One week ago, a crippling liquidity issue caused Celsius to halt withdrawals from its platform. The crypto lending network has now stated that additional time is needed for it to regain its financial situation.
The ailing lender stated in a blog on Monday 20th June that,
“We want our community to know that maintaining the stability of our operations and liquidity is our goal. This process might take some time.”
Regarding its move to suspend withdrawals, swaps, and transfers between user accounts, The crypto lender said it is keeping channels of communication open with authorities.
For the halt, the Corporation cited “severe market trends.” Additionally, In order to concentrate on other pressing issues, it also suspended Twitter Spaces and Ask Me Anything sessions. The Corporation also added that acting in the best interests of its community is still its first concern, and the Corporation will keep working around the clock.
Celsius liquidity and operations
By rehypothecating customer deposits, Celsius makes money and, consequently, yields for its users. However, when withdrawal requests exceed its liquid reserves, centralized lenders like Celsius may be required to liquidate their multiple assets.
When the assets produced by such exits ultimately are unable to satisfy withdrawal demand, a liquidity crisis results. As the site attempts to avoid its own insolvency, several Celsius users are concerned that their deposits could be lost along with Celsius’ cash.
According to Fernando Martinez, head of Americas at digital asset platform OSL, Liquidation has been a problem throughout markets, including crypto. Last week, it was announced that Celsius hired the Akin Gump Strauss Hauer & Feld law firm and the banking behemoth Citigroup to assist in researching its financing alternatives.
Players in the sector experiencing these kinds of financial troubles have worsened the recent volatility in the bitcoin markets. On June 12, the Corporation halted transfers and withdrawals. Cryptopolitan recently covered Three Arrows Capital potentially going bankrupt, which increased investor anxiety.
Withdrawals were stopped by Babel Finance on Friday due to exceptional liquidity challenges, adding to the commotion.
Exposure to Lido-staked ether (stETH), a substitute for ether (ETH) trapped inside staking protocol Lido Finance, was a contributing factor in the problems at Celsius and Three Arrows Capital.
StETH was mostly regarded as a secure asset because it was practically tied 1:1 to ETH and was supported by ETH staked in the Beacon Chain of Ethereum. However, a surge in ETH withdrawals through the decentralized trading platform Curve has made it more challenging to swap stETH.
In what is seen as an effort to prevent future occurrences of this nature, at least five state regulatory agencies have initiated urgent investigations into Celsius’ operations.