Financial Crisis in Crypto: Celsius and 3AC Under Scrutiny

This chapter examines the financial difficulties faced by Celsius and Three Arrows Capital, highlighting rumors of insolvency and the lack of investor confidence in bailing them out. It discusses the repercussions of the Terra collapse and its cascading effects on the broader cryptocurrency market, emphasizing the risks posed to retail customers. The dialogue raises critical questions about risk management in an increasingly volatile environment and the potential for further industry-wide instability.

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Episode notes

Mika Honkasalo, independent crypto researcher, discusses what is happening with Celsius and Three Arrows Capital, the importance of having proper risk management, and the contagion effects on the industry.

Show highlights:

why is it so significant that Celsius paused withdrawals
what is stETH and why is it important to understand the Celsius situation
how the Luna/UST debacle started a contagion effect in the crypto space
why Celsius’s investors won’t bail the company out
what will happen to Celsius’s retail customers
what Three Arrows Capital (3AC) is and whether they have a solvency problem
how 3AC was levered long and whether they had poor risk management
who will be hurt if 3AC goes under
what would be the effect of 3AC and Celsius collapsing
which types of funds that Mika will be eyeing to see if they also end up in a similar situation to 3AC and Celsius
why Mika would counsel anyone who keeps their money with centralized crypto lenders to scrutinize their practices

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EPISODE LINKS

Mika Honkasalo

Twitter: https://twitter.com/mhonkasalo
Substack: https://mhonkasalo.substack.com/
Mika’s writings on The Block: https://www.theblockcrypto.com/author/mika-honkasalo

Mika’s blog post on the stETH-ETH peg: https://mhonkasalo.substack.com/p/stetheth-peg-not-a-peg-presents-a?s=r

Celsius announcement that they would be withholding assets: https://twitter.com/CelsiusNetwork/status/1536169010877739009?s=20&t=hL-ZsBSKZOLF-whTwNmjgw

Nexo’s offer to buy Celsius assets:

https://twitter.com/Nexo/status/1536256598993211393?s=20&t=vKmJCZGNToaOqZU-TEjcDg

Celsisus’s investors unlikely to bail out company:

https://www.wsj.com/articles/celsius-networks-investors-unlikely-to-provide-more-funds-to-bail-out-crypto-lender-11655395113

Celsius hires restructuring lawyers:

https://www.wsj.com/articles/crypto-lender-celsius-hires-restructuring-lawyers-after-account-freeze-11655250575?tpl=br

Why staked ETH is part of Celsius’s and 3AC’s woes:

https://www.coindesk.com/markets/2022/06/14/staked-ether-becomes-focus-of-crypto-stress-from-celsius-to-three-arrows/

Conor Ryder on the stETH liquidity problem

https://twitter.com/ConorRyder/status/1537130483007508480?s=20&t=pZGZf17ed_DyOS18CHExmQ