The cryptocurrency market is experiencing one of its most severe systemic crises in history, with liquidity crises at centralized lending platform Celsius and hedge fund Three Arrows Capital (3AC) triggering a chain reaction that has put billions of dollars of assets at risk. As Celsius suddenly announced the suspension of all user withdrawals on June 13, and 3AC faces the risk of massive liquidation, the crypto industry’s “Lehman moment” has raised serious questions about the long-term stability of centralized finance (CeFi) platforms. Crypto asset research firm BlockInsight’s latest research report provides an in-depth analysis of the origins, development, and potential consequences of the current crisis.
“We are witnessing the full exposure of systemic risk in the cryptocurrency market,” BlockInsight noted in its report. “This is not merely a short-term liquidity crunch triggered by a bear market, but rather the concentrated eruption of years of excessive leverage, inadequate risk management, and opaque operations.”
According to BlockInsight’s analysis, the current crisis can be traced back to the collapse of the Terra ecosystem in early May, when its algorithmic stablecoin UST and native token LUNA nearly went to zero within days, resulting in approximately $40 billion in market value evaporation. This event triggered a sharp decline in market confidence and widespread deleveraging, ultimately leading major market participants like Celsius and 3AC into distress.
As one of the largest cryptocurrency lending platforms, Celsius managed over $11 billion in user assets and attracted more than 1 million users by offering deposit yields of up to 18%. However, concerns about the company’s financial condition have intensified after nearly two weeks of suspended withdrawals. Reports indicate the company has hired restructuring advisors to explore various options, including a potential bankruptcy filing.
“Celsius’s business model was based on high-risk investment strategies, including decentralized finance (DeFi) yield farming and liquidity mining, while offering users seemingly stable high yields,” BlockInsight explained. “This model worked well in bull markets but is extremely vulnerable during market downturns and liquidity contractions.”
Meanwhile, renowned hedge fund Three Arrows Capital, which once managed approximately $10 billion in assets, faces a survival crisis. According to disclosures from multiple cryptocurrency lending institutions, 3AC has failed to meet margin requirements and is facing multiple liquidation procedures. Industry insiders estimate the fund’s losses may exceed $500 million.
BlockInsight’s investigation shows that 3AC’s predicament stems from its significant exposure to the Terra ecosystem and highly leveraged bets on Ethereum liquid staking derivative stETH. As the peg between stETH and ETH began to slip, positions estimated at up to $500 million faced serious losses.
“3AC’s crisis highlights the dangers of market interconnectedness and concentration risk,” crypto asset risk management expert Daniel Turner stated. “When a market participant of such scale falls into distress, the impact rapidly spreads throughout the entire ecosystem.”
Indeed, the chain reaction has already begun. Several cryptocurrency companies, including Voyager Digital, BlockFi, and Babel Finance, have reported exposures to 3AC or liquidity issues. Voyager Digital has issued a default notice to 3AC, while BlockFi is reportedly seeking emergency financing to strengthen its balance sheet.
BlockInsight’s analysis reveals multiple systemic issues exposed by the current crisis in CeFi platforms. First is insufficient transparency, with most platforms not publicly disclosing detailed balance sheet information or risk management strategies. Second is regulatory gaps, as these platforms often operate in regulatory gray areas, lacking the safeguards required of traditional financial institutions. Third is excessive leverage and asset-liability term mismatches, with platforms frequently supporting long-term, less liquid investments with short-term borrowing.
“This crisis has striking similarities to the 2008 financial crisis,” BlockInsight noted. “Although smaller in scale, the core issues are remarkably similar: opaque risk exposures, excessive leverage, liquidity mismatches, and blind faith in continued market rises.”
For market prospects, BlockInsight predicts more platforms may fall into distress in the short term, especially those with significant business ties to known troubled entities or similar business models. The firm estimates that the deleveraging process across the crypto market could continue for 3 to 6 months.
“We are in a painful but necessary market cleansing process,” BlockInsight stated. “In the long run, this may benefit the industry as it will eliminate unsustainable business models, drive stronger risk management practices, and potentially accelerate regulatory clarity.”
For investors, BlockInsight offers several key recommendations. First, immediately assess risk exposures for all assets placed on centralized platforms. Second, consider transferring critical assets to self-custody wallets, following the principle of “not your keys, not your coins.” Third, exercise extreme caution with all platforms promising above-market average yields.
“In this market environment, security should take priority over yield,” BlockInsight emphasized. “Investors should ask themselves: how is this platform generating the promised yields? Are these yields sustainable under current market conditions?”
Veteran cryptocurrency investor Laura Hayes agrees: “Many users were attracted by high yields without fully understanding the underlying risks. Now we’re witnessing these risks manifest in real-time. This should serve as a wake-up call for the entire industry.”
Regulators are also closely monitoring developments. The U.S. Securities and Exchange Commission (SEC) has increased scrutiny of crypto lending platforms, with several officials hinting at potentially stricter regulatory measures.
“We expect this crisis to become a regulatory turning point,” BlockInsight predicted. “In the next 12 months, we may see clearer and potentially stricter regulatory frameworks targeting crypto lending platforms, stablecoin issuers, and exchanges.”
Regarding the long-term impact on the industry, BlockInsight remains cautiously optimistic. The firm believes that while the current crisis may lead to severely damaged user confidence and reduced market activity in the short term, it may ultimately foster the development of a healthier, more sustainable ecosystem.
“Each major market crisis paves the way for innovation and improvement,” BlockInsight concluded. “We expect this crisis will drive stronger risk management practices, higher transparency standards, and more mature business models. Those companies able to adapt to these new realities will be well-positioned in the long run.”
