First and foremost, It is heartbreaking to think that thousands of users were affected by the current outcome of Celsius. I am so sad that an event of this magnitude has happened twice now in less than 30 days. First Luna, now Celsius. I hope that anyone affected by one or both of these losses will be able to recover from this.
Why did this happen though?
On June 22nd, 2021, StakeHound released news that approximately 38,000 Ether had become virtually inaccessible due to the keys being “lost”. Stakehound claims that it was Fireblocks, the hired custody provider, was at fault and is still unresolved. Celsius had sent around 35,000 Ether in a single transaction on February 2nd, 2021. Known Celsius wallets hold around 42,000 stETH, which makes them the largest holders of a virtually worthless token. Celsius lost approx.. $70 million.
On December 2nd, 2021, BadgerDAO was exploited by a phishing attack that stole 2100 BTC and 151 Ether. Celsius, happened to have 896 BTC in BadgerDAO at the time. In short, a “user error” which if hadn’t happened would have covered much more of the loss over time, made Celsius walk away from the scenario at an 80% loss in funds of approximately $22 Million.
Celsius has quickly been losing its liquidity over the past year.
According to users, 9,500 WBTC tokens worth $247 million have been moved from Aave to the FTX exchange. Also, 54,749 Ethereum worth $74.5 million has been moved to FTX. – Moneycontrol.com
To make matter worse, Alex Mashinsky(co founder and CEO of Celsius) stated June 11 when replying to a comment about Withdrawals on Celsius: “Mike do you even know one person who has a problem withdrawing from Celsius? Why spread FUD and Misinformation. If you are paid for this then let everyone know you are picking sides otherwise our job is to fight tradfi together..”
While there has been more going on behind the scenes, Celsius Stated this on June 12th to its community: Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.
This means all users funds in Celsius are now frozen and irretrievable until Celsius unlocks withdrawals. At the end of section 13 in Celsius’ Legal terms it states:
“…You acknowledge that with respect to Digital Assets used by Celsius pursuant to this paragraph:
1. You will not be able to exercise rights of ownership;
2. Celsius may receive compensation in connection with lending or otherwise using Digital Assets in its business to which you have no claim or entitlement; and
3. In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable, and you may not have any legal remedies or rights in connection with Celsius’ obligations to you other than your rights as a creditor of Celsius under any applicable laws."
So, what can we learn from this and what are the biggest take-aways in my opinion? 1. Read the Legal terms before you place your money with ANY centralized entity, but also read any and all documentation you can on the entity or protocol. If users had read this, they may have decided that the risk wasn’t worth the “Safe” reward.
Not your keys truly means, not your coins. This is the price for playing with Centralized fire.
2. Find a decentralized, immutable alternative to these lending platforms. The point of these platforms is to earn you Yield, lending is the mechanism that allows you to earn yield from this centralized entity. There are decentralized smart contracts that allow you to never lose custody of your tokens and earn daily Yield. While this isn’t a time to throw any other tokens in your face, I think that it is important to look for these solutions.
The Solution I am the biggest fan of, is HEX. If you wish to know more about it, go to hex.com or drop me a comment so I know to make more videos on the subject.
All in all I am very sad to see so many people affected by the Celsius situation. While nothing is absolutely for sure in terms of Celsius being completely over, the probability is not in its favour. Be careful out there.