Celsius Network (CEL) Pushed Down After Terra Crash
After Terra LFG collapsed and LUNA crashed to a sub-penny asset from above $119 in under a week, other affected projects started trading with increased panic. There are multiple fears of UST contagion, as the asset has been used in other networks.
For now, some of the biggest partners of Terra, Solana and Avalanche, are starting to recover, with double-digit daily gains. Celsius Network, however, is one of the projects where fears of loss are deepening. CEL, the network’s native token, started crashing around the time LUNA lost its value and UST moved down from its peg.
CEL touched lows of $0.71 before returning to $0.86, starting with a sharp crash from around $2.50 just a week ago. The losses accelerated after a series of doubts about the Celsius exposure to Terra.
Is Celsius Compromised by Terra
The biggest fear is that Celsius itself is a compromised protocol for crypto lending, which can suffer losses in the event of a bear market. The Celsius team dismissed this as fearful messaging, adding that it has not offered help to bail out Terra. Additionally, Celsius removed $500M in liquidity from Anchor Protocol.
Anchor Protocol is the leading DeFi hub on Terra, with more than 61.8% of all value locked before the crash. In a few days, the funds locked on Anchor also fell by nearly 99%. There is also a sense of relief that Celsius actually did the best and has cut its exposure to Terra and Anchor Protocol just in time.
CEL is still only moving within the usual levels of crypto volatility. However, the asset is not yet out of the woods and the conditions may change within hours. The Celsius community remains optimistic that the protocol is safe, though there is still no clear data on UST exposure and leverage.
Celsius was also one of the hubs for LUNA decentralized trading, leading to failures to withdraw at the last moment, before the validators shut down the network.
Celsius itself has inherent risks stemming from its investment strategy. The project has branched out into multiple crypto activities, but may be suffering from over-leverage, while paying out earnings from new investors. It is also uncertain if Celsius can keep up profitability in the event of a prolonged bear market. With the panic increased after the losses of LUNA, there are fears Celsius may also suffer a loss of confidence and a run of investors.
The network relies on word-of-mouth and great enthusiasm from retail investors. The other big problem of confidence with Celsius is that the company’s internal rules suggest any depositors may not have a resort to compensation during unfavorable market events. In short, any BTC or other assets deposited to Celsius can be seized at any time with no promise to return. As some of the assets are reinvested, it is also not clear if Celsius can serve all hypothetical withdrawal requests.
Celsius is diversifying as an owner of a mining farm, trying to boost its results from owning Bitcoin (BTC).
Will LUNA Return
At one point, the Terra LFG team and Do Kwon, the project’s founder, suggested LUNA may return and the project could return its value. However, after the recent delisting from Binance for both LUNA and UST, there is little chance of the assets returning.
An attempt has been made to relaunch LUNA as LUNACOIN, a project unrelated to the original foundation.
There is still no limit to building leveraged projects where a self-issued stablecoin and a token work in a circular way to boost their value. However, Terra failed in its suggestion that the price of BTC and the collateral would be enough to prevent an exploit against UST, and that the asset could be saved.
The biggest project now building up value is the TRON DAO, with a multi-collateral approach to supporting the peg of USDD. The coin accrued a supply of more than 272M tokens in its first week since the launch, and is already spreading in high-earnings DeFi protocols.
USDD has been met with skepticism, but this has not stopped the project, and the token is not currently facing problems with its one-dollar peg. USDD is now listed on the Huobi exchange, on Poloniex, UniSwap, as well as Curve Finance.
Will BTC Support DeFi in 2022
BTC returned under $30,000 over the weekend, with a small-scale rally to bounce off its lows. The leading coin remains bearish and trades with an attitude of fear. The attempt of Terra to ride on the power of BTC to keep up its profitability failed, despite expectations BTC could save the project.
After the initial panic, BTC showed signs of renewed retail buying at the lower levels.
Celsius Network still stresses its BTC reserves as a source of stability. But selling BTC to protect DeFi may in fact backfire and prevent the model from being tested again. With Ethereum (ETH) above $2,000 and DeFi value accumulation happening since ETH was $90, there is still leeway for some of the projects backed by the token.
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