Celsius history and fall of a clay giant

The story of Celsius Network perhaps best represents the parable of some crypto companies, which literally went from the top to the bottom in just a few months. 

How Celsius Network fell

In the wake of the collapse of Terra and its UST stablecoin, many cryptocurrency companies linked to its ecosystem could not withstand the $40 billion hole caused by Luna’s bankruptcy.

Celsius along with Three Arrows Capital, another distinguished bankruptcy following that collapse, according to early estimates, had heavy exposure to Terra and its stablecoin and had to suffer, like its rival Voyager Digital, the insolvency of some companies to which it had lent funds.

Celsius: The beginning

Founded in 2017 by Alex Mashinsky and Daniel Leon, Celsius presents itself as a rampant reality in the cryptocurrency finance landscape, aiming to engage traditional finance in the cryptocurrency world.

After managing to raise $50 million from 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 that the cryptocurrency lender had $25 billion in assets under management. 

Celsius: The growth

Even in May, despite the fact that the bear phase of the crypto market had begun, Celsius was managing about $11.8 billion in assets, according to its website. Since its inception, the platform, which offered digital currency lending service, has experienced astounding growth rates: the number of active users grew by about 800% in the first year. By February 2021, Celsius had acquired more than 400,000 users and held more than $9 billion in community deposits, which then grew to more than 25 by the end of the year.

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

Celsius: The failure

All of this evaporated in a matter of weeks, in which the collapse of the markets was also followed by some poor choices by management and, according to some Financial Times rumors, even misconduct by its CEO Alex Mashinsky, who allegedly made trading decisions on his own that led to losses of hundreds of millions of dollars.

All of this resulted in a hole in the company’s accounts of more than $1.2 billion, prompting a Chapter 11 filing, the antechamber to bankruptcy under US corporate law.

Some have compared the failure of Celsius to that of Lehman Brothers in 2008 for mainstream finance, which was the beginning of the great financial crisis of those years, which spilled over from the US to Europe and Asia.

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

The hole was also huge because these borderline-legal promotional campaigns attracted many new users, considering that even in June, a few weeks before the bankruptcy, Celsius still had about 1.7 million users under its belt.

The bankruptcy of Celsius 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 at the end of 2021.