Celsius Network appears to be on the brink of insolvency, and bankruptcy may be the only option for one of the largest centralized crypto lending platforms. Celsius is currently exploring every option to prevent insolvency, including hiring restructuring lawyers for its financial problems, appointing Citigroup to advise on potential financial options, and freezing withdrawals and transfers on the platform.
However, crypto research firms and many crypto experts believe poor risk management, bearish market conditions, and stETH depeg will likely put Celsius in a more difficult situation. In fact, the use of its significant stETH holdings as collateral to generate liquidity seems to be the only option.
Celsius Network Faces Insolvency and Bankruptcy Risks
Celsius Network is under pressure because of financial constraints in these extreme market conditions. Moreover, the firm is running out of options to prevent insolvency, reports Bloomberg on June 16.
According to crypto research firm Kaiko, Lido’s stETH depeg from ETH, possible exposure to Terra, and poor market conditions caused problems for Celsius. The crypto lender Celsius is one of the largest stETH holders on Lido. The crypto lending firm manages customers’ funds by staking them into stETH. As per Dune Analytics, Celsius holds around $500 million of stETH. Selling large amounts in the open market to pay off redemptions would be impossible.
Celsius and Three Arrows Capital are facing liquidation risks as they offload stETH in smaller amounts to manage liquidity and loans. The only possible option is to use stETH or other reserves as collateral or payment for an over-the-counter agreement with a crypto exchange or a market maker.
Class-Action Lawsuit Against Celsius
A class-action lawsuit is in development against Celsius by Ben Armstrong, founder of BitBoyCrypto.com. He says restructuring lawyers hired by Celsius mostly prepare companies for bankruptcy. Most attorneys he has spoken to believe the possibility of maintaining solvency is quite low. Thus, the only option for Celsius is bankruptcy which would stop any class action against the platform immediately.
“As of now we are going through all the disclosures, documents, loan details, etc. and connecting with A+ class action attorneys to find best path forward.”
He says several people have messaged him to add them as plaintiffs, but at this time it would not be possible. Also, he has urged small investors having under $10,000-$25,000 in Celsius to file cases under small claims court immediately before the bankruptcy.
