Celsius Network has come under increasing criticism in recent days. Accordingly, it is discussed whether there is a risk that the provider could get into payment difficulties. Critical voices are even warning of a bank run, which could have bitter consequences that are likely to make themselves felt beyond Celsius.
Celsius lost significant amounts of money over the past year. Around 35,000 ETH are said to have been lost at Stakehound in May 2021. So far, the loss has not been confirmed by the company, but is the subject of various media reports.
Another loss occurred during the BadgerDAO hack. While CEO Alexander Mashinsky confirmed that Celsius lost money in the process, he did not provide a specific amount during an AMA. Analyzes of the addresses involved suggest that it was a loss of around 51 million US dollars.
Will stETH become a systemic risk?
Celsius has approximately 1 million ethers outstanding, according to a Cointelegraph report. Around 288,000 ETH are therefore in staking and can only be triggered once the merge has taken place. However, this was initially postponed. Another 445,000 ETH are said to have been converted into stETH and only 268,000 ethers are liquid.
stETH is a staking derivative. Investors deposit 1 ETH into the smart contract and receive 1 stETH in return. This token is your claim to the deposited amount in ether, which is then in staking. However, this claim can only be redeemed if the merge has taken place.
In the meantime, however, stETH remains liquid, which is why it is also referred to as liquid staking. Because the tokens can be traded as desired or used as an insert, for example in liquidity pools.
The problem for Celsius lies in the fact that stETH is not price-locked to Ethereum, but is dependent on demand and supply. As a rule, the price is about the same as Ethereum, but it can differ. So if a bank run should take place on stETH, it would indirectly also be a bank run on Celsius Network, because bottlenecks could theoretically arise there. Likewise, Celsius customers could apply additional pressure when withdrawing their deposits, as the company may then be forced to sell stETH.
However, because staked ether is particularly popular in the DeFi space, there are additional concerns that a stETH crash could also sweep other companies and protocols down. At press time, stETH is trading around 4% below ETH on Curve.
HODL fashion under criticism
To ensure additional security for user accounts, Celsius introduced the so-called Hodl Mode. This allows investors to voluntarily block their accounts. Once activated, the mode prevents any outflow of own funds. According to Celsius, if you deactivate the mode again, you have to wait 24 hours before you can start the transfer again.
In the last few weeks, however, there has been feedback from customers via Twitter that Hodl Mode had been activated without their consent. Others report having to wait significantly longer than 24 hours to disable the feature. However, these claims cannot be verified.
In a blog post, Celsius suggests that Hodl Mode also comes into play in cases where it is appropriate for reasons of compliance, legal or regulatory requirements. Otherwise, the feature only serves to protect customers. The company also points out that there have been no delays so far when customers have initiated transfers.
Terra has destroyed investor confidence
Given that Terra has experienced an unprecedented crash, the debate over Celsius' reliability is sure to raise concerns among some investors. Complicating matters is the style of communication chosen by Do Kwon at the time as the debacle was unfolding.
He, too, wooed the confidence and trust of investors and thus steered all those who believed him straight into ruin. This puts investors who have parked their money at Celsius in an emotional quandary, because of course the company advertises its service and rejects the presentation of various media reports and points out that it has sufficient liquidity reserves.
In some cases, this self-portrayal is even immediately credible because the sources involved in the respective reports have zeroed in on Celsius for a long time. Neutral reporting definitely looks different.
So it cannot be denied that immense media pressure is being exerted on Celsius and thus also on investors. If you want to make sure that you are not on the wrong side in the dispute between "FUDstern" and "Celsians", you should keep your assets in your own wallet until the smoke has cleared.
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