On Sunday, the crypto lending platform in the decentralized finance (DeFi) space, Celsius took the market by surprise when it announced that it would pause its transfers, withdrawals, and swaps between accounts due to the ‘extreme market conditions. The announcement was made in a blog post in which the company said that this action would allow it to honor its withdrawal obligations over time. According to the lending platform, the decision was made for stabilizing its operations as well as improving liquidity.
Wallets that are linked to Celsius showed that the company has been removing assets worth millions of dollars from Aave Markets and has transferred them to the FTX exchange. This includes tens of thousands of Bitcoin and Ethereum alike.
The company’s business model involves rehypothecating the funds deposited by its clients. If the liquid reserves are not enough to meet the withdrawal demands, such as in the case of a market downturn, the company has no other option than to unwind its positions.
Typically, Celsius takes about three days for processing a customer’s withdrawal request, and hitting pause on withdrawals is definitely a cause for concern. The company said in its blog post that they are considering different options, but the process will take time so delays should be expected.
Crypto Prices Fall
The announcement from Celsius created a disturbance in an already volatile market and crypto prices reported a drop over the weekend. There were social media claims that the company was having liquidity problems. It is yet to be seen if similar problems will be experienced by other lending platforms in the DeFi space.
Rival lending and borrowing platform of Celsius called Nexohad also offered to help the company by taking some of its assets off its hands. The company posted on Twitter that Celsius was facing insolvency issues due to which they had extended their help. Nexo also boasted that its prudent risk management and solid fundamentals had helped it sustain the business for more than 4 years.
But, it should be noted that there is the announcement from Celsius about insolvency and it is possible that Nexo made the post to reassure its own clients. There is an outstanding DAI loan worth $278 million of an address linked to Celsius. There is a risk if liquidation if Bitcoin’s price goes below $18,400. On Monday morning, more than 4,000 bitcoins were added to the vault in order to bring down the liquidation threshold.
The value of Celsius’ native token named CEL has also plummeted over fears of the company’s insolvency.