Celsius and 3AC Face Liquidation Amid Crypto Market Crash

In June 2022, the crypto industry witnessed two of its most prominent firms — Celsius Network and Three Arrows Capital (3AC) — spiral toward insolvency and liquidation, sending shockwaves across the entire ecosystem.

The events marked a tipping point in the 2022 crypto crash, exposing deep flaws in leverage, transparency, and risk management across centralized and decentralized finance.

The Celsius Crisis: A Freeze in Withdrawals

Celsius Network, a major crypto lending platform managing over $20 billion in assets at its peak, abruptly froze withdrawals and transfers on June 12, 2022, citing “extreme market conditions.”

This decision left millions of users unable to access their funds, sparking panic and speculation about the company’s solvency.

Key facts:

• Celsius promised high yields (up to 18%) on crypto deposits

• The firm took on leveraged positions and participated in DeFi strategies using customer assets

• As crypto prices fell, collateral ratios became stressed — forcing margin calls

• The platform held significant exposure to stETH (staked Ethereum), which was trading at a discount to ETH

In short: Celsius became illiquid, not necessarily insolvent — but in crypto, that distinction can quickly vanish.

3AC’s Collapse: Leverage Gone Wrong

Three Arrows Capital, a hedge fund managing billions in crypto assets, was known for its aggressive leveraged bets on Bitcoin, Ethereum, and altcoins — as well as investments in projects like Avalanche, Solana, and Terra.

The UST/LUNA collapse in May severely impacted 3AC, which held large positions in Terra-related assets. By June:

• 3AC defaulted on loans worth hundreds of millions

• Lenders such as Voyager Digital and BlockFi faced massive exposure

• The firm failed to meet margin calls, forcing counterparties to liquidate collateral

• Co-founders Su Zhu and Kyle Davies became unresponsive to creditors

On June 27, Voyager issued a notice of default, confirming that 3AC owed over $660 million in crypto.

Contagion: Dominoes Begin to Fall

The Celsius and 3AC crises quickly triggered a cascade of failures across the crypto lending and investment space:

• Voyager Digital froze withdrawals and filed for bankruptcy weeks later

• BlockFi faced liquidity issues and sought emergency funding

• Babel Finance, another lending platform, suspended withdrawals

• Hedge funds and OTC desks began marking down assets linked to Celsius and 3AC

Trust in centralized crypto lenders — once seen as safe and accessible — eroded rapidly, with users fleeing to self-custody or stable assets.

How Did These Firms Collapse?

At the root of both crises were common risk factors:

1. Excessive Leverage
   Both Celsius and 3AC used borrowed funds to chase yield, amplifying losses during drawdowns.

2. Lack of Transparency
   Users and investors had little visibility into balance sheets or risk exposures.

3. Concentration in Illiquid Assets
   Platforms like Celsius held large amounts of stETH, UST, and niche DeFi tokens — hard to sell under pressure.

4. Maturity Mismatch
   Short-term liabilities (withdrawable deposits) backed by long-term, volatile assets.

5. Interconnectedness
   The failure of one large player (e.g., Terra) created second-order effects for others who were exposed — including 3AC.

The Regulatory Response Intensifies

The dual implosions drew immediate attention from regulators:

• SEC Chair Gary Gensler reiterated concerns about crypto lending practices

• State regulators in New Jersey, Texas, and Alabama launched probes into Celsius

• Singapore authorities began investigating 3AC’s potential legal violations

• Calls grew for consumer protection, disclosure requirements, and capital reserve rules for crypto lenders

For many lawmakers, these failures became the strongest case yet for urgent regulation of centralized crypto finance.

Implications for Investors and the Crypto Ecosystem

The Celsius and 3AC collapses serve as painful reminders of the risks in a largely unregulated market:

• Retail investors lost billions — many had their life savings tied up in Celsius

• Institutional confidence was shaken, especially in crypto lending and hedge funds

• DeFi protocols saw reduced usage and increased scrutiny

• Risk premiums rose across the market, reducing appetite for leverage and speculative growth

But the events also sparked constructive shifts:

• Increased adoption of self-custody and hardware wallets

• Emphasis on proof of reserves and on-chain transparency

• Greater interest in decentralized lending protocols with auditable logic

Are Celsius and 3AC the End — or Just the Beginning?

The meltdown of Celsius and 3AC was not an isolated event, but part of a broader deleveraging cycle that gripped the crypto market in 2022. Similar to traditional finance crises, overconfidence in bull markets led to reckless risk-taking, which collapsed under pressure.

Both firms eventually entered bankruptcy proceedings, with creditors lining up and asset recovery ongoing.

Their downfall exposed structural weaknesses — but may ultimately lead to a stronger, more resilient crypto ecosystem built on transparency and risk-aware design.

Conclusion: The June 2022 Crypto Crisis Will Be Remembered

The twin failures of Celsius and Three Arrows Capital in June 2022 will go down as defining moments in the history of digital finance.

They remind us that yield is never risk-free, and that trust must be earned — not assumed.

Crypto will survive, but these events have reshaped the roadmap. The next wave of adoption will demand real transparency, sustainable models, and responsible governance.