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Who risks facing problems after the largest lender in the field of digital currencies
Celsius Network, a major cryptocurrency lender, suspended all withdrawals, swaps and transfers between accounts on June 13. The reason for the termination of transactions, the company called “extreme market conditions.”
Celsius Network is a centralized platform that offers profitability on various cryptocurrencies, including ETH, BTC and many stablecoins. The company offers deposits with an income of up to 17% per annum and cryptocurrency loans at a rate of 0.1% per annum.
The suspension of transactions led to the blocking of all funds of the platform’s customers. According to The Block analyst Larry Cermak, there is about $ 1.5 billion on users’ wallets The Celsius team called its actions an attempt to take a more favorable position to fulfill their withdrawal obligations over time.
Celsius Network faced problems at a time when the market had not yet recovered from the collapse of the TerraForm Labs platform.
Experts of RBC-Crypto named the reasons for the difficulties in the industry and noted the crypto projects around which a tense situation is developing.
What’s the problem?
The main reason that became the trigger for the onset of problems is the high volatility of the market, and in particular the decoupling of the stETH price from ETH, said Nikita Zuborev, senior analyst at Bestchange.ru.
According to the expert, this is an absolutely typical situation when two related assets can be briefly untied in conditions of panic sales in the market – one of the assets is sold more strongly than the other, or the liquidity reserve in trading pairs is markedly different.
Zuborev noted that, as a rule, in conditions of a stable market and investor confidence, it is possible to normalize the binding with the help of arbitrage. In this case, one, more expensive asset, is sold for another, cheaper, in order to further sell the second after its rise in price and regain a larger number of original tokens.
But this is relevant in cases of full confidence of the binding – when investors have not only hope for the growth of a synthetic asset, but also confidence in the possibility of its direct conversion back into the first asset at a rate of 1: 1, the analyst said. In his opinion, in the case of stETH, this may not happen until Ethereum switches to the proof-of-stake model, which causes additional concerns for investors.
“What is happening with Celsius is quite a typical reaction of a young project with a small liquidity reserve to market turbulence. Yes, this is a very unpopular measure, but most likely it will allow investors to save their funds or at least most of them, “the expert admitted.
He confirmed that a temporary ban on withdrawal for the sake of preserving liquidity is a fairly common practice also among large projects, and is relevant even for the sphere of fiat currencies.
“There is no need to go far for an example – the Moscow Exchange went according to the same scenario in order to preserve liquidity and prevent a catastrophic collapse when the market was in horror and a high degree of uncertainty,” Zuborev said.
He believes that the very fact of such a ban is still more like an attempt to save the situation in the current extreme conditions for the project, rather than a planned fraud or unintentional bankruptcy.
Who’s next?
Crypto lenders
If the value of stETH continues to be untied from the ETH price, other platforms for investing in ETH staking with the possibility of early withdrawal of funds may also suffer, Zuborev believes.
“Especially if Celsius fails to cope with the current challenge and for the sake of increasing the stock of free funds begins to liquidate its assets in stETH, which will only exacerbate the decoupling from ETH,” the analyst suggested.
The general fall of the crypto market, caused by high inflation and the tightening of monetary policy of the US Federal Reserve, increases the risks of forced liquidation of cryptocurrency collateral (whose value has fallen sharply) in DeFi protocols, added Nikita Soshnikov, director of the Alfacash cryptocurrency exchange service. According to him, platforms such as Maker DAO may face cascading liquidation of collateral and a decrease in liquidity in pools.
Stablecoins
Now there is a tense situation around stablecoins, says Soshnikov. In his opinion, there are several reasons for this, it is not only celsius problems.
“The collapse of LUNA/UST in May increased investors’ fear of algorithmic stablecoins, whose rate is kept at the target level ($ 1) with the help of aa lamp that regulates supply and demand, burning and issuing new coins,” the expert explained.
Soshnikov believes that USDD is an algorithmic stablecoin from Tron architecturally very similar to UST, and this is one of the projects that are now at higher risk. According to the expert, at the slightest sign of a crisis, users will avalanche-like begin to sell these coins, thereby only exacerbating the fall.
The expert also noted that Celsius’s connection with Bitfinex makes investors fear problems with USDT, which still holds the lion’s share of the stablecoin market. Soshnikov explained that this fear is fueled by statements by US regulators and politicians about the need to tighten regulatory requirements for stablecoin issuers.
The general course of the legislative movement in this matter is visible in the manual published by the Department of Financial Services in the state of New York, Soshnikov specifies. He pointed out that the main requirements are the full provision of stablecoins with reserves, monthly audit and storage of reserves in third-party financial organizations.
“Thus, now the situation around stablecoins and DeFi protocols working with crypto lending and pledges in cryptocurrencies is the most tense,” the expert concluded.
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