As “the season of red” continues in the cryptocurrency world, Celsius, a do-it-all fintech app that gives users easy and trusted access to crypto services, as of June 14, appears to be insolvent. This state of insolvency can be attributed to two wrong moves made by the cryptocurrency platform. The first of the moves is when it uses on-chain leverage and the second is using stETH.
The stETH move is a problem that came up when the company used an ETH derivative called stETH to pump up its ETH yield and to attract more investors to participate in the project. The problem this caused was that although stETH can be traded for ETH on the open market, it cannot be redeemed for ETH. This means that Celsius purchased a considerable amount of the stETH token that cannot be redeemed into ETH until after the Merge has happened. Now that there are speculations that the Merge will no longer take place this year, the price of the coin went down.
The fact that stETH is no longer trading at 1:1 ETH is another bad news that has affected Celsius. The coin is now worth $0.96, meaning there is no liquidity anywhere in case Celsius wants to swap out their stETH for ETH. Celsius has around 445k worth of stETH, whereas there is just 143k worth of ETH liquidity in the Curve pool. In a bid to buy lots of stETH, Celsius took loans and user deposits and traded them for stETH. Now Celsius has no reserves to pay back the money they owe as they are now insolvent.
On Monday, Celsius announced that they would stop all withdrawals and transfers from the platform. This decision gives users two options: buy more on their collateral or get liquidated. With the continual drop in the price of BTC and ETH, it is looking as if there is no hope for Celsius, as it now has even less collateral.
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Ray Schuetz received a Masters Degree in computer science from The University of Texas (Austin). Ray has been working as a full-time blockchain consultant for the past 3 years. In his spare time, Ray enjoys writing for EthereumCryptocurrency.com and other crypto news publications.