After reading yet another post about "Celsius repayed x amount of loan" and seeing all the posts filled with unsubstantial hopium, I felt the need to clear some misconceptions around this topic:
How are platforms like celsius working
They are a simple CeFi platform. They are borrowing crypto from their customers and lending it out to other customers. The funny part about that is that they are paying a higher interest rate for deposits than they are charging for loans. How does this work? Well they are investing and trading themself (very often with leverage).
What happend?
In short crypto winter happend. Celsius was overinvested and they go caught with their pants down, when the market started to turn downwards fast.
What were the consequences?
They were/are at the risk of getting margin called for a lot of their positions
They did not have enough cash/crypto available to repay their loans and meet the withdrawal demands. --> they had to close withdrawals (not doing that would have been worse for everyone involved longterm)
Their assets suddenly are worth less than the amount they are owning their customers (remember that one for later)
But know everything is getting better because they are repaying their loans, isn't it?
Well yes and no... Yes it is better to reduce/get rid of the risk of margin calls, but repaying loans is a zero sum game for your balance sheet. Their assets are still worth less than what they are owing their customers.
Example:
You got $400 in cash and are owing your buddy $100. Your networth is $300. If you repay your buddy you are free of debt but only have $300 left. Your networth still is $300.
By the way: Repaying your DeFi/CeFi debt would also be the first step before declaring bankruptcy. Why? The assets securing your loan are (almost) always worth more than your loan. Defaulting on that loans would actually reduce your networth.
What is coming next?
Well that is a tough one. There are not many likely scenarios that will save 100% of the customers assets but let's try it:
A miraculous investor appears. Yeah well that is self explanatory.
Crypto is recovering and their assets start to be worth more than their debt again. You can decide yourself how likely this is short term, while looking at the global economy.
That are actually all 100% recovery scenarios I can think of.
What is most likely to happen?
Celsius will repay all their CeFi/DeFi debt and will declare bankruptcy. How much every user will get back depends on so many factors, that I am not willing to speculate.
You can get bonuses upto $100 FREE BONUS when you:
💰 Install these recommended apps:
💲 SocialGood - 100% Crypto Back on Everyday Shopping
💲 xPortal - The DeFi For The Next Billion
💲 CryptoTab Browser - Lightweight, fast, and ready to mine!
💰 Register on these recommended exchanges:
🟡 Binance🟡 Bitfinex🟡 Bitmart🟡 Bittrex🟡 Bitget
🟡 CoinEx🟡 Crypto.com🟡 Gate.io🟡 Huobi🟡 Kucoin.
Comments