short squeeze in the Gamestop style under the control of the community.

The dust from the Terra crisis has not yet settled and another crisis is shaking up the cryptocurrency market. The multi-billion dollar cryptocurrency and mortgage platform Celsius is the latest cryptocurrency company that has been controversial.

Previous deviations

Celsius’ slogan is, “an economy in which financial freedom does not come with a price tag.” This marketing, though unbelievable to some, was truly effective for some time. Since opening its doors in 2017, the company had amassed over $ 25 billion in cryptocurrencies over five years until things came to a standstill on June 12, 2022, when the company suspended user audits.

However, signs of Celsius mismanagement with funds were visible for this case. In December 2020, during the $ 120 million BadgerDAO hack, Celsius reportedly lost over $ 50 million in cryptocurrencies, making him the largest single victim. To compensate victims for their losses, BadgerDAO implemented a reimbursement plan by creating the remBADGER symbol.

Token holders were guaranteed a payout in remBADGER over the next two years, which would cover the remainder of the loss. This warranty came with only one requirement: remBADGER must be in the Badger dome. If the symbol were revoked, all future refunds would be canceled. However, on March 18, 2022, Celsius withdrew all of RemBADGER’s allotments, valued at approximately $ 2.1 million at the time of the transaction.

When Celsius Network realized its mistake, it tried to persuade the Badger team to allow it to re-submit in violation of the rules set forth in the BIP-80 resolution. Unfortunately, for Celsius, BadgerDAO took the code seriously and the proposal was rejected.

Many users have also been concerned about the leadership of the company. Celsius CFO Yaron Shalem and Chief Tax Officer Roni Cohen-Pavon were both arrested for money laundering in November 2021

On May 11, 2022, as the Terra problem was just beginning to unfold, some began to look at Celsius. Cointelegraph then reported that Celsius Network had begun to deny rumors of significant losses for the company. Rod Bolger, CFO of Celsius, said: “Our teams in the office […] think and act as risk managers to ensure that we are not significantly affected by market fluctuations. “

Investors had accused the Celsius team of sitting on their hands while symbolic prices plummeted in the wake of the Terra Plain. On May 20, 2022, Celsius (CEL) had fallen from an all-time high of $ 8.05 to $ 0.82, a 90% decrease. Some Celsius users claimed that the platform had been liquidated when CEL collapsed. They indicated that trading was illiquid when prices fell, which exacerbated their losses. When the Cointelegraph contacted the CEO of Celsius, Mashinsky traced this to the “Wall Street shark”, where he said:

“They took down LUNA. They tried Tether, Maker and many other companies. It’s not just us. I think they do not have a particular hatred or focus on Celsius. They are all looking for some weakness to shorten and destroy. The thing is, the sharks on Wall Street are now swimming in cryptic water.

The problem with high-yield APY projects

Celsius was one of the fastest growing institutions in the cryptocurrency market. Until the collapse, 800 people worked for Celsius and the number of employees increased by over 200% last year. The problem is that there is encryption in the bear market right now and in order to continue to function normally, companies need to continue to have liquidity. Now that most retail investors and institutions are pulling out the cryptocurrency, their liquidity position becomes a major concern.

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One of the biggest reasons for Terra’s collapse was also illiquid assets. However, when asked about how their individual projects are, most projects say they are on a different business model than the project that is having problems in that case. Cointelegraph had approached Synthetix to explain why their lucrative business model of high annual return (APY) was better justified than those that fell like Terra and Celsius. Their representative replied:

“Several stories have tried to draw parallels between Synthetix and LUNA. And while it may be similar on the surface, Synthetix’s symbol and insurance systems are far more powerful and battle-tested than LUNA’s. Furthermore, although the top line APY seems high, this number is derived from two separate sources.

“SUSD transaction fees, which are income from transactions generated by ecosystem partners such as Kwenta, Lyra, 1Inch, Popcorn Finance and others, are shares and, depending on the volume of the previous week, have contributed between 5% –25% of the weekly mortgage. award. Inflation supply, is another source of weekly APY, and proposes the remaining APY amount, and is now approximately 50% annual growth. This inflation amount is typed weekly and is currently distributed between parties on ETH mainnet and Optimism, “they added.

Liquidity crisis in cryptocurrencies traditional markets

What we are seeing now in the cryptocurrency ecosystem is all the lessons that have been learned over the last 100 years in the traditional financial system to play. As the ecosystem develops, cryptocurrencies will inevitably become volatile, just like traditional markets. To withstand the downturn, tasks must learn from the past. This does not mean that cryptocurrencies lose their advantage, just that there are smart principles of sustainability that apply to any emerging market. Loren Mahler, CEO of Jupiter Exchange, emphasized that most financial markets are fundamentally similar and likely to become illiquid in the inevitable bear race. She told the Cointelegraph:

“One of the most important things is liquidity. Focusing on the rapid growth of users at all costs is not a sustainable ideology. Offering outrageous rewards for the most mundane of things will naturally make a dent in the system, whether it’s in cryptocurrency or traditional banking. The projects that take advantage of this traditional financial education in an innovative way will be best placed to capture new growth opportunities when the cycle returns. “

Giant projects like Terra and Celsius that go under tend to have a concrete impact on the broader market, which is evident from the falling prices of most cryptocurrencies. Attitudes of retail and institutional investors must be overwhelmingly negative. Although Lilly Zhang, CFO of Huobi Global, saw a way out of the domino effect of bankruptcy. She told the Cointelegraph:

“The market could see further declines as more bankruptcies take place and players are forced to sell and companies and investors who have made poor decisions will be hit. Celsius’ troubles, on the other hand, also caused traders concern about Staked Ether. Fortunately, as sales pressure on stETH continues to increase, more demand will seep into the used market and create cheaper stETH prices that could be attractive to new investors, which in turn will increase demand and drive prices back to normal. ”

Not your keys, not your coins

“Not your keys, not your coins” is a popular saying in the world of cryptocurrencies that refers to having to own the private keys related to your finances. The person who owns the private keys is the one who decides how the related cryptocurrency assets are protected. Failure to do so means that we entrust a third party to keep our coins safe for us. Stories like the one on Celsius are a scary reminder that these third parties often do not respond to the self-interest of their customers.

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Although the most popular thing in this story has been that people should keep the keys to their cryptography, there have been people like Sung Hun Kim, CEO of Metaverse World, who pointed out that the problem lies in centralized projects like Celsius. In an interview with the Cointelegraph, Sung said:

“When it comes to security, it’s less about how and more about why. Both centralized and decentralized structures are inseparable, although Celsius’ inherently closed cycle affects the client’s right to assess increasing risks. It’s not about who keeps the keys, but how transparent a project is ready to provide. “