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Texas, New Jersey, Alabama and other US states have launched an investigation into Celsius Network

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Texas, New Jersey, Alabama and other US states have launched an investigation into Celsius Network

Texas, New Jersey, Alabama and other US states have launched an investigation into Celsius Network Anthony Clarke · 9 hours ago · 2 min read

A number of states in the United States, including Texas and Alabama, are looking into the decision made by Celsius Network to suspend client withdrawals.

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Updated: June 17, 2022 at 1:57 am

Cover art/illustration via CryptoSlate

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The move by Celsius Network (CEL) to block consumer withdrawals is being looked at by several US jurisdictions, including the states of Texas, New Jersey, and Alabama.

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The cryptocurrency lending platform said in a blog post that it would temporarily halt withdrawals and its swap and transfer products on June 12, citing “extreme market circumstances” as the reason for the decision. Celsius said that doing this would put them “in a better position to honor, over time, its withdrawal obligations.”

Massive market sell-offs were brought on by rumors that the corporation was about to go bankrupt, which quickly circulated over social media.

Joseph Borg, the director of the Alabama Securities Commission, confirmed that his agency, along with those of Texas, New Jersey, and Kentucky, is conducting an investigation into the situation.

He stated that although the probe is still in its early stages, Celsius has responded to the inspectors’ inquiries. Borg continued by saying that the United States Securities and Exchange Commission has also been in touch with Celsius.

Operating in a grey area

In September, Celsius was issued a stop and desist order by authorities in the states of Kentucky, New Jersey, and Texas. The officials said that Celsius’s interest-bearing products need to be registered as securities. In February, the SEC and those same state authorities levied a fine of $100 million on BlockFi for the company’s failure to register its cryptocurrency lending product.

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Celsius operates in a manner that is comparable to that of a bank in that it collects cryptocurrency deposits from retail clients and invests those funds in a market that is similar to the wholesale cryptocurrency market.

These investments may be made in “decentralized finance,” often known as “Defi,” which refers to websites that utilize blockchain technology to provide services such as loans and insurance outside the conventional financial sector.

Earlier this month, Celsius pumped over 500% within 5 minutes amongst its liquidity issues. The company also hired restructuring lawyers to help them with their liquidity problems earlier this week.

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Babel

Crypto lender Maple Finance joins list of platforms facing liquidity issues

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Crypto lender Maple Finance joins list of platforms facing liquidity issues

Crypto lender Maple Finance joins list of platforms facing liquidity issues Oluwapelumi Adejumo · 8 hours ago · 2 min read

The DeFi protocol for institutional borrowers and lenders published an update saying “lenders must wait for borrower repayments.”

2 min read

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Updated: June 22, 2022 at 9:46 pm

Cover art/illustration via CryptoSlate

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Maple Finance joined the growing list of crypto lending platforms facing liquidity challenges after announcing on June 21 that there might be insufficient cash in its pools.

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The DeFi protocol for institutional borrowers and lenders published an update saying ‘lenders must wait for borrower repayments.’

Maple Finance said current market conditions have increased the demand for liquidity among lenders and borrowers. It added that this demand could grow higher as the weeks deepen.

A spokesperson for Maple said the platform would survive all withdrawals in the coming weeks. Due to the protocol design, lenders can only withdraw cash when available. This means the platform does not need to limit or suspend withdrawal.

Maple also revealed that its lenders would continue to earn MPL (its native token) rewards regardless of the wait time from the borrowers.

Meanwhile, Maple has explained how to mitigate risks and access borrowers. The list of its borrowers is publicly available. It currently has 66 active loans valued at $1.5 billion.

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Maple denies exposure to Celsius, others

Maple has assured its lenders that it has no direct exposure to any other struggling crypto firm facing liquidity issues.

The crypto lender revealed in a press update that Celsius Network does not borrow from its platform; instead, the embattled firm is the only lender in the pool it operates.

Celsius lend capital from their own balance sheet and do not borrow from Maple.

They are the only lender into the $20m pool they operate. There are no outside depositors and the pool has no interdependencies with the other pools.

All of this information is on the Maple webapp

— Maple (@maplefinance) June 13, 2022

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On Three Arrow Capitals, Maple says it has determined that

“Most borrowers are market/delta neutral and trade market volatility which means we believe they are unlikely to have direct exposure to 3AC.”

Maple acknowledges that its Orthogonal USDC pool gave Babel Finance, which has temporarily suspended withdrawals, a $10 million loan.

Orthogonal acknowledges there is a $10M loan to Babel from the Orthogonal USDC pool on Maple.

Orthogonal has been in daily contact with Babel management since Babel halted withdrawals and is focused on protecting the interests of lenders.

— Maple (@maplefinance) June 21, 2022

However, it says it has been in contact with the Babel’s management and will provide new updates as they arrive.

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Ethereum (ETH) Market Cap Falls More Than $124 Billion In Six Weeks

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Ethereum (ETH) Market Cap Falls More Than $124 Billion In Six Weeks

Ethereum, the second-largest cryptocurrency by market capitalization, is currently in freefall. Over $124 billion in capital vanished from the Ethereum (ETH) decentralized finance (DeFi) in six weeks.

Seven months ago, ETH reached its highest value ever at $4,891.70 on November 16, 2021. But it is now trading at around $1,100, which is less than 75.2% of its all-time high value.

Related Reading | Controlling The Chaos: FTX Exchange Bails Out BlockFi With $250M

The start of 2022 was unstable for the cryptocurrency market, particularly ETH, but in previous weeks, things have become much more complicated. However, the larger crypto market continues to fall due to macroeconomic uncertainty fueled by an unstable stock market, interest rate hikes, and the fear of crisis.

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The Ethereum DeFi Market Is Deleveraging Dramatically

Glassnode, a blockchain analytics firm, released a report on June 17. The report was titled “The Great DeFi Deleveraging.” The report stated that over $124 billion in the capital had been drained out in only six weeks from the Ethereum DeFi market. As a result, its market value is deleveraging rapidly.

According to their statement, many reasons have sparked a wide range of margin calls, liquidations, and deleveraging. These reasons include worldwide monetary policy tightening, the growing strength of the US dollar, and decreasing values of risk assets.

Their analysis looks at some early warning signs that predict a drop in ETH usage and community demand after the November 2021 all-time high of ETH value.

They claimed that on-chain activity and Ethereum gas prices had decreased over six months. This indicates a drop in overall Ethereum network activity.

ETH is currently trading below $1,100 on the daily chart | ETH/USD chart from Tradingview.com

 As stated in the report:

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Across many facets of the Ethereum ecosystem, the demand profile has been waning, with general application usage in decline, and network congestion easing after the Nov 2021 ATH, and a cooling off of NFT markets becoming evident in recent weeks.

TVL on Ethereum Dropped By 60%

According to the report, Ethereum’s TVL (Total Value of All Ether) dropped by 60% in six weeks. The decline occurred in two stages. In May, the Terraforms Lab’s project collapsed and caused a $94 billion loss. And in June, ETH fell below $1,000, resulting in a $30 billion loss.

By the report, there have only been two higher magnitude deleveraging events: 

The first being -46.0% associated with the recent LUNA collapse and -37.5% during the sell-off from the then-ATH set in May 2021.

The combined market valuation of the top four stablecoins USDT, USDC, BUSD, and DAI has now exceeded the market valuation of ETH by $3.0 billion.  

Related Reading | Why The Inventor Of Ethereum Attacked This Bitcoin Pricing Model

Glassnode stated that the deleveraging event taking place is painful and is similar to a mini-financial crisis. However, they added that although this is difficult, it provides an opportunity to eliminate excess leverage and rebuild healthily.

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            Featured image from Flickr and chart from TradingView.com

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Analysis

What’s going on with Bancor?

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What’s going on with Bancor?

One of the biggest DeFi protocols on the market has paused its impermanent loss protection, sparking rumors of a liquidity crisis. The Bancor team talked to CryptoSlate about what caused the decision to halt ILP and the steps the protocol is taking to prevent these problems in the future.

4 min read

Updated: June 22, 2022 at 12:45 am

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Bancor, a decentralized AMM and exchange, has temporarily paused its impermanent loss protection feature to protect the protocol and its users from “manipulative behavior.” In an announcement published on June 19th, Bancor said that it was confident the measures will secure the protocol while it works on introducing better protections.

However, the announcement was quickly followed by rumors about a possible solvency crisis at Bancor that was framed as a “user safety precaution.” Still hurting from the Terra/LUNA fallout and the ongoing crisis with Celsius, the crypto industry is rife with speculation about how Bancor will resolve its liquidity issues.

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CryptoSlate talked with the Bancor team about the truthfulness of these claims, the events that led to their decision to pause impermanent loss protection, and the steps they were taking to prevent similar issues in the future.

Bancor is trying to prevent blowback from the Celsius crisis

On June 19th, Bancor announced that it will temporarily pause its impermanent loss protection (ILP) feature. Trading will remain active on all liquidity pools on the network and users who remain in the protocol will continue earning yields. Once ILP is reactivated, they will be able to withdraw their fully-protected value. While withdrawals from the protocol haven’t been affected, Bancor said that it paused new deposits into its liquidity pools to “prevent confusion.”

According to the company’s blog post, Bancor has registered anomalies in its data and has reasons to believe that they’re a result of manipulative behavior.

“Therefore, we are taking bold measures to protect the protocol by temporarily suspending IL protection and other steps to limit further exposure,” it said in the announcement.

However, rumors about a possible liquidity crisis at Bancor spread like wildfire soon after the announcement. The platform was accused of buying time to figure out how to remain solvent after incurring losses on its native BNT token and downplaying the severity of the issue.

what is the point of impermanent loss protection if it just disappears when u most need it LOL pic.twitter.com/GAJyhr6Tib

— Cobie (@cobie) June 19, 2022

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Some even believe that Bancor is bound to end up in a death spiral, as its ILP mechanism compensates liquidity providers by minting new BNT, transferring the cost to BNT holders through inflation.

Bancor’s shell game of IL hiding is collapsing. They print new BNT to compensate underwater LPs and call it “IL protection”. The cost is transferred to BNT holders via inflation, which causes further IL to all other BNT pairs, and leads to further inflation. A death spiral. https://t.co/MbqPiL3sKB

— Hasu⚡️🤖 (@hasufl) June 20, 2022

Bancor confirmed rumors that the recent Celsius crisis was at least partially responsible for the issues with IL on the platform. The company said that the cost of providing BNT rewards to liquidity providers has been amplified by the recent insolvency of “two large centralized entities,” which many believe refers to Celsius and Three Arrows Capital.

These two entities were “key beneficiaries” of BNT liquidity mining rewards, having been long-time liquidity providers in Bancor v2.1. To cover their liabilities, these entities have unexpectedly liquidated their BNT positions and withdrawn large sums of liquidity from the system. At the same time, an “unknown entity” has opened a large short position on BNT, Bancor explained in the post.

While this would be a manageable issue for a protocol with diversified liquidity pools, this is a serious risk for Bancor as all of the liquidity pairs on the protocol are against its native BNT.

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The decision to keep trading open while hating deposits was also heavily scrutinized. Some critics said that this enables BNT holders to dump the tokens, causing an even bigger discrepancy in the liquidity pools that now have no IL protection.

Bancor responds to controversy

The Bancor team was quick to respond to the controversy surrounding its decision to pause IL protection. Nate Hindman, the protocol’s head of growth, said that the announcement had no intention of downplaying the severity of the situation Bancor faced. On June 20th, Bancor’s product architect and head of research Mark Richardson discussed the implications of the pause at length in a Twitter AMA.

Richardson explained that the decision to keep trading open was a practical one, as reactivating IL protection would require rebalancing over 150 liquidity pools. Halting new deposits, however, was an ethical decision — Richardson said that it wouldn’t be fair to accept new liquidity from users while the situation remains unresolved.

Nate Hindman, the chief of growth at Bancor, told CryptoSlate that there’s no room for speculation about Bancor’s solvency.

“Everything is on-chain. You can see how much the protocol needs to pay out in IL insurance. We are not a centralized protocol where it is a black box and an individual can take risks with user funds. This transparency into exactly how much IL insurance is owed is what helped us quickly identify the situation and take emergency action afforded by the DAO to pause the insurance feature on withdrawals.”

When it comes to accusations about the sustainability of Bancor’s IL protection mechanism, Hindman said that there was a lot of confusion surrounding its insurance model.

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“Some people think we compensate for impermanent loss just by printing more BNT. That’s not quite true. In reality, Bancor offers its liquidity providers impermanent loss insurance in return for a proportion of the trading fees earned on the platform.”

The protocol has two ways of generating these fees, with the first being Bancor’s protocol-owned liquidity. Bancor stakes BNT in its pools and uses the fees earned from staking to compensate users for any IL they incur. The second way of generating fees is through a protocol-wide fee that confiscates 15% of all trade revenue on the network and uses the fees to buy and burn vBNT.

The decision to pause withdrawals was a result of a “perfect storm of macro events” that culminated with the rapid dumping of BNT liquidity mining rewards that were “excessively issued” over a period of 18 months. Hindman said that Bancor decided to prevent a handful of large players from dumping their stockpiles of BNT rewards and withdrawing their large liquidity stakes to protect individual users of the protocol.

“Excessive spending on BNT liquidity mining rewards during the lifetime of Bancor v2.1 put massive stress on IL protection amid a perfect storm of macro events. That was the original sin — overspending on liquidity mining rewards,” Hindman told CryptoSlate.

He noted that while Bancor is still confident in the robustness of its IL protection model even in these extreme conditions, the protocol needed to protect itself from the excessive dumping of BNT and the big short taken out on its native token.

The Bancor team is working around the clock on getting the IL protection system fully back online with better protections, Hindman said, but couldn’t provide any further details as to when that will happen. Bancor also acknowledged the need for better open-source analytics that would enable the community to assess emerging risks and react in time to avoid feature shutdowns.

Posted In: Analysis, DeFi

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