What Is Celsius Crypto and How Does It Work

Rancakmedia.com – Below is the information we will discuss what is celcius crypto Complete with an explanation of how it works, please read this article until the end.

Celsius Network has been on the tip of everyone's tongue for the past week, and not without reason. The platform has been at the forefront of the current cryptocurrency storm and market downturn since its inception in 2014.

A few days ago, the company did what many feared – Celsius Network froze all withdrawals, exchanges, and transfers between accounts.

Because the company claims that “acting in the interests of our community is our top priority,” users cannot access their money.

“Celsius discovered results and before that no one paid for results. I'm talking about a year and a half before DeFi. With Celsius, the initial words were, “Make bitcoins from bitcoins, or these are tokens – you can earn with tokens.” in an exclusive chat with CEO Alex Mashinsky, we learned back in April.

Mashinsky certainly didn't anticipate the major disruption his organization would face just two months later. It is worth noting that Celsius Network is a major participant in the bitcoin lending market.

At the time of writing, it is also in real dire straits a position which, if aggravated further, may have disastrous consequences for the entire business.

What is Celsius Crypto and How It Works

ETH, BTC, and many other stablecoins can all be invested in one place via the Celsius Network, a centralized platform. Despite the fact that it looks like a bank, it seems to function more like a hedge fund.

Several different business models have been implemented. First, there is a section where users can develop interest in their coins.

The process is easy: you deposit your cryptocurrency into Celsius and are guaranteed an annual return of up to 17% APY, a figure that may fluctuate.

“Celsius gets all its money in the form of loans, therefore everything else we provide is (free),” Mahinsky told us.

“We make all our money from revenue, revenue from our institutions providing all the services to our consumers for free: on-ramps, swaps, loans – everything is pretty much free. That's why no one can beat Celsius.”

Second, users can borrow money and place their cryptocurrency as security. For example, if you are in a scenario where you need USDT or USDC, but you don't want to sell your BTC, you can use it as collateral and get a loan from Celsius at a certain interest rate, of course.

Celsius is not the only company that provides this service. The term “CeFi” is used to describe the alternative finance decentralized (also known as DeFi) where users continuously engage with a central intermediary.

What is pertinent to the current market position and why Celsius is in obvious trouble is the part where they offer certain rates for consumers to deposit their money on the site.

In exchange for various stablecoins, Celsius promises returns similar to these. Yes, it's getting a lot of attention, and the company has been performing well recently.

In fact, in November 2021, the company increased its latest investment round to $750 million, valuing the company at more than $3.25 billion dollars.

One of Celsius' many strengths is their ability to routinely earn greater profits than they pass on to their customers.

For example, if they guarantee up to 7 percent on USDC, this indicates that they will use the USDC they invested to earn greater rates.

The only problem? Well, in ordinary times, there should be no difficulties. Problems develop when markets crash and, yes, they do.

In recent days, ETH has fallen by more than 50%, while BTC has fallen by more than 30%. When this came to light, it revealed some problems with Celsius' management style.

What's Wrong With Celsius Crypto

A major red indicator that something was really wrong with Celsius came when they stopped withdrawals and transfers, leaving all of their clients to lose their money. However, the potential of blockchain-based technology is largely disguised as it is completely visible.

The group tries hard to find out where Celsius could be hiding, but the situation doesn't look good.

For example, we can monitor a company's position in large DAI loans using Oasis (a protocol that allows users to borrow DAI against any type of collateral backed by Maker).

To summarize, Celsius has borrowed DAI at a collateral ratio of 195.93 percent and secured the loan with almost $545 million in WBTC.

At 26% below the current price of BTC, they have set a liquidation price at which their entire stake worth over $500 million will be liquidated on-chain if they do not provide further collateral.

The most worrying aspect of this situation was that Celsius had not only failed to repay the loan but had also added more collateral several times in the previous few days.

Their holdings were as low as 5% from liquidation at any one time. Keep in mind – they may be money that Celsius users are pinning their hopes on getting back, and they are only 5 percent of the entire loss not to mention the effect if more than $500 million worth of BTC hits the market during a predicament like today.

Individual traders with a high risk tolerance may be OK with this, but billion-dollar companies that manage ordinary people's money should think twice.

The above is just one illustration of why the situation looks grim. The other is that the company transferred approximately $320 million to FTX without disclosing it to the community before they stopped withdrawals.

For many customers, the company's complete silence over the past 24 hours has been the most worrying sign that they will never again have access to their money.

Huge Risks for the Crypto Industry

Even as the problems with Celsius are still developing, they pose short-term and long-term concerns to the broader cryptocurrency market as a whole.

In the near future, Celsius has huge numbers crypto. Despite the current volatility, their website still claims to have 151,534 BTC in assets at the time of writing this sentence.

Despite its size, Celsius is one of the major lenders in the sector and would no doubt cause a stir in the market if they started liquidating assets. Some claim that the current decline is partly related to the company's sales.

This also brings us to a long-term concern for the entire bitcoin community: strict and illegitimate rules. We have seen what happens when the Terra ecosystem sinks as authorities from around the world begin to issue warnings and develop strict regulations in an effort to protect investors from such a disaster in the future.

Assume a “crypto-native” company with billions of dollars in assets goes bankrupt due to poor money management in part due to unclear or non-existent regulations.

It won't be pretty and it won't help. Regulators will jump at every opportunity to learn more about this business, and they have good reason to keep their distance to protect small investors.

The Impact of the Celsius Crypto Collapse

Celsius is one of the regulated lending platforms that allows customers to earn interest on crypto deposits or even make collateralized crypto loans.

Because the LTV (Loan-to-Value) of loans offered by Celsius Network is more than 50%, borrowers are required to provide more money than they need as collateral.

User collateral is automatically added to the same pool every time they make a deposit with Celsius. This collateral is then lent to financial institutions and in return, earns interest from them. A portion of the interest collected from these institutions is then given to individuals who have placed crypto on Celsius.

This is like a bank where the money a customer deposits as FD or RD is then used to provide loans to other customers.

Depositors earn interest from their banks, which allows them to reward their customers for their loyalty.

Celsius Network Digital Asset Holdings

The official website of Celsius Network promotes 7 percent return offers for Stablecoins such as USD Coin(USDC) & Tether (USDT), 7.25 percent for Polygon, and 6 percent for Ethereum and 6.25 percent for Bitcoin. The protocol then lends assets from a specific pool at a higher rate to borrowers.

In May, Celsius claimed to have 1.7 million customers and nearly $ 11.7 billion in assets under management (AUM). For cryptocurrency deposits, it provides an annual percentage yield (APY) of up to 18% and claims to have provided loans totaling more than $8 billion.

According to certain sources, Core DeFi wallets, now the Celsius wallet on Aave has 409K stETH, 4.49K wBTC, 9.5K weTH in collateral and $206 million, $99.4 million DAI & $932K USDT in debt.

On Compound, Celsius has 14,436 WBTC, 87,604 ETH collateral and $141.6 million DAI and $82.9 USDC in debt. Celsius Vault Maker, on the other hand, owes $ 279 million in DAI and is owed 21,961 WBTC and 6.7 million LINK.

Where the Problem Appears and How

It all started when stETH or 1:1 pegged ETH, which was staked against Ethereum, collapsed. stETH, a product of Lido Finance, represents ETH locked in the ETH 2.0 Beacon Chain and can be used as collateral to borrow additional ETH on DeFi platforms.

Therefore, when stETH loses its stake of ETH, positions that have borrowed ETH through stETH will be liquidated. This caused panic selling, especially of Ethereum in the crypto market.

When the stETH token loses its stake, it results in a flood of redemptions that causes liquidity bottlenecks on popular DeFi platforms. As a result, Lido considers Celsius a significant stakeholder in their stablecoin. Since stETH ranks less than ETH, a dilemma arises here!

Celsius Crypto Liquidity Crisis

It is a known truth that Celsius has lost some LUNA & UST during the crash, but at the same time, the protocol also lost a large amount of Ethereum. Yes! The network has lost nearly 35,000 ETH in a Stakehound key loss incident in May 2021 despite holding over 42,000 ETH in confirmed wallets. The BadgerDAO hack, on the other hand, cost the platform $50 million.

The LUNA-UST disaster is believed to have been caused directly by Celsius's Anchor platform, which held $500 million in customer deposits. A total of $120 million users' money was lost in this incident. In addition to large losses, a liquidity crisis arises when there is a mismatch between liquid liabilities and illiquid assets.

The protocol has approximately 73 percent of its ETH locked in stETH or staked in ETH 2.0 which makes it difficult to withdraw until it merges. Due to this, Celsius only had 27% of open ETH holdings, thus putting them out of business.

Additionally, market conditions led to large ETH withdrawals that went up to 50,000 ETH each week. This may lead to bankruptcy as early as the next five weeks. Due to unstable markets, Celsius Network has stopped all cryptocurrency transfers and withdrawals.

Impact On Crypto Markets

Due to the sharp decline in the value of ETH in recent weeks, this statement sent the entire cryptocurrency market plummeting. Bitcoin price held above an important support zone above $28,700, dropping to test the 18-month low of $20,500.

Although the crypto market seems to have recovered a bit, it still appears to be little more than a 'dead cat bounce,' keeping bulls at slightly higher levels.

At the moment, Ethereum price holding firm above $1200 after essentially rising from the $1075 barrier. However, looking at technicals and chart patterns, bleaker days are still ahead.

The company has been performing well recently. Celsius has borrowed DAI at a collateral ratio of 195.93 percent and secured the loan with nearly $545 million in WBTC. At 26% below the current price of BTC, they have set a liquidation price at which their entire stake worth over $500 million will be liquidated on-chain.

Conclusion

So what exactly is centigrade crypto, which is a major participant in the bitcoin lending market. The platform has been at the forefront of the current cryptocurrency storm since its inception in 2014. Users can develop interest in their coins and use them as collateral to get loans from Celsius at certain interest rates.

Celsius is an alternative to decentralized finance where users engage with a central intermediary. In November 2021, the company raised its latest investment round to $750 million, valuing the company at more than $3.25 billion dollars.