Here are two words that investors hate most: “Ponzi schemes.”
That’s the phrase that appeared in a July 7 lawsuit filed in the New York State Supreme Court against Celsius Network, a cryptocurrency lending company that last month suspended withdrawals from its platform and other operations.
“Our life savings is in your hands”
In the lawsuit, filed by Jason Stone, founder and CEO of KeyFi, which has been partially acquired by Celsius, “recent disclosure that Celsius has no assets on hand to meet its exit obligations indicates that the defendants are, In fact, it’s a Ponzi scheme.”
Celsius Network did not immediately respond to a request for comment.
The indictment said the relationship between Stone and the company began to break down when Stone discovered that “the defendants not only lacked basic security controls to protect the billions of customer funds they held, but actively used the funds to manipulate cryptocurrencies.” Asset markets are in their favor.”
Anger and fear over the Celsius temperature raged on social media.
“Our life savings is in your hands,” one person tweeted. “I ask that you always do what is best for your savers. We entrust you and your company with our hard earned money. Do the right thing!”
“Guys, if I don’t take my money out, my marriage is over,” another said. “Over 785,000 people disappeared.”
“Did you beat Dad?”
Another tweet showed a stick figure hanging on a noose with the slogan Celsius “unlock the bank for yourself” in front of a computer screen, while another stick asked: “Dad, did you win?”
“Hey @CelsiusNetwork,” the caption read. “You’re not a good guy and shouldn’t have a place in crypto. Fuck it.”
That was right when crypto lending platform Nexo sent Celsius a letter with an offer to buy “the remaining eligible assets of Celsius Network LLC and Celsius Lending LLC.”
“Following @CelsiusNetwork’s apparent bankruptcy and considering the impact of its retail investors and the crypto community, Nexo has made a formal offer to acquire eligible assets following @CelsiusNetwork’s exit freeze,” Nexo tweeted.
Nexo’s name resurfaced recently, when crypto financial services firm Vauld warned that “despite our best efforts, we face financial challenges.”
Vauld said the current market environment has resulted in more than $197.7 million in customer withdrawals since June 12, when the cryptocurrency market slide was driven by the collapse of Terraform Lab’s UST stablecoin, the suspension of withdrawals from the Celsius network, and Three Arrows Capital caused by loan defaults.
Singapore-based hedge fund Three Arrows Capital (3AC) was forced into liquidation by a British Virgin Islands court.
The cryptocurrency market was also hit hard in May by the crash of TerraUSD, one of the largest stablecoins by market cap
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Nexo said it signed a term sheet with Vauld, giving it an “exclusive 60-day exploration period” to acquire Vauld pending due diligence review.
“What happened next represents a structural shift in the relationship between major counterparties,” said Antoni Trenchev, co-founder and managing partner of Nexo. “Lack of trust; cheap and unlimited credit no longer available. The downturn was immediately exposed. DeFi and unsustainable business models among cryptocurrency lenders and other institutions.”
Unlike other players, Trenchev said, “Nexo was born in the crypto winter of 2018.”
“Our business is designed to have a use case that is sustainable even in these market conditions, and recent events demonstrate the importance of these qualities,” he said.
First, despite the market, Nexo is in a stable liquidity position, Trenchev added, “We see it as our duty to help distressed lenders, primarily because of their clients.”
“In this case, it’s usually the end user who pays the price, and it’s simply not in Nexo’s interest for investors to leave the space,” he said. “In addition to Celsius and Vauld, there are several ongoing processes and Nexo has been approached to help provide liquidity to those facing solvency issues.”
Nicholas Cawley, a strategist at DailyFX, said the potential consolidation “is another sign that well-capitalized crypto companies are looking to expand in the space, and the current market volatility is providing those opportunities.”
“With no official ‘lender of last resort’, valuations for some of these companies will be very attractive,” he said. “It is likely that consolidation in the space continues, especially if the current difficult market conditions continue.”
“The situation is exactly what was expected,” said eCarbon CEO Joshua Fernando. “During a booming market growth period, you create a lot of companies to ride the ‘wave’. Then, when the market corrects, especially badly, companies will consolidate to weather the storm. “
The latter is what we’re seeing now at Nexo and Vauld, Fernando said, “where a well-capitalized company is buying the assets of a smaller company at a discount.”
While some may be concerned about less competition, Merav Ozair, a blockchain expert and professor of fintech at Rutgers Business School, said: “You have more competitors doesn’t mean that if you don’t provide a good service and a good product, better.”
“It’s always better to have more competitors,” she said. “The free market is all about competition. But are those little players better? Are they serving you better? In the case of Celsius, probably not.”
Looking ahead, Trenchev said, “In the medium to long term, the crypto winter will inevitably end.”
“In the near future, we have to realize that we are unlikely to return to a major bull market anytime soon,” he said. “Nevertheless, we must remember the potential value behind blockchain technology and the financial revolution that cryptocurrencies can bring.”
“These things aren’t going away, they’re just going to continue into the next bull cycle.”