Due to the fall in the price of bitcoin, various crypto companies have encountered serious problems. Several companies are either bankrupt or on the verge of collapse. In this article, you can read what exactly happened and why the statement: Not your keys, not your coins, still apply.
In recent years, dozens of lending platforms have entered the bitcoin world market. These are platforms where people can receive interest on their bitcoin or borrow (fiat) money with bitcoin or other cryptocurrencies as collateral. An interesting, but not entirely harmless development, it turns out.
UST & Celsius
After the value of stablecoin UST lost the bond by $ 1, fears rose in the crypto market and the price of bitcoin fell. One month later, rumors arose about possible liquidity problems at the lending platform Celsius. This had a similar effect to what is known as a ‘bank run’: Many customers withdrew their bitcoin in a short time and sent it to their own wallet or sold it.
Because Celsius was not liquid enough at the time, the company ‘temporarily’ stopped the possibility of withdrawing funds from the platform on 13 June. But at the time of writing, withdrawal of funds is still not possible. The company appears to be on the verge of bankruptcy and laid off 150 employees last week to reduce costs.
Lending platforms often promise high interest rates to customers on the funds they deposit, this return must come from somewhere. Companies like Celsius use customer money to seek profit in various ways.
Unlike a bank or other type of asset manager, crypto-lending platforms are often not subject to regulation. This means that there is no overview of what customers’ money is invested in.
Due to the lack of rules, crypto-lending platforms could therefore in principle play with the customer’s money in the casino, or invest in DeFi yield farming, staking or obscure altcoins, which is also a form of gambling.
According to Twitter account Otterooo something similar happened. The platform’s liquidity problem is most likely due to the company’s share of its cryptocurrencies has attached in a return contract that promises a high return. As many customers wanted to withdraw money at the same time, Celsius reportedly took out several loans to meet these obligations. In case of Celsius bankruptcy, these parties could whistle for their money.
Only the first domino
So far, this development still sounds reasonably clear, but this was only the beginning. Celsius is not the only lending platform that has run into problems. The crypto fund Three Arrow Capital (3AC) is also unable to meet its financial obligations and is already officially bankrupt. Because many parties, in turn, had lent money to 3AC, which is now also in trouble, more and more crypto companies are falling as dominoes.
For example, the crypto loan company Voyager, which had lent about $ 600 million to 3AC, has also filed for bankruptcy. Voyager had between $ 1 billion and $ 10 billion in assets under the management of about 100,000 customers. Still other parties had lent money to Voyager to complete the circle, which can now also get in trouble again.
The crypto company Blockfi is rumored to have had to liquidate (mandatory raising) a loan of about $ 1 billion to 3AC. This has also caused this company to get into trouble, however, the trading platform FTX has put an end to the bankruptcy. The two parties have entered into a partnership for about $ 250 million. FTX has grown rapidly under the leadership of Sam-Bankman Fried in recent times and occupies an increasingly prominent position in the crypto market.
Furthermore, the cryptocurrency giant Digital Currency Group’s lending platform, Genesis Trading, also suffered heavy losses because the company had lent money to 3AC and the lending platform Babel, which was also unable to meet its financial obligations.
There are also a number of relatively small lending platforms, such as Finblox and Coinflex, which have also run into problems due to the bankruptcy of Three Arrow Capital and the problems at Celsius.
Not your keys, not your coins
All in all, it is currently a mess in the bitcoin world. For people who have lost money or can no longer access their coins, it is an expensive and painful lesson. The contrast between the bitcoin world and the banking system is clear. Cryptocompanies, unlike banks, are not rescued with financial help from a central bank when things go wrong. The customers of the bankrupt companies have most likely lost their money.
Storing Bitcoin in your own wallet is and will remain the most secure and risk-free way to manage your coins. Although the high interest rates and other promises from third parties sometimes sound attractive, they almost always involve huge risks and in the long run it almost always goes wrong.
Owning your own private keys is crucial to ensuring that nothing happens to your coins that you do not know about. The independence and independence of storing bitcoin in your own wallet is unprecedented: you do not have to rely on a bank, person or other third party. Just yourself.
The bankruptcy domino is now taking place in the lending platform sector, but can also take place through exchanges. These have full control over your bitcoin and can theoretically do whatever they want with it. Hence the statement: Not your keys, not your coins!
Read in this article about why only bitcoin and in this article how to best store bitcoins securely.