Celsius Loans Worth $40 Million Refinanced – Is Lending Against Crypto Back?
Post-Celsius, lending against crypto is making a comeback. Photo by Daniel Thomas on Unsplash.
Key Takeaways
- After Celsius collapsed in 2022, lending against crypto got a bad reputation
- But now, four lenders have refinanced more than $40 million worth of Celsius loans.
- Post-Celsius, lenders have learned some important lessons.
When Celsius went bust in July 2022, it cast a long shadow over the entire crypto-backed credit market. But now, with the memories of crypto winter fading into the past, lending against digital assets is making a comeback.
At the time the firm filed for bankruptcy, it had retail loans on its books worth $411 million. Nearly three years later, many of those loans have been successfully refinanced as a new generation of lenders step up to fill the hole left by Celsius.
Crypto Lending Post-Celsius
If crypto sector losing its largest lender in Celsius wasn’t bad enough, in the months that followed, Genesis, Voyager Digital and BlockFi all exited the space too.
Throughout 2023, lending against crypto was significantly suppressed. It was held back by both a dearth of liquidity and the lasting reputational damage inflicted by a string of bankruptcies.
But from the ashes of multiple crises, less risky, more resilient lenders have sought to build a different model for crypto-backed credit.
The firms that are now serving ex-Celsius borrowers include Arch, Figure, Ledn and Salt , which each issue loans in US dollars while holding customers’ crypto deposits as collateral.
As of Friday, April 5, Ledn had refinanced $38.6 million worth of Celsius loans. Meanwhile, Salt had refinanced loans worth around $4.2 million. Arch and Figure are yet to respond to CCN’s requests for information
Responsible Lenders Come Out on Top
While he acknowledged that the sector’s reputation suffered after the Celsius incident, Ledn CEO Mauricio Di Bartolomeo stressed that the underlying principle of borrowing against cryptocurrency doesn’t have to be any more risky than other types of loan.
He said: “We are proof that you can responsibly borrow against your Bitcoin.”
Alongside Unchained Capital and other firms that take a similar approach to risk, Ledn survived a period that saw some of the biggest players in the space crash and burn, he observed. So what do they do differently from those platforms that failed?
One of the main differences Di Bartolomeo highlighted is that Ledn implements the same checks and controls as traditional lenders.
Risk Management
The Ledn CEO pointed out Celsius’ collapse was precipitated by 3 Arrows Capital defaulting on loans. Yet his company was never exposed to the same risk.
He said:
“We did not have loans to three arrows. They never got approved through our desk because we asked for financial statements, which they never provided.
“Now, you have other groups and other lenders saying ‘how could they have defrauded us or given us this letter by [3AC founder Kyle Davies].’ But lending based on a letter without seeing financial statements in and of itself is a little questionable.”
Additionally, Di Bartolomeo added that Ledn also doesn’t deposit borrowers’ collateral into DeFi protocols, a strategy that will help protect it if there is a repeat of the Terra crisis that contributed to Celsius’ downfall.
Finally, post-Celsius, many lenders are much more selective about the kinds of assets they deal with. In many cases, they only accept Bitcoin and Ethereum as collateral.
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