The 2022 Lender Collapses: Celsius, Three Arrows, and Contagion

7.1 What they were

During the 2020 to 2021 bull market, several centralised crypto lending companies grew rapidly. They offered customers attractive yields, often far above bank rates, for depositing crypto and stablecoins. Behind the scenes, they lent those deposits to traders and funds, invested them in DeFi, or used them in other strategies.

Celsius was one of the largest, marketing itself as a safer alternative to banks, with slogans criticising traditional finance. Other lenders, like Voyager and BlockFi, offered similar products.

Three Arrows Capital (3AC) was a large, highly respected crypto hedge fund. It borrowed heavily from many of these lenders, often with little or no collateral, based on its reputation.

People trusted them because they were large, well-funded, widely advertised, and appeared successful. Yields had been paid reliably for years.

7.2 What happened

Date	Event
May 2022	Terra and LUNA collapse (Chapter 6); several lenders and funds have exposure
June 2022	Liquid staking ETH trades at a discount to ETH (Module 9, Chapter 8), hurting leveraged positions
12 June 2022	Celsius freezes all customer withdrawals
Late June 2022	3AC defaults on loans; a court orders its liquidation
July 2022	Voyager and Celsius file for bankruptcy, partly due to 3AC exposure and their own losses
November 2022	After FTX collapses (Chapter 8), BlockFi, which had financial ties to FTX, also files for bankruptcy

7.3 How the contagion spread

Link	How it spread losses
Lenders lent customer deposits to 3AC	3AC's collapse left lenders with large unpaid loans
3AC was heavily exposed to Terra and leveraged positions	Terra's collapse wiped out much of its capital
Lenders used customer deposits in DeFi and illiquid investments	Deposits couldn't be returned quickly when customers rushed to withdraw
Customers of all lenders feared the same problem	Withdrawal rushes hit multiple platforms at once

This is the composability and contagion of Module 9, Chapter 12, but happening inside private companies, where nobody outside could see the risks.

Chapter 7 · The 2022 contagion

Terra's collapse inflicted heavy losses on the hedge fund Three Arrows Capital, which defaulted on loans from crypto lenders. Celsius, Voyager, and BlockFi, exposed to Three Arrows and to opaque lending, could not meet withdrawals and froze customer funds, spreading the contagion outward.

7.4 The yield wasn't what customers thought

Customers thought of their deposits like savings accounts. In reality:

Customers assumed	Reality, in several cases
Their deposits were safe, like a bank	No deposit insurance; deposits often legally became the company's property under the terms of service
Yields came from safe, overcollateralised lending	Yields came from risky, sometimes undercollateralised lending and leveraged strategies
Withdrawals were always available	Deposits were locked in illiquid positions
The company was transparent	Risks and losses weren't disclosed

In the Celsius bankruptcy, a court ruled in early 2023 that assets in its main yield accounts belonged to the company's bankruptcy estate under its terms of service, meaning customers became unsecured creditors.

"So 'earning interest on your crypto' meant 'lending your crypto to a company that could lose it,'" said Node.

"That's what it meant," said Hash. "And the terms of service said so, in language few people read."

7.5 Warning signs

Warning sign	Module
Yields well above safe rates, with vague explanations	Module 15, Chapter 10
No transparency about where deposits were lent	Module 9, Chapter 1
Terms of service transferring ownership of deposits	Module 1, Chapter 7
Founders selling their own platform tokens while promoting the platform	Module 5, Chapter 11
Concentration of loans to a few large borrowers	Module 12, Chapter 5
Undercollateralised lending based on reputation	Module 9, Chapter 5
Marketing focused on attacking banks rather than explaining risk	Module 11, Chapter 2

7.6 Aftermath

Legal outcomes. Celsius's founder and former CEO, Alex Mashinsky, pleaded guilty to fraud charges in December 2024 and was sentenced in May 2025 to 12 years in prison. Prosecutors said he had misled customers about the platform's safety and profitability while selling his own tokens.

Recoveries. Celsius creditors received distributions through its bankruptcy, with New York's attorney general reporting more than $3.4 billion distributed as of August 2026, short of full recovery. Other lenders' creditors recovered varying amounts over several years.

Industry impact. The collapses discredited centralised crypto lending, pushed users toward transparent on-chain lending (Module 9, Chapter 5) and regulated products, and contributed to tougher rules on crypto platforms.

7.7 Lessons

1. Every yield has a source; if it's hidden, assume risk is hidden too.
2. Read the terms: who owns your deposited assets?
3. Transparent on-chain protocols let you see risks; private companies may not.
4. Contagion spreads through hidden connections (Module 9, Chapter 12).
5. Watch what insiders do, not just what they say.
6. Diversify custody and avoid concentrating savings in yield platforms (Module 15, Chapter 10).

7.8 Try it yourself

If you use any platform that pays yield on deposits, find its terms of service and answer: who legally owns deposited assets, where the yield comes from, whether deposits are lent out, and what happens to customers if the company fails.

Key takeaways from this chapter

1. Centralised lenders offered high yields by lending customer deposits to funds like 3AC and using them in risky strategies.
2. Terra's collapse and leveraged losses brought down 3AC, which spread losses to lenders including Celsius and Voyager in mid-2022.
3. Customers often didn't realise their deposits legally belonged to the company and weren't insured.
4. Warning signs included vague high yields, no transparency, ownership-transferring terms, insider token sales, and concentrated loans.
5. Celsius's founder was sentenced to 12 years in May 2025; creditors received partial recoveries over several years.
6. Trace yields, read terms, prefer transparency, and avoid concentrating savings in yield platforms.