Debt off your high horse
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
“In the long run we shall have to pay our debts at a time that may be very inconvenient for our survival.” - Norbert Weiner
The market breathed a collective sigh of relief on Thursday, as news came in that Celsius finally repaid its debts, freeing up the ~$500m WBTC collateral that has been at risk of liquidation for several weeks. Crypto responded positively to the news, with BTC mounting a breakout above a month of tightening consolidation. It must be noted, however, that while such a breakout (if successful) may provide some relief, the overall climate remains the same - and could likely be followed by further downside. For a deeper understanding of bear market rallies, check out our recent piece on these dynamics.
Here’s the thing.
How did a firm on the verge of insolvency find >180m DAI to release said collateral? And what do they plan on doing with it?
Thus far, the only parties who’ve been paid back are protocols, namely - Aave, Compound, and MakerDAO. All while Celsius user funds still remain locked in the protocol.
These remain open questions – wild speculation does us no good. That being said, the fact that Celsius has failed to open withdrawals despite meeting their debt obligations only further emphasises a harsh truth that’s become evident in recent months – in the grossly overexposed and terribly mismanaged world of CeFi lending, protection of user funds is secondary to protecting protocol assets and runway.
Final thoughts
The reason Celsius paused withdrawals initially, to stave off a bank run, is in direct conflict with the ethos of crypto. Lest we forget this space was born out of a deep financial crisis caused by over leveraged banks who received hundred-billion dollar bailouts while the civilians they used to run up their margins were left with nothing.
It’s deeply saddening that in many senses, at least at present, it seems we’ve come full circle. Locking user funds to prevent withdrawals is a single-minded, corporate maximalist approach that, to be frank, needs to be expunged from this space in order for us to remember why we built crypto in the first place - for a better financial paradigm, and not a digitised reinvention of the old guard.
On the other hand, many of the protocols currently in similar positions are centralised lending firms, rather than true decentralised finance. DeFi, despite declining yields and lower volume, has held steadfast throughout these explosions of volatility, and continues to fare well as a sector. We’ve said it many times, but some things are worth repeating – DeFi as we know it is barely two years old.
With development continuing come rain or shine, one can be cautiously hopeful that as the sector continues to grow, the prevalence of, and need for, CeFi lending platforms in crypto should, for the most part, evaporate.
Inch by inch, calamity by calamity, this industry continues to scale that greatest of mountains – negotiating value, transacting, and accessibility to create a financial paradigm that serves to benefit humanity, rather than extract maximum value from individuals to fill the already stuffed coffers of faceless institutions.
