Crypto lending firm Celsius rushed to top up its collateral on Maker to increase the liquidation price of its assets.
The company added just over 2,000 Wrapped Bitcoin (WBTC) to its collateral on June 14, depositing 1,501.77 WBTC and 499.99 WBTC into its vault.
Celsius narrowly avoids WBTC liquidation
A quick top-up saved Celsius from a massive liquidation that could have had devastating effects on the company and the entire market.
Struggling with a liquidity crunch induced by the depegging of stETH and ETH, Celsius became vulnerable to another selloff – this time from its massive leverage on the Maker Protocol. Celsius opened a loan on Maker to provide low-interest loans to its users by posting around 20,000 Wrapped Bitcoins (WBTC) as collateral.
On June 13, the platform had just under $479 million in collateral locked on Maker. The position would begin to liquidate once Bitcoin reached $20,272, as this would put Celsius at risk of defaulting on its debt. On the same day, Celsius deposited 4,041.48 WBTC into its vault, lowering its liquidation price to less than $20,300.
However, the rapid price drop pushed BTC to critical levels, falling below the $21,000 resistance level. At several points throughout the day, Bitcoin’s price was only a few percent away from triggering selloffs on Celsius’ position.
Celsius completed its collateral again to save more time and avoid liquidations as much as possible, adding 1,501.77 WBTC and 499.99 WBTC in two consecutive trades.
Adding 2,000 more WTBC saved Celsius a lot of time. The liquidation price of its WBTC collateral now stands at $16,852.58, just over 24% below BTC’s current price.
Celsius’ latest addition takes its position to a collateral ratio of 191.98%, with the platform now having over 23,962 WBTC in locked collateral, or $534.7 million.
Band-aids don’t fix bullet holes
Despite its latest efforts to avoid liquidations, Celsius is still in deep trouble. Celsius suspended withdrawals, exchanges and transfers between accounts to deal with the crisis. However, this move only sparked more fear in the community and caused a massive drop in the value of its native token, CEL.
Many criticized her decision to supplement her collateral instead of repaying her loan on Maker, saying she could have used the additional collateral to pay off any number of her outstanding loans. Some even argued that adding additional collateral meant the platform couldn’t repay the loan and had taken what little creditworthiness they had left and put it on the line.
Option (b) looks 50% worse than (a).
So why would you choose it?
You would if you can’t actually repay.
If you’re a degenerate gambler, take what little solvency you have left and put it all on the black, hoping to get it all back in one trade.https://t.co/IfAyoMLxyG
— jonwu.aztec (@jonwu_) June 13, 2022
All the uncertainty about Celsius’s ability to repay its clients’ loans and its leveraged positions sent the price of BTC and ETH plummeting. In turn, these falling prices further diminished the value of its collateral.
According DeFi ExplorerCelsius has an outstanding debt of 278.5 million DAI.