In another symbolic blow to the embattled cryptocurrency, the price of bitcoin briefly dropped below $20,000 per coin over the weekend for the first time in two years. 
The fall in the price of bitcoin and other leading cryptocurrencies tracks with the broader stock market downturn, which some blame on recent Federal Reserve rate hikes, but the sector is also facing a series of internal blow-ups in the decentralized finance, or DeFi, market. 
One month after the collapse of the TerraUSD algorithmic stablecoin, which sent shockwaves through the crypto market, Celsius, one of the largest DeFi lenders, is teetering on the brink of insolvency. 
As a quick refresher, DeFi is the ecosystem of blockchain-based lenders, banks, trading platforms, and other financial services that mostly deal in cryptocurrencies. Celsius is one of the largest lenders in the space, which reported nearly $30 billion assets under management at its peak.  
On June 12, the company announced that it was suspending withdrawals and transfers, citing “extreme market conditions," which essentially left customer assets frozen in place as the wider crypto market tumbled. Celsius' native token, CEL, meanwhile, fell over 30 percent.   
The announcement led to widespread speculation that Celsius was headed for bankruptcy, even as the situation behind the scenes remained difficult to parse, given the company's lack of transparency about its high-valued investments.  
One week later, the suspension continues, and Celsius is asking customers to be patient. 
"We want our community to know that our objective continues to be stabilizing our liquidity and operations," the company wrote Sunday in a blog post. "This process will take time."
The blog post noted that Celsius was committed to maintaining an open dialogue with regulators and officials, but that it was pausing Twitter Spaces live audio chats and AMAs (Ask Me Anything question and answer sessions) to "focus on navigating these unprecedented challenges and seeking to fulfill our responsibilities to our community."

What Happened to Celsius?

How did a leading DeFi lender get into such a pickle? In part, it has to do with the risky nature of decentralized finance as it exists today. 
Celsius markets itself as a kind of bank. It takes in customer deposits (in this case, usually cryptocurrencies) and then lends those funds out on the back-end. Ideally, Celsius earns a return on its investments, and then rewards depositors with a hefty yield
While the crypto market was booming, this is exactly how it worked. Customers were sometimes earning yields as high as 20 percent, well above what the average checking or savings account offers on cash deposits, or even what an aggressive hedge fund could offer. 
Though many critics of DeFi pointed this out well ahead of recent blow-ups, Celsius insisted its business model was sustainable, with CEO Alex Mashinsky denying charges that the company would cut off customer funds as recently as a day before the suspension. 
The problems started when the crypto bubble began to deflate, and Celsius' own investments went sour. Suddenly, it no longer had the collateral to pay back customers. 
"As prices started to go down, Celsius had a lot of customer funds deployed across the ecosystem, and as people wanted to redeem their coins, they didn't have the liquidity on demand to meet that," said Chase Devens, an analyst at Messari, a leading crypto research firm. "That's ultimately what caused them to pause withdrawals." 
Specifically, Celsius had large holdings of a derivative product for ether, the second largest cryptocurrency behind Bitcoin. The derivative, called staked ether, is supposed to track one-to-one with the ether, but the price diverged as crypto prices plummeted. 

Not a Bank

Here's where Celsius's status as a kind of bank becomes problematic. Unlike a bank, the DeFi lender does not have to meet reserve requirements, or really abide by any other restrictions on how it invests customer funds. It can invest in whatever it wants, and customers don't have any recourse or protection in the case of an economic emergency. 
"In terms of transparency, it's comparable to a hedge fund, where you're essentially trusting them to invest along a certain risk profile," said Devens. "Obviously, it's just a black box from there." 
He added that the whole point of sticking money in Celsius, rather than investing it yourself on the open market, is that it could invest the money more carefully and with better risk controls. Now that it's clear they did not have those controls, the entire business model is in question. 
"There's no real established risk frameworks in the industry, so it's hard to point to someone and say, 'Oh, you should have known better,' because the space is so early and very much like the Wild West," he said. "What I do think it exposes is the lack of transparency that they had."
Another difference between DeFi lenders like Celsius and banks is that it doesn't have the backing of the Federal Reserve. That's why the company is now seeking liquidity from fellow members of the crypto market.
Over the weekend, Simon Dixon, the founder of Web3 investor Bnk to the Future, proposed a recovery plan for Celsius that could entail providing liquidity to Celsius.  
"I commit to supporting Celsius in any way that is useful," he said. "They have built a community that believes in bottom up, and we have a platform and experienced team that can help Celsius bottom up."
The proposal is short on specifics, but it does suggest at the very least that fellow crypto companies are keen to avoid the collapse of a major player in their space. 
In the same vein, the FTX crypto exchange on Tuesday announced plans to provide a $250 million credit facility to BlockFi, another DeFi lender facing headwinds. 
“I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion," FTX CEO Sam Bankman-Fried told NPR