Celsius: The story and fall of a DeFI giant

In the wake of the collapse of Terra and its stablecoin UST, many crypto-currency companies linked to its ecosystem did not survive the $40 billion hole caused by Luna’s bankruptcy.

Celsius as well as Three Arrows Capital, another major bankruptcy following the collapse, according to early estimates, had significant exposure to Terra and its stablecoin and, like its rival Voyager Digital, had to endure the insolvency of some of the companies to which it had loaned funds.

Celsius: The Beginning

Founded in 2017 by Alex Mashinsky and Daniel Leon, Celsius bills itself as a financial revolution in the crypto-currency finance landscape, aiming to engage traditional finance in the crypto-currency world.

After successfully raising $50 million in its ICO in March 2018 and after a year of building and developing its product, the team launched the Celsius wallet in early 2019. By October 2021, CEO Alex Mashinsky had said the crypto-currency lender had $25 billion in assets under management.

Celsius: The Growth

Even in May, despite the fact that the bearish phase of the crypto-currency market had begun, Celsius managed about $11.8 billion in assets. Since its inception, the platform, which offered a digital currency lending service, has seen staggering growth rates: the number of active users increased by about 800 percent in its first year. By February 2021 Celsius had acquired more than 400,000 users and held a growing market share in the industry from $9 billion in community deposits to more than 25 by the end of the year.

Celsius Network quickly became an intermediary for large funds and institutional financial institutions, not to mention the retail sector, to which it offered high-interest deposit accounts, lines of credit that made it in January 2022 as the largest crypto-currency deposit account in the world.

Celsius: The Fall

All of this evaporated in a matter of weeks, during which the market collapse was also followed by some poor management choices and mismanagement by its CEO, Alex Mashinsky, who allegedly made business decisions on his own that resulted in hundreds of millions of dollars in losses.

All of this resulted in a hole in the company’s books of more than $1.2 billion, which caused it to file for bankruptcy.

Some have compared the failure of Celsius to that of Lehman Brothers in 2008 for traditional finance, which marked the beginning of the great financial crisis of those years, which spread from the United States to Europe and Asia.

In part because Celsius, like Lehman, which a few days before the bankruptcy was rated triple A by the rating agencies, was considered one of the strongest companies in the crypto landscape. However, the fact that in May, when the crypto-currency market was experiencing one of the worst declines in its history, the company was still offering double-digit returns on its site, perhaps should have raised alarm bells.

The hole was also huge because these borderline-legal promotional campaigns were attracting many new users, knowing that even in June, a few weeks before the bankruptcy, there were still about 1.7 million users to its credit.

Celsius’ bankruptcy was followed a few days later by that of its competitor Voyager Digital, which filed for bankruptcy after Three Arrows Capital failed to repay the interest on a $670 million loan taken out in late 2021.