Interest rates of more than 18% for savers, but 0.1% for borrowers, that was what Celsius Network offered before they had to suspend all withdrawals on June 12 due to lack of sufficient liquidity. Three weeks later, funds, which reached $ 11.8 billion in mid-May, are still blocked. “I think Celsius will go bankrupt,” predicts Omid Malekan, a professor at Columbia University. “The essence of trust [des clients] flew”.
The Celsius lending platform was founded in 2017 and wanted to act as a “bank” within the cryptocurrency ecosystem, but according to documents revealed by Wall Street Journal pr. As of June 30, Celsius has $ 19 billion in assets compared to $ 1 billion in stock. As a result, Celsius has an asset-to-equity ratio of 19 to 1. In comparison, the average asset-to-equity ratio of North American banks is 9 to 1. According to specialist media The Block, Celsius will try to resist the advice of his lawyers to use Chapter 11 of the Bankruptcy Act.
Other names have since joined Celsius, from CoinFlex to Babel Finance, which had also pushed in credit and had to freeze withdrawals, while Voyager Digital had to limit them. On these platforms, after depositing cryptocurrency, a user can either receive interest or borrow digital currencies where their deposits serve as collateral. “It’s a shame we’ve come to this,” laments a user contacted via Reddit, who claims to have left Celsius with more than $ 350,000.
The sequence started with the sharp drop in cryptocurrencies, and bitcoin cut half of its value in less than two months. This led to a chain reaction and forced borrowers to provide new financial guarantees or repay the borrowed money immediately. Some, such as the Singaporean investment company Three Arrows Capital, which is now in liquidation, were unable to cope, thus depriving the platforms of liquidity, forcing them to freeze funds.
“The majority of these companies provided loans without collateral or with insufficient collateral,” said Antoni Trenchev, co-founder of Nexo, another cryptocurrency platform, which he says got away with a stricter lending policy and “prudent risk management”. No fewer than five U.S. states have opened or expanded Celsius investigations. Some, including Alabama, had already ordered the platform to cease lending to customers domiciled in their state since last year.
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“A great need for regulation”
The fall of Celsius highlights the limits of an unsupervised universe. “There is a great need for regulation,” emphasizes Charles Jansen. “It’s a point that everyone in the sector agrees on.”
In the absence of an ad hoc regulatory framework, it has so far been the US market policeman, the SEC, who has taken control of the case, but from a substantially oppressive angle. Several dozen bills have been tabled in the U.S. Congress in recent months, but one in particular in particular has wind in its sails because it is supported by members of both parties. The text has been well received by the cryptocurrency community, especially because it proposes to treat cryptocurrencies as commodities and not financial securities as the SEC wants.
Conversely, some critics see it as a too conciliatory text. “He gives the crypto industry what it wants,” law professor Hilary Allen of American University wrote on Twitter. In particular, he proposes leaving the supervision to another regulator, the CFTC, “which has no mandate to protect investors and far fewer resources than the SEC,” the academic insisted.
The European Union took the lead on Thursday and reached an agreement on cryptocurrency regulation, which will in particular strengthen guarantees for investors and supervision. In recent events, the Standard & Poor’s agency sees a window to position itself as a benchmark, as in the traditional financial world. For Charles Jansen, “the general feeling is that if there had been a more reliable risk assessment, fewer people might have been affected.”
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