Celsius Users Failed by Bad Risk Management
The news that Celsius Network has filed for Chapter 11 bankruptcy is perhaps unsurprising given recent news, but still hugely disappointing for its users and the blockchain and cryptocurrency community at large.
This is continued fallout from the collapse of Terra Luna’s UST token, which has taken down many prominent investment funds and platforms that were invested in it and will likely continue to do so.
Huge swathes of Celsius’s retail userbase could be negatively impacted through no fault of their own, but through bad risk management at the company. These users had no clarity on how their money was being used and have now no doubt lost faith in Celsius and similar platforms.
As strange as this statement might sound right now, though, all of this is a really positive signal for decentralized finance at large. We are seeing the fruits of complete transparency on the blockchain, and this bodes very well for the future.
Platforms, projects, and companies in this space operate using immutable digital ledger technology. This means that transactions are fully visible to the entire community, many of whom are very switched on to what is happening and will take the time to look at on-chain transactions. Prompted by this visibility, firms like Celsius and others have to move to solve problems when they arise.
As in 2017 and 2018 during the huge ICO boom that lead to the first big “crypto winter”, a number of lessons will undoubtedly be learned here, chief among these will be transparency, specifically the need for more of it. Rather than ask users to trust them platforms should simply allow them to see what they are doing. As a result, we should see a very different kind of decentralized finance ecosystem emerge.
It remains a really great signal for the technology, however. Transparency is winning the day, and while it’s perhaps not helping investors to stem losses, platforms and companies are fully accountable. This is a really significant development in global finance that will lead to greater trust and ultimately greater capital inflows.
Ultimately, this bankruptcy is part of a big deleveraging wave that has come at the end of a massive bull cycle and speculation frenzy. History has many lessons to teach us here and, unfortunately, no smart contract could block people from being over-invested or speculating. This is part of an economic cycle – especially in a young market – and so right now, nature is arguably taking its course.
