Celsius Crypto Lending Network Files For Bankruptcy

Although temperatures are rising outside, the cryptoverse is becoming colder. The term "crypto winter" is being bandied about in the industry, with cryptocurrencies losing 2 Trillion dollars in market value since the peak of a massive rally in 2021. Celsius Network, one of the world's largest crypto lenders, filed for Chapter 11 bankruptcy in New York late Wednesday, listing between 1 Billion and 10 Billion dollars in assets and over 100,000 creditors.

Background: Almost a month ago, Celsius froze all of its customer assets by halting network withdrawals as well as swaps and transfers on the platform. Its DeFi business model enticed depositors with high interest rates and access to loans rarely offered by traditional banks, claiming small risks and promising outsized returns.

That is, until a sharp selloff hammered the volatile cryptocurrency market, which Celsius dubbed "extreme market conditions" just hours after lashing out at investors who raised withdrawal concerns.

It's a symptom of what's going on in the industry, or, more accurately, what has gone on. The crypto market has been flooded with debt as a result of decentralized lending schemes, with the leverage exacerbated by yield-seeking investors (compared to previous cycles that were largely based on crypto derivatives). Unsecured or undercollateralized lending was also fatal for Three Arrows Capital and Voyager Digital, and the inability to meet margin calls exacerbated the problem.

What's the next domino to fall? "Given that it is such a crowded market, and that exchanges rely to some extent on economies of scale," said James Butterfill, head of research at CoinShares, "the current environment is likely to highlight further casualties."

"We've seen instances of potential stress where miners allegedly failed to pay their electricity bills, possibly implying cash flow issues. This is most likely why some miners are selling their holdings.”

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