Unchained Why Possible Insolvencies by Celsius and 3AC Could Spell Disaster for Crypto - Ep. 364
Jun 17, 2022
Mika Honkasalo, an independent crypto researcher, dives deep into the troubling situations of Celsius and Three Arrows Capital. He explains the critical significance of Celsius pausing withdrawals and the implications of staked ETH on its financial stability. Mika analyzes how the Terra collapse sparked a contagion in the industry and warns investors about potential risks linked to centralized crypto lenders. He also discusses the challenges of risk management and who could be impacted if 3AC faces insolvency, urging scrutiny in these turbulent times.
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Celsius's Business and Early Troubles
- Celsius offered services like buying/selling crypto, earning yield, and borrowing against crypto.
- Early on-chain signs, like selling staked ETH (stETH), hinted at Celsius's troubles.
stETH and Celsius's Liquidity Issues
- Staked ETH (stETH) is a derivative of ETH that gives access to staking yields and future ETH redemption.
- Celsius selling their stETH holdings signaled potential trouble, as it suggested a need for immediate liquidity despite stETH being a longer-term asset.
Contagion and Risk Management
- The Luna/UST collapse triggered a contagion effect, impacting Celsius's position.
- Celsius's struggles stem from poor risk management, particularly in their exposure to Luna/UST and stETH.