The History and Fall of a DeFI Giant

The History and Fall of a DeFI Giant

In the wake of the collapse of Terra and its stablecoin UST, many cryptocurrency companies tied to its ecosystem couldn’t weather the $40 billion hole caused by Luna’s bankruptcy.

Celsius as well as Three Arrows Capital, another major bankruptcy following this collapse, according to early estimates, was heavily exposed to Terra and its stablecoin and had to suffer, like its rival Voyager Digital, the insolvency of some companies to which it had lent funds.

Celsius: The Beginning

Founded in 2017 by Alex Mashinsky and Daniel Leon, Celsius bills itself as a financial revolution in the cryptocurrency finance landscape, aiming to engage traditional finance in the cryptocurrency world.

After successfully raising $50 million in their ICO in March 2018 and after a year of building and developing their product, the team launched the Celsius wallet in early 2019. In October 2021, Alex Mashinsky, CEO said that the cryptocurrency lender had $25 billion in assets under management.

Celsius: Growth

Even in May, despite the fact that the bearish phase of the cryptocurrency market had begun, Celsius was managing around $11.8 billion in assets. Since its inception, the platform, which offered a digital currency lending service, has experienced staggering growth rates: the number of active users increased by around 800% in the first year. By February 2021 Celsius had acquired more than 400,000 users and held growing industry market shares from $9 billion in community filings to more than 25 by the end of the year.

Celsius Network quickly became an intermediary for large funds and institutional financial institutions, not to mention the retail sector, to which it offered high-interest deposit accounts, lines of credit which returned it in January 2022 as the largest cryptocurrency deposit account in the world.

Celsius: The Fall

All of that evaporated in a matter of weeks, during which the crashing markets were also followed by some poor management choices and mismanagement by its CEO, Alex Mashinsky, who allegedly took business decisions that resulted in losses of hundreds of millions of dollars.

All of this culminated in a hole in the company’s accounts of more than $1.2 billion, prompting a bankruptcy filing.

Some have compared Celsius’s failure to that of Lehman Brothers in 2008 for traditional finance, which marked the beginning of the great financial crisis of those years, which spread from the United States to Europe and to Asia.

Partly because Celsius, like Lehman which days before bankruptcy was rated triple A by rating agencies, was considered one of the strongest companies in the crypto landscape. However, the fact that in May, when the cryptocurrency market was experiencing one of the worst declines in its history, the company was still offering double-digit returns on its site, perhaps should have raised the bell. ‘alarm.

The hole was also huge because these borderline promotional campaigns attracted many new users, knowing that even in June, a few weeks before the bankruptcy, there were still around 1.7 million users under its belt.

Celsius’ bankruptcy was followed a few days later by that of its competitor Voyager Digital, which filed for bankruptcy after Three Arrows Capital failed to repay interest on a $670 million loan taken out at the end of 2021.

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