Celsius Network was among the prominent crypto firms to file for bankruptcy during the liquidity crunch within the fledgling blockchain-powered financial-services industry last summer.
The crypto lender was also among the very first firms to suspend customer withdrawals in mid-June, before finally filing for Chapter 11 bankruptcy a bit more than a month later.
The company then explained that it was a collateral victim of the collapse of sister cryptocurrencies Luna and UST or TerraUSD. These two tokens had fallen after a run on the bank, which then affected all companies that were exposed to them, such as the hedge fund Three Arrows Capital.
Three Arrows Capital, or 3AC, had received significant sums of money from many crypto lenders like Celsius and Voyager Digital to invest. When the hedge fund was forced into liquidation, all its clients paid a heavy price.
Celsius operated like a bank in the crypto universe. Basically, it was an entity working as an intermediary between different actors.
Its business model was to lend — to hedge funds and other institutional investors — the cryptocurrencies of its clients, to whom it had promised significant high yields. It promised 18% interest rates to customers who deposited their cryptocurrencies. That’s a much higher rate than traditional savings accounts offer.
Celsius Owes $4.7 Billion to Its Customers
These promises helped Celsius, founded in 2017, to build up to more than $20 billion in assets in five years. To critics…
