Celsius, Genesis, and 3AC (the 2022 Contagion)

The 2022 contagion shows what was really happening to deposits that customers thought were just sitting there. The money was getting lent out, and sometimes lent on again.

Celsius went first. It was a lender that advertised high yields on deposited crypto and put customers' assets into risky bets to pay for them. It froze every withdrawal on 12 June 2022, when hundreds of thousands of customers had $4.7 billion on the platform that they couldn't reach, and it filed for bankruptcy a month later.

Three Arrows Capital (3AC) was a crypto hedge fund founded by Su Zhu and Kyle Davies. It borrowed from lenders across the industry to fund its bets, and much of its portfolio was in Terra's LUNA token, which lost 99 percent of its value in mid-May 2022. In the weeks that followed, 3AC defaulted on several of its major lenders. By mid-June it was reported to be facing more than $400 million in liquidations, and at the end of June a court in the British Virgin Islands put it into liquidation. By late July its creditors had claimed more than $2.8 billion, and its liquidators expected that figure to grow.

The firms that had lent 3AC their customers' money took the hit. Genesis, the lending desk owned by Digital Currency Group, had lent 3AC about $2.4 billion. When that money was gone, its parent covered about $1.1 billion of the hole on paper with a ten-year promissory note, which doesn't come due until 2032. According to a lawsuit by New York's attorney general, Genesis and its parent then said publicly that Genesis's balance sheet was strong. When Genesis stopped withdrawals in November 2022, it held about $900 million from some 340,000 people who had lent their crypto to it through the Gemini Earn program. Genesis filed for bankruptcy in January 2023. Voyager, which had lent 3AC more than $650 million, froze withdrawals on 1 July 2022 and filed for bankruptcy days later. BlockFi was also hurt by 3AC's collapse. FTX kept it going with a $400 million credit line, and BlockFi filed for bankruptcy after FTX did in November 2022.

Celsius founder Alex Mashinsky pleaded guilty to fraud and was sentenced to 12 years in 2025. None of this needs cartoon villains. It is just what "earn interest on your crypto" actually means: your crypto gets lent into someone else's leverage, and you quietly become a creditor of a trade you never agreed to.

See Mt. Gox to FTX: The Custody Graveyard for how the 2022 contagion fits the longer story.