The Celsius Network promotes itself as a one-stop shop for all of your cryptocurrency needs. It is ideal for people who appreciate trading multiple currencies because it allows them to earn, buy, borrow, and swap. Let’s find out more about this platform in the article below!<h2>What is Celsius?</h2><img src="https://lh4.googleusercontent.com/eeKFalYgKXNKMKWbJ9W21Enuf7cIiy3T2dJBLdOwOH9PVrO69fPrpD9DQl5vvtYsjPipTuZ9jSEB0fBIv3afa9vMNUo742ZVPbFeDYoD4AsQbiDaOGjhA1o4u3aOInJJxI2abT79mZFOA3dViA" alt="What role did Celsius play in the recent market crash?" title="What role did Celsius play in the recent market crash?" width="624" height="351"><h3>Celsius Overview</h3><a href="https://celsius.network/" alt="Celsius Network" title="Celsius Network" target="_blank" rel="nofollow" class="">Celsius</a> functions similarly to a typical bank, although for crypto rather than fiat currency. It was regarded as one of the more successful aspects of the DeFi movement.Celsius claimed 1.7 million subscribers and $11.7 billion in assets under management (AUM) as of May 17. According to the firm, it has provided more than $8 billion in loans and has offered extraordinarily high annual percentage yields (APYs) of up to 18 percent on bitcoin deposits.Celsius has provided very little official documentation or regulatory filings to back up these assertions about the company's user base or AUM.Celsius has its own token, CEL, which was launched in 2018 to acquire $50 million in investment. CEL's price has dropped 46 percent in 24 hours and is now down 97 percent as of this writing.<h3>How does Celsius work</h3><img src="https://lh4.googleusercontent.com/rr6kAdyirvAXtNVsft7SHhqYC4bxQal3ZOHRSGFot1RFvtUH3hryeZJCRVLoSWvGo5iSgFpzZIRssGT5C3MeHByFv_TsaOtzCd9_i3mlOelrOWfhnVrGvUjfwyUIQMARfb10-N33srl_O-8sag" alt="How does Celsius work" title="How does Celsius work" width="624" height="403">The Celsius Network is made up of hosted accounts on Celsius and a number of crypto exchanges with the goal of minimizing crypto-asset transfers outside of its system.Finally, there are four major participants in the Celsius system:&nbsp;<ul><li>Lenders - Account holders who earn interest on their deposits.&nbsp;</li><li>Borrowers - Margin traders who want to enter leveraged short or long positions.&nbsp;</li><li>Celsius Platform - Facilitates trades, monitors risk, and calculates trading fees.</li><li>Markets for foreign exchange - Conducts trades and lends/provides liquidity</li></ul>Celsius's job is to ensure that the lender receives the full and maintained interest rate over time. Besides, it also ensures that the risks of borrowers (including themselves) must be strictly managed.If a platform like Celsius wants to cut functionality in the name of scaling its business, it will typically take one or both of the following approaches:<ul><li>Offers unsustainable interest rates to lenders, based on expected demand</li><li>Allows borrowers to take on more risk than usual activities.</li></ul><h4>Earning</h4>Participants that use the Celsius network to generate extra money deposit crypto assets on the platform and get rewards in a variety of cryptocurrencies like Bitcoin, Ethereum, or USDC.Celsius controls assets put in a 'Lending Stake Pool,' which are then lent to other exchanges and the interest earned is dispersed among users.To determine the exact distribution of payments to borrowers, Celsius Network has applied the Proof of Stake (PoS) algorithm. In which, the interest paid to the lender is a function of the amount deposited, the number of days participating in the Celsius Network consensus mechanism.<h4>Borrowing</h4>There are several categories of users who would want to borrow from the Celsius platform. General Users - Users who deposit cryptocurrency on the Celsius Network in order to receive a loan. Traders are accredited investors (or SEC-registered funds) who borrow money to trade from Celsius lending pools. To offset potential losses and expenses associated with some trading activity, these accounts require a minimum balance of $10,000. Exchanges are institutions that borrow from Celsius lending pools if they require additional liquidity to settle transactions.<h3>Is Celsius safe to use?</h3>Users’ crypto assets on Celsius, like in all crypto exchanges, are not FDIC or SIPC insured, making them riskier than traditional bank savings accounts or loans. In essence, users are relinquishing ownership of their possessions and placing their trust in Celsius to keep them safe.Celsius works with Fireblocks to provide insurance for assets stored by Celsius, albeit the amount of coverage is not revealed on the app or website. Celsius also claims that its over-collateralized loan method can assist in reducing lending risk. However, a Celsius spokeswoman acknowledged to Coindesk that the company makes uncollateralized loans on a limited basis.Celsius rehypothecates (lends out) its clients' bitcoin investments to maximize income and profit. While this is an industry practice, it exposes cryptocurrency deposits to hackers, theft, and investment risk. While the majority of its loans appear to be collateralized, evidence suggests that Celsius is putting its customers' assets in more jeopardy than they realize, including yield farming on Defi platforms.The fundamental issue is that if Celsius enters bankruptcy or experiences a black swan event, like a large cyber attack, user’s assets may not be returned to them. Users should deposit what they are willing to lose. And the advice is to speak with a legal or financial specialist if there is any concern about protecting assets.<h2>The role of Celsius in crypto</h2><img src="https://lh6.googleusercontent.com/CJI_pRGZy-D1qekXbIjZJuwRnxZzdA-YyGsmbPgeOCUbhwPh40u830Ahwb6aUh356kZZ7Rbo_Djr8xWu17wbqvNjrPcEPFbi02GY_oTI4XTY4ypXMLmMtN26qvRN6PHW4hWpggvXksFCiwcsWQ" alt="The role of Celsius in crypto" title="The role of Celsius in crypto" width="624" height="351">Celsius is one of the typical <a href="https://www.builder.news/news/7-best-defi-lending-platforms-in-2022" alt="7 best DeFi lending platforms in 2022" title="7 best DeFi lending platforms in 2022" target="_blank" rel="" class="">decentralized lending financial platforms</a>. DeFi offers a more attractive alternative to the current financial system through higher interest rates than savings accounts. However, DeFi still faces capital and technology barriers.Once users deposit money into the DeFi protocol, they can earn attractive interest (yield). According to the announcement on Celsius' website, the system offers 7% yields on stablecoins like USDC and Tether, 7.25% on Polygon, 6% on Ethereum and 6.25% on Bitcoin.Celsius' protocol then lends tokens from the pool at a higher interest rate. Celsius insists they only use customer cryptocurrencies in the form of pool lending and Bitcoin mining. Transparency and real-time audit are the pride of Celsius.As of the end of August 2021, Celsius owns assets under management exceeding 20 billion USD, and is considered one of the largest potential businesses in the DeFi system.Throughout 2022, cryptocurrency prices have been under pressure as markets retreated in the face of consistently high inflation and aggressive Federal Reserve interest rate hikes. The crypto market and other risk assets have been under relentless selling pressure.The negative feeling surrounding cryptocurrency was exacerbated in May when Luna, which is linked to the stablecoin TerraUSD (UST), entirely crashed after UST lost its $1 peg.The failure of Luna and TerraUSD destroyed $60 billion in investor capital. Worryingly, it eroded trust in the entire bitcoin industry, which was already known for tremendous volatility and widespread speculation.Some crypto experts suspected Celsius Network of contributing to Luna's demise, however, Celsius has disputed these allegations.Just hours before Celsius announced its asset freeze, CEO Alex Mashinsky retweeted a user who compared allegations of restricted accounts at Celsius to the situation at Luna.Mashinsky accused the user of spreading "misinformation" and "FUD," a popular crypto community abbreviation for "fear, uncertainty, and doubt," in reaction to the analogies.<h2>How does Celsius impact the recent market crash?</h2><img src="https://lh3.googleusercontent.com/ufAKlycI8-RUcNpGCKHExF4us7jWZO3LQodkoTG34XJwddcqX9zSyLJ6cVInx09Win9OVxaQa5qkyhyuvrGy2_1JwKC6b3NJWTGQDxJxz4YT5jVlzbOemARVmqOuWqcxUTjYDr74KGqJI52owA" alt="How does Celsius impact the recent market crash?" title="How does Celsius impact the recent market crash?" width="624" height="327"><h3>Why Celsius collapsed</h3>Launched in 2018, Celsius has reached $200 million in community assets after just 1 year of launch. At the time of the previous bull market, Celsius promised users a sizable profit, in return they only needed to deposit assets to provide liquidity on Celsius.In recent years, regulators have clearly defined that they view high-interest crypto lending products like Celsius as unregistered securities. At the end of September last year, 4 US states including New Jersey, Texas, Alabama and Kentucky sent letters protesting Celsius. At the same time, CoinBase also had to stop the exchange's lending product after being threatened by the SEC with legal action.At this point, Celsius was discontinued in the UK citing regulatory uncertainty. The company decided to move to the US for the purpose of applying for a license to ensure the long-term viability of Celsius and the community. In October 2021, Celsius raised $400 million and raised the platform's valuation to over 3 billion. By November, Celsius completed a fundraising round of up to 750 million USD.In May 2022, Celsius transferred the reward to comply with the regulator's rule. Specifically, Celsius stops high-interest accounts for non-accredited US investors, which means it bans those who don't earn $200,000 annually and don't have $1 million in their bank accounts. products that earn the highest profit.A large amount of money was moved out of Celsius, and the total assets locked in the protocol fell from $24 billion to $12 billion. Following Celsius' withdrawal announcement, Celsius rival Nexo proposed to buy the company's liquid assets. In the context of the current red-hot cryptocurrency market, DeFi in particular and cryptocurrencies in general also fell into a difficult and volatile time.Celsius has promised to offer returns of up to 18.6% annually. In order for Celsius to maintain this level of profitability, the project will actively reinvest users' liquidity, as well as speculate in highly profitable projects. Celsius has invested some of this liquidity in the Anchor protocol – a project on Terra that offers a 20% return. During the UST &amp; LUNA crash, Celsius was one of the first projects to sell all of their holdings for $0.95 – $0.99 per UST.However, the sale of Celsius caused UST to fall further and the collapse of the entire ecosystem spiraled out of control. DeFi Bank's other competitors, lenders were unable to exit and were forced to sell at a large loss or hold their UST in the hope that it recovers to the $1 peg.A few days after UST peg loss began, Terraform Labs &amp; Do Kwon launched an initiative to restore the UST peg. Specifically, they announced that there will be a large purchase from DeFi companies such as Celsius, Jump Capital, Jane Street, Alameda Research, etc. A lot of companies agreed to do this buyback because they wanted to get their initial funds back. However, Celsius does not want to participate in this acquisition because they do not want to have anything to do with the Terra ecosystem anymore.This is a reasonable decision from Celsius's point of view. However, the decision turned rival companies against them. These rival firms include Three Arrows Capital &amp; Alameda Research. These two companies purchased a $1 billion worth of LUNA from the Luna Foundation Guard, which will unlock linearly over the next 4 years. These companies wanted to get revenge on Celsius for making them lose so much, so they decided to join this acquisition. Three Arrows Capital, Alameda &amp; Celsius all hold large amounts of money with the stETH/ETH trading pair – the value of which is pegged to ETH. Three Arrows Capital &amp; Alameda Research discovered that Celsius was also holding the asset. That's why both funds decided to sell all their tokens at once. Causes a stETH/ETH peg loss event, similar to the collapse of UST.The only difference is that this time Celsius doesn't sell assets as they lose their pegs. As a result, Alameda Research &amp; Three Arrows Capital has successfully retaliated and now Celsius is having huge liquidity problems due to this attack.Another risky and unsustainable decision Celsius made was to reinvest available liquidity into Lido Finance – a DeFi platform that gives users the ability to stake ETH in exchange for stETH as it goes live on the mainnet.Celsius' promise of high returns to Lenders could no longer be kept. Celsius can only fulfill these promises as long as it can generate a return on its own investments. A series of strange transactions took place that destabilized the Celsius system and shook investor confidence in the platform.Once those investments turn sour, Celsius will no longer be able to deliver on its promise of high returns for the Lenders. If Celsius wanted to pay everyone back, it would have to pay out all of its investors' profits on its own. So Celsius decided to block users from withdrawing their funds.<h3>The impact of Celsius on the recent market crash</h3>Celsius has a large presence in the decentralized finance (DeFi) space, which aims to replicate traditional financial products such as loans without the involvement of intermediaries such as banks.Celsius owns many assets that are popular in the DeFi world, including Ethereum shares, a version of the Ethereum cryptocurrency that can give users rewards for deposits.On the other hand, rival cryptocurrency lenders Nexo and BlockFi sought to ease concerns about the health of their operations after Celsius announced its decision to halt withdrawals. Nexo said it has a "solid equity position and liquidity", and even offered to buy back some of Celsius' loan portfolio, which it said declined.&nbsp;Meanwhile, BlockFi said all of its services continue to operate normally and have no exposure to Ethereum shares. However, that does not mean that the company is not affected by the recession. This month, BlockFi laid off about 20% of its total staff in response to a “dramatic change in macroeconomic conditions”.Celsius's liquidity crisis has raised worries about possible effects on other financial markets. CDPQ, Canada's second-largest pension fund manager, co-led an equity investment in Celsius earlier this year. The company said it is "closely monitoring the situation."Many analysts agree that any strong impact from Celsius's decline is likely to be limited to the digital currency. “The biggest contagion risk lies in the virtual currency markets themselves,” said Omid Malekan, adjunct professor at Columbia Business School.Fitch's Hussain said the sell-off in the price of cryptocurrencies reflects a "shrinking of the entire cryptocurrency market," adding that "the spread of the centralized financial system will be limited."<h2>Bottom lines</h2>In a word, Celsius soon became a popular crypto project due to its high profitability and secure interest rate on cryptocurrency deposits. Celsius can only provide high-interest rates because reinvesting its liquidity to pay users is lucrative. This, along with the prior bull run, has aided Celsius's success.However, reinvesting from user-supplied liquidity rendered Celsius's interest payment source unsustainable. If Celsius wants to survive, it must create greater long-term value and stop reinvesting investor funds.To put it another way, Celsius should stick to its original aim of supporting a "non-banking" society in order to give a really fairer experience. Celsius is not entitled to use user-supplied assets for venture capital objectives. It does not allow users to cut their losses by stopping withdrawals for an extended period of time until something goes wrong.<div class="pr-block-special">Disclaimer: "This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name."</div>

Let’s find out more about Celsius in the article below!