Luna, Celsius, FTX – Who’s Next?

One of the most popular crypto exchanges globally, FTX, experienced a liquidity crunch with a bankruptcy filing probably soon to follow. Earlier this year, similar platforms went under starting with the Terra Luna Crisis. With LUNA, the stablecoin UST was minted each time LUNA was burned. So rather than having the ‘stablecoin’ asset backed by something of value it was essentially backed by itself making it entirely dependent on the demand for LUNA. 

A Repeating Pattern of Under Collateralized Lending

Shortly after, Celsius, a popular crypto lending platform, halted withdrawals to customers then filed for bankruptcy. This led to a cascade of effects in which Voyager, 3AC, and more all went under. Rumors are circulating about the 30-year old billionaire founder of FTX, Sam Bankman-Fried, filing for personal bankruptcy similar to Alex Mashinsky’s less than graceful fall from fame.  

Yesterday, following all the Chaos of Alameda and FTX going under, CZ announced Binance’s intention to buy FTX.  The market still steadily declined as investors weary of another Luna and Celsius style dump began to pull from the market. After they completed their due diligence Binance withdrew the offer.

Is Crypto.com Next?

Within the last few hours, Crypto.com has even halted deposits and withdrawals on Solana, and the chains USDC, and USDT. They explained the halt was due to the fact that FTX acts as a crucial bridge for Solana and a large portion of the total supply of Solana was controlled by Alameda Research, the trading firm set up to support FTX.  This could expose crypto.com users to risk, which is why they choose the suspension. 

Mike Burgersburg of Dirty Bubble Media, has had his finger on the pulse of these schemes since Day 1, not only calling the Celsius crash way before others but following up on transactions and fraud and reporting them with impressive clarity. 

FTX and Celsius were a Little too Close for Comfort

The entanglement between all of these insolvent companies affects retail customers the hardest and the reputation of crypto seems to be in question. According to Burgersburg, in the period between Celsius halting withdrawals and filing for chapter 11 bankruptcy, they made net transfers worth $700 million to FTX as collateral for a loan amongst other questionable transactions. He deducted that Celsius actually liquidated user assets as collateral for loans from DeFi platforms. In other words, Celsius chose not to liquidate several loans they had made with big companies, but rather dump on their retail clients. 

Decentralization was meant to help the people bypass centrally controlled entities that aim to manipulate the economy for sport. While the FTX fail will certainly ripple through the crypto market for some time, these platform insolvencies could be considered housekeeping. With any new industry, shady practices will emerge and having them exposed early on is potentially good in the long run.  This is also a not-so-gentle reminder for crypto investors to guard your tokens in decentralized wallets or even better, hard wallets that keep your coins SAFU.