Basically, Celsius and Voyager were heavily involved in crypto lending, where they accepted deposits from users and lent these assets out to generate returns. Unfortunately, their exposure to risky assets and counterparties significantly contributed to their downfall. They were caught in a liquidity crunch when the value of collateral fell dramatically, and they couldn’t cover user withdrawals.

Exactly, and adding to that, the broader crypto market downturn exacerbated the situation. When the market is bullish, asset values prop up the risky positions, but as the market started to crash, following a series of external shocks, these platforms found themselves over-leveraged and unable to sustain their business models.

One of those external shocks was the Terra collapse. Both Celsius and Voyager had exposure to TerraUSD (UST) and its associated Luna token. When UST de-pegged and Luna’s value plummeted, it sent shockwaves through the market, causing massive losses for those holding or connected to these assets. This event was a significant blow to both platforms’ liquidity and solvency.

Also, these incidents called regulatory scrutiny into sharp focus, questioning the sustainability and safety of high-yield crypto products. The lack of clear regulatory frameworks for crypto lending practices made it difficult for Celsius and Voyager to navigate during the crisis, leading to a loss of user trust and eventually, bankruptcy filings. The combination of high-risk exposures, market downturns, and regulatory challenges created a perfect storm that they couldn’t withstand.