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Celsius Network, a formerly popular cryptocurrency platform, recently revealed that it was left with a $1.2 billion deficit after submitting its bankruptcy filing. Since then, many in the crypto industry have commented on the new development, including Kathleen Breitman, who co-founded the decentralized Layer 1 blockchain, Tezos.
In a recent statement, Breitman noted that the bankruptcy filing is not surprising, as the crypto lender Celsius Network had a business model that was not sustainable in the long run.
Celsius filed for voluntary Chapter 11 bankruptcy protection only a month after it suspended withdrawals and redemptions for its users, noting that a liquidity crunch took place as a consequence of extreme market conditions. However, according to Tezos’ co-founder, this was just another one in a series of fairly predictable events.
Breitman did note that there were some less predictable events, such as what happened to the crypto hedge fund Three Arrows Capital, referring to its insolvency. She even went on to say that this was “uniquely bad.” As for Celsius’ situation, however, she noted that the incident was to be expected.
Those who have been in the crypto industry for a while now have expected something like that because it was clear to them that Celsius’ was simply flawed.
How is the 3AC situation different?
The thing with Three Arrows Capital (3AC) is different, and that was a consequence of the Terra blockchain’s collapse. After all, the hedge fund was among the larger VCs in the crypto space, and as such, it backed many blockchain projects and startups, including Terra (LUNA). After Terra went under in May 2022, the crash led to a massive market sell-off, and the prices of crypto assets crashed yet again. In the middle of all of that, 3AC failed to meet margin calls from its crypto lenders, and that led to forced liquidation.
The hedge fund still owes $640 million to the crypto broker Voyager Digital, and while Voyager still plans to pursue recovery from the VC, it still commenced a voluntary Chapter 11 bankruptcy after the withdrawals got suspended.
Still, all of this is only scratching the surface when it comes to the consequences of the Terra crash. There are other crypto companies that are facing a similar financial crisis as a result of it, and Breitman believes that there are shakeouts from things that just would not be able to succeed in the long run. She pointed out that it is not reasonable to expect that someone could make a sustainable protocol or business based on the theory that numbers will always go up.
Meanwhile, this is exactly what most wheel’s risk models are counting on. In a situation like that, any major price losses have catastrophic consequences, which was seen during this bear market.
To learn more visit our Investing in Tezos guide.
Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.