LUNA
Bitcoiner Creates Campaign Against Cryptocurrency That It Says Has the Potential to Collapse Like LUNA
Market suspicions surrounding the operations of Celsius and its CEL cryptocurrency have continued to grow since the collapse of the LUNA token turned on the red flag for the way the crypto lending company uses customer money to fund its risky operations. This Thursday (26), the asset retreated 11.8%, according to CoinMarketCap.
One bitcoin investor, in particular, took it upon himself to demand explanations from Celsius and became enemy number one for Alex Mashinsky, the company’s controversial founder.
Its about Cory Klippsten, CEO of Swan Bitcoin and advisor to Riot Blockchain. On Twitter, where he has more than 134,000 followers, he does not let Mashinsky’s positions go unnoticed and fights almost daily with the businessman.
Tense atmosphere
The mood between the two heated up in earnest as Earth’s ecosystem entered a death spiral that wiped out their native token LUNA and stablecoin UST.
At the time, Celsius had to race against time to withdraw BRL 2.7 billion in cryptocurrencies that it held in the Anchor Protocol, the main DeFi project on Earth, which offered 19.5% yields on UST deposits. This money likely belonged to the company’s customers, as Celsius offers 7% to 15.8% yields on cryptocurrencies deposited on the platform to be loaned to other investors and institutions.
With the meltdown of the UST, the Anchor Protocol cut the rewards, and Celsius rushed to take the project’s funds and transfer them to Aave v2, another DeFi loan protocol.
In the eyes of critics like Klippsten, the operation exemplifies the risk to which the company subjects investors’ money. According to him, Celsius just didn’t repeat LUNA’s failure and took its token price to zero because it managed to get away with it in time.
“There wasn’t a bank run on Celsius Network this time because his team managed to take $500 million out of Ponzi Luna at the last second. Celsians, you are counting on luck and active management to keep your borrowed coins safe.” tweeted Klippsten on the 15th of May.
He was answered by Mashinsky who, instead of clarifying the business his company was doing in the Anchor Protocol, preferred to attack the bitcoin maximalists — a group that he blames for all the lost bitcoin in the world.
“30% of all bitcoin is lost because people listened to you and the maximalists and kept their own keys”, countered Mashinsky, claiming that Celsius has never lost one of the more than 150,000 BTC it holds in custody.
Declared war
The businessman’s response prompted Klippsten to start a campaign against Celsius: each user who took 1 BTC or more from the platform to do self-custody would earn a free year of subscription to Swan Bitcoin’s private services.
On Tuesday (24), he shared on Twitter several images of investors who followed his advice and took bitcoin from Celsius. “I could go on and on, that’s not all from the front page. Never in my life have I seen customers so eager to leave a company”, he pinned.
Brazilian investor Fernando Reis is among those who abandoned Celsius, taking just over 1 BTC that he held on the platform, according to reported this Thursday (26) on Twitter.
“My wife and I are out of Celsius. The price keeps dropping and we ended up induced by the app that it would be better to have interest in CEL than in other currencies because of the better discounts. […] Swap was also never available for users in Portugal or Brazil”, he criticized.
To the Bitcoin PortalReis explained that he decided to withdraw the money from the platform due to dissatisfaction with the service and the “feeling” that operations were not going well, reflecting the fall of native cryptocurrency Celsius (CEL).
The distrust with the business that wins the market made CEL devalue 48% in the month. As of Thursday, the coin is trading at $1.53, according to CoinCecko. The current price is also 84% lower than the all-time high of $9.82 that CEL hit in August last year.
“CEL suffered a huge drop when our interest rates were in that currency. It is also difficult to negotiate it because it is not present on the main exchanges”, said Reis when explaining that he was encouraged to hold CEL since in addition to the common income, the company has a loyalty program for holders of the asset.
“I felt it was time to leave because I lost confidence in them and, as there is no guarantee of anything when putting the money there, I thought it best to return everything to an exchange or cold storage”, he concluded.
hidden data
While reports like the Brazilian’s increase on social media, Celsius behavior caught the attention of critics: the company stopped sharing data on the inflows and outflows of funds from its platform as it used to do every week.
The last announcement brought in data from the 6th to the 12th of May — before Klippsten’s campaign against the company — and the numbers were already alarming. That week, $1.15 billion worth of cryptocurrencies left Celsius, while the inflow was no more than $396 million.
The company’s latest data, released on its official website, indicates that Celsius was managing more than $11.8 billion as of May 17. That number represents a 50.8% decline from the $24 billion the company had on hand in December 2021, according to the Financial Times.
loan loop
In addition to bitcoiner Cory Klippsten, the author of the newsletter Dirty Bubble Media, known by the pseudonym Mike Burgersburg, also stands out in the circle of critics of the project.
Since January of this year, he has published analysis of Celsius’ operations. He accuses the company of being at the center of a complex lending loop, in which the project takes possession of cryptocurrencies used as collateral by clients for their own risky operations.
In the current Celsius model, for example, a user who borrows $1,000 in USDC must pledge $4,000 in bitcoin to get a 1% interest rate (APR) on the loan.
Celsius then takes full possession of the warranty. “In other words, when you ‘borrow’ from Celsius, you are actually lending them money,” Burgersburg wrote.
This customer money is then used for Celsius to use as collateral to borrow elsewhere. With the new amount borrowed thanks to customer funds, the company once again jumps to the other side of the counter and goes back to lending this newly obtained money, this time to its institutional partners such as Tether, FTX and Binance.
To the Financial Times, Alex Mashinsky even confirmed that they “excessively collateralize” to pay promised returns to clients. In this business model, Celsius becomes a highly leveraged debt machine.
“Individual account holders in this situation — depositors and borrowers — are Celsius Network’s unsecured creditors. This means that they occupy an unenviable position of being the last in line to recover losses in the event of a malfunction of the debt machine”, concluded the analyst.
