As the Celsius issue continues, crypto research firm Kaiko gives tips on how the lending platform can remain solvent.
With Celsius Network finding itself in troubled waters, cryptocurrency research company Kaiko said the popular digital currency lending platform is now facing limited options in its quest to remain solvent.
Conor Ryder of Kaiko noted that the only way he thinks Celsius can remedy the situation it has found itself in is to deploy its excess Ethereum derivative dubbed stETH as collateral in an over-the-counter (OTC) agreement in order to generate liquidity.
Ryder noted that even though Celsius is able to pull itself away from troubled waters, it will be very difficult for the lending platform to regain the trust its users bestowed on it.
“Even if they do survive this onslaught, I don’t see how anyone can trust the likes of Celsius to keep their assets safe going forward. Perhaps in a few years’ time we will look back on this as a watershed moment for decentralized finance adoption, but that’s probably just the optimist in me,” Ryder said.
Describing what led to Celsius’ troubles, Ryder attributed the lending platform’s issues to a combination of poor management, its Ethereum derivatives, and bearish market conditions.
Celsius Network Fall from Glory
Celsius was initially considered a safe haven for investors seeking to enjoy the mouthwatering returns that were previously reserved for hedge fund managers and institutional investors.
Launched in 2018, Celsius Network allows its users to earn annualized returns of over 18% for lending their tokens, with their rewards paid out on a weekly basis.
Aside from the lucrative ROI, the company’s 1.7 million users can also benefit from the Refer-a-Friend promotion.
In a bid to meet its obligations to users, Celsius Network embarked on risky initiatives, including investing in TerraForm Labs and BadgerDAO, which resulted in the company losing a significant amount of funds.
stETH May Have Caused Celsius’ Issues
While the actual cause of Celsius’ problems is not known at the time of writing, it is believed that the company’s Ethereum derivative – stETH – could be linked to the issue the lending platform is currently facing.
“It may have about $500 million trapped in stETH, and selling large amounts in the open market to pay off redemptions would be impossible without nuking the price,” Bloomberg noted in a report.
News of Celsius’ issues was first reported over the weekend, which prompted a massive cryptocurrency sell-off thus plunging the value of the cryptocurrency market below $1 trillion.
Celsius paused withdrawals and swap activities on the platform and failed to provide further information to notify of the recent happenings.
.@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2
— Celsius (@CelsiusNetwork) June 13, 2022
The company later assured its clients that it is working to resolve all issues.
@CelsiusNetwork team is working non-stop. We’re focused on your concerns and thankful to have heard from so many. To see you come together is a clear sign our community is the strongest in the world. This is a difficult moment; your patience and support mean the world to us.
— Alex Mashinsky (@Mashinsky) June 15, 2022