The Weekly Wrap: Celsius halts withdrawals, FOMC meeting, 3AC rumors
Jun 17, 2022
Mike do you know even one person who has a problem withdrawing from Celsius?, why spread FUD and misinformation.
Alex Mashinsky, Founder and CEO of Celsius one day before Celsius halted all withdrawals on June 12 (via Twitter)
- Centralized Finance (CeFi) platform Celsius announced Sunday, June 12, that they halt all withdrawals, swaps, and transfers between accounts due to “extreme market conditions”.
- Celsius is used by more than 1.7m users and offers a native platform token CEL, offering increased rewards, that fell >70% after the firm’s announcement.
- Like Nexo or BlockFi, Celsius custodies digital assets on behalf of investors and offers attractive interest rates via rehypothecation.
- Besides a loss in the $120m the BadgerDAO exploit, Celsius might have been impacted by the Luna collapse and faces further risk due to the ongoing stETH-ETH depeg.
- Moreover, due to the recent market downturn, their $278,5m DAI debt position in Maker was at risk of liquidation before they topped up their vault and paid back some debt bringing the new liquidation price to ~$13’601.84 per BTC.
- Before halting withdrawals, wallets linked to Celsius moved a $320m of assets from e.g. Aave to FTX.
- Alabama, Kentucky, New Jersey, Washington, and Texas have opened investigations into Celsius’ decision to suspend customer redemptions.
Why it’s important:
- It remains unclear if Celsius halted platform activity due to cash flow insolvency with redemption demand exceeding their liquid reserves or balance sheet insolvency as a result of mismanaging funds.
- If Celsius does not manage to match their liabilities, they might require external funding, a loan, or a takeover of positions such as Nexo, a close competitor, offered.
- More downside in markets and a further depeg of stETH-ETH poses liquidation risk of positions with serious size in a market that’s already shaken up.
- The UST collapse and the ongoing issues with Celsius might be a wake-up call to a lot of users being blindfolded by high APYs.
- The Celsius meltdown furthermore illustrates why self-custody and decentralized systems matter.
- Amidst the news, Binance temporarily halted BTC withdrawals, adding more fear to the tense situation, yet solved their transaction backlog issue a couple of hours later.
Number of the week
Current monthly volume of OpenSea in June 2022, as of June 17
- The Federal Reserve raised its benchmark interest rate by 75 basis points (bps) at their June Federal Open Market Committee (FOMC) meeting, their most aggressive hike since 1994.
- In their statement released Wednesday, FED officials wrote that economic activity appears to have picked up after edging down in the first quarter and that job gains have been robust in recent months with a low unemployment rate.
- However, they also significantly cut their 2022 outlook for economic growth to a 1.7% gain in GDP, down from 2.8% in March.
Why it’s important:
- After the rather aggressive rate hike announcement to accelerate progress on curbing inflation, Powell said that he does “not expect moves of this size to be common” moving on, yet added, that the July meeting might bring another 50 to 75 bps rate hike.
- According to individual members’ expectations, an upwards revision of 1.5% to 3.4% for the FED’s benchmark rate at the end of 2022 is estimated.
- Moreover, central bankers predict elevated unemployment rates and a slowdown in economic activity accompanied by prolonged increased prices.
- While the markets initially reacted with some upside on the news, stocks subsequently went negative again, pricing in more economic downturn.
- Three Arrows Capital (3AC), a prominent cryptocurrency fund, is rumored to be facing massive liquidations and insolvency after a tweet of co-founder Zhu Su.
- 3AC is one of the largest crypto-focused trading firms globally with potentially $18b in assets.
- Similar to Celsius, 3AC is hit by the recent market downturn, bringing lots of positions close to liquidation.
- According to on-chain data, an address linked to 3AC by Nansen aggressively paid back Aave debt to lower collateral requirements against a position worth some 223k ETH.
- There are also sources claiming that 3AC owes debt to BitMEX with undercollateralized positions.
Why it’s important:
- According to Ryan Selkis, founder of Messari, 3AC might have $1.0-$1.5b in net liabilities, with lenders like BlockFi and Genesis being not in danger yet another venture fund Defiance Capital might be highly affected.
- Also Finblox, a CeFi company, is e.g. pausing reward distributions because of 3AC's involvement and the current market volatility.
- As 3AC was an early investor in several protocols such as Avalanche, Near, or Solana, upcoming token unlocks might create sell pressure as 3AC likely sells these tokens to meet liabilities.
- With a lot of positions being on the brink of liquidation and the risk of borrowers being affected by 3AC positions, significant credit might leave the ecosystem.
- If credit decreases, the overall balance sheet shrinks and it becomes more difficult for market makers to provide liquidity resulting in bid-ask spreads widening.