Once hailed as a symbol of optimism for cryptocurrency investors, the Celsius Network (CEL) eventually descended into a significant financial catastrophe. Initially heralded as a trailblazer in the decentralized finance (DeFi) movement, the crypto lending platform suffered a collapse in June 2022, sparking doubts about the future of digital currency. One year later, we reflect upon the unfolding events and contemplate the path that lies ahead for the crypto market.
With aspirations to emulate traditional banking while incorporating a cryptocurrency twist, the Celsius Network experienced a fleeting moment of triumph before encountering insurmountable obstacles. During its prime, the company boasted a user base of 1.7 million, managed assets valued at $11.7 billion, and facilitated loans surpassing $8 billion.
However, the turning point arrived on June 13, 2022, when Celsius Network, citing “extreme market conditions,” opted to freeze all customer accounts. This unexpected decision sent the prices of bitcoin (BTC) and other cryptocurrencies spiraling downward, triggering a ripple effect throughout the market.
The financial state of Celsius appeared dire. Legal documents revealed that the company was burdened with a colossal debt of $1.2 billion, bearing liabilities amounting to $5.5 billion while possessing assets valued at a mere $4.3 billion.
Celsius Filings reveals:
Total Liabilities: $5.5 Billion
Total Assets: $4.3 Billion pic.twitter.com/Fpp7J4U6pp— Kryptopro (@thekryptopro) July 15, 2022
The majority of the liabilities, specifically $4.7 billion, constituted customer holdings, compounding the challenges faced by Celsius Network. To exacerbate the situation, the company possessed a meager $170 million in cash to sustain its operations throughout the restructuring phase.
Now, let’s delve into what transpired and explore the current status of Celsius Network.
What is Celsius Network?
Headquartered in Hoboken, New Jersey, with branches established in four countries, Celsius Network LLC emerged as a prominent global cryptocurrency lending company.
With aspirations to transform the financial industry, Celsius Network positioned itself as a key player in the realm of digital finance. The company sought to revolutionize the sector by advocating for decentralization and providing cryptocurrency holders with lucrative opportunities for high-yield investments.
Central to its operations was the Celsius wallet, which allowed users to deposit various cryptocurrencies such as BTC and ETH. Through this innovative platform, individuals could earn a percentage yield on their digital assets, capitalizing on the growth and potential of the cryptocurrency market.
Additionally, Celsius Network introduced a distinctive service wherein customers could secure loans by utilizing their cryptocurrencies as collateral. This approach enabled users to borrow funds while offering their digital assets as a form of security. As a result, a crypto-backed lending system was established, gaining popularity among investors in the dynamic and volatile crypto market.
Prime Trust and re-hypothecation in Celsius’s downfall
In March 2020, Celsius entered into a partnership with Prime Trust, a crypto custodian, to safeguard a portion of its clients’ assets.
Regrettably, this collaboration came to an end in June 2021 when Prime Trust’s risk team expressed apprehensions regarding Celsius’s re-hypothecation strategy, leading to the termination of their association.
2/7 Filed in federal bankruptcy court, the 54-page suit stems from a dispute over assets tied to Celsius’ yield product customers in Washington and New York.
— ALLINCRYPTO (@RealAllinCrypto) August 24, 2022
The said approach entailed lending the same assets repeatedly to enhance yields, a business model that Prime Trust’s founder, Scott Purcell, considered highly susceptible to abrupt market fluctuations and potentially devastating for the company.
By August 2022, Celsius initiated legal action against Prime Trust, alleging that the custodian had withheld assets valued at $17 million subsequent to the termination of their partnership.
Denying the crisis and public perception
During the second quarter of 2022, Celsius emerged as a prominent player in the crypto lending industry, boasting an impressive $12 billion in assets under management and a substantial client base of 1.7 million.
However, speculations began to circulate regarding potential mismanagement of investments and an impending liquidity crisis, allegations that the company vehemently refuted as false information.
In an effort to allay these rumors, CEO Alex Mashinsky took to his weekly YouTube sessions, publicly reassuring customers about the accessibility and safety of their funds.
The domino effect: market impact and internal changes
In an effort to stabilize operations, on June 13, 2022, Celsius took a drastic measure by freezing all customer withdrawals, citing “extreme market conditions” as the reason behind this decision.
The announcement had a significant impact, causing a substantial decline in the prices of bitcoin, ethereum, and Celsius’s own CEL token, which experienced a depreciation of one-third of its value.
This incident marked a significant event as it was the first time since January 2021 that the overall value of the cryptocurrency market fell below $1 trillion.
Moreover, the crisis prompted notable internal changes within Celsius. The Chief Financial Officer (CFO), Rod Bolger, resigned from his position and was succeeded by Chris Ferraro. Additionally, the company implemented workforce reductions, leading to a 25% staff layoff shortly thereafter.
The bankruptcy filing and CEO resignation
One month after implementing the freeze on customer withdrawals, Celsius proceeded to file for Chapter 11 bankruptcy on July 13, disclosing a $1.2 billion deficit on its balance sheet.
Subsequently, on September 27, 2022, CEO Mashinsky made the decision to step down, acknowledging the company’s inadequate asset deployment choices. Chris Ferraro, who had assumed the role of CFO, was appointed as the interim CEO in response.
[DB] Celsius Network CEO Alex Mashinsky has submitted his letter of resignation, effective immediately
— db (@tier10k) September 27, 2022
The confluence of factors behind Celsius Network’s collapse
The downfall of Celsius Network can be attributed to a series of detrimental decisions and unfavorable market conditions. It all commenced with the collapse of LUNA, which was succeeded by an issue of excessive leveraging. Ultimately, the situation culminated in inadequately executed WBTC and ETH/stETH positions, resulting in a complete lockdown of their platform.
Legal tussle with crypto blogger Tiffany Fong
During its tumultuous period, Celsius found itself entangled in a legal dispute involving crypto blogger Tiffany Fong. Fong, who happened to be a creditor of Celsius, faced accusations of publicly disclosing confidential company information on her social media platforms.
Celsius is Preparing to Sue Tiffany Fong for Exposing Internal Information#celsius #cel #litigation #tiffanyfong #defihttps://t.co/X6OHMKLog4 pic.twitter.com/CiXIeWj8xR
— BitFinsider (@BitFinsider) April 16, 2023
Celsius Network’s legal team has invested substantial time and resources into investigating the reported information leak brought forth by Fong, while also preparing for potential legal proceedings.
While no formal legal action has been initiated as of now, Fong’s revelations have raised considerable concerns due to the disclosure of sensitive information. This includes details about corporate bids for Celsius assets, confidential internal discussions, and executives’ transactional activities.
In a tweet posted on June 12, Fong sarcastically taunted Celsius Network, offering a faux-apology for the leaks and expressing gratitude to the company for “utilizing my funds to attempt to sue me.”
i am soo sorry @celsiusnetwork for leaking your internal all hands meetings, your plans to reopen as “kelvin,” the c-suite’s transaction histories n wallet addresses & the bids on our assets!! ty for using my $ to try to sue me. happy 1 year babe 💖🦋✨🌈 pic.twitter.com/re10gRlB3w
— Tiffany Fong (@TiffanyFong_) June 12, 2023
Fahrenheit acquires Celsius Network
According to recent court filings, Celsius Network was acquired by the cryptocurrency consortium Fahrenheit on May 26.
Fahrenheit has emerged as the winning bidder in the acquisition of the insolvent lender celsius network, court filings published thursday revealed.
— William Rodriguez (@William55088005) May 25, 2023
After an extensive auction process, a consortium comprising entities like venture capital firm Arrington Capital and miner US Bitcoin Corp emerged as the winning bidder. The Blockchain Recovery Investment Consortium was also present as a backup during the proceedings.
The acquisition terms grant Fahrenheit ownership of several Celsius assets, including the institutional loan portfolio, staked cryptocurrencies, mining unit, and additional alternative investments. To finalize the deal, the group is required to deposit $10 million within three days.
Although the bid has been accepted by both Celsius and its creditors’ committee, regulatory approval is still necessary to complete the acquisition.
Furthermore, the agreement includes plans for US Bitcoin Corp to construct various crypto mining facilities, including a new 100-megawatt plant. As part of the transaction, Fahrenheit is expected to receive approximately $450 to $500 million in liquid cryptocurrency.
As Celsius embarks on a new chapter with Fahrenheit, the success of both entities and the broader crypto industry becomes crucial, especially for those navigating similar challenges.
The road ahead
The trajectory of Celsius Network, from its ascent to its decline, serves as a cautionary tale, illustrating the rapid shifts in fortunes within the unpredictable realm of cryptocurrencies. Now, with Fahrenheit’s acquisition, there is a glimmer of hope for the beleaguered company, offering a potential path forward.
Nevertheless, only time will reveal whether the new entity can learn from the mistakes of its predecessor and genuinely fulfill the potential of decentralized finance (DeFi).
