The Celsius meltdown during crypto’s ‘Black Monday’ risks ‘contagion effect and cascading liquidations,’ top analyst says. Does bankruptcy loom?

One of the cryptocurrency market’s biggest lending platforms, Celsius Network, was near the center of the wipeout this week that recalled epic crashes in more traditional markets such as 1987’s Black Monday, taking the total cryptocurrency market cap below $1 trillion. Between Monday and Tuesday alone, cryptocurrency markets saw over $1 billion in liquidations in just 24 hours.

By Tuesday, Celsius hired attorneys to explore a financial restructuring, the Wall Street Journal reported. Fear of systemic risk drove the value of the cryptocurrency market down, now holding below $1 trillion.

According to its website, Celsius has 1.7 million users. It offers users a very high annual percentage yield (APY)—advertising up to 18.63% APY just yesterday—to deposit their cryptocurrency on its platform. Users can also borrow funds from Celsius so long as they offer other cryptocurrency as collateral for their loans. When investors cannot reach their margin requirement, their position gets liquidated.

In times like these, as cryptocurrency prices continue to fall, such requirements approach quickly.

While Celsius cites “extreme market conditions” for halting withdrawals on its platform, its users are worried that their positions will liquidate and question Celsius’ viability. Celsius did not respond to Fortune’s request for comment.

There’s also concern surrounding Celsius’ own loans, and how the market will be impacted if Celsius cannot repay such loans. “There’s definitely risk of contagion effect and cascading liquidations,” Andrew Thurman, content lead and analyst at leading blockchain data firm Nansen, told Fortune.

Celsius has an outstanding $231 million loan owed to decentralized finance (DeFi) lending protocol Maker. While Celsius is paying down their debt, it’s continuing to top up Wrapped Bitcoin as collateral for the vault, rather than closing out the position. The vault becomes vulnerable to liquidation if Bitcoin falls to $14,003.16.

“If those vaults were liquidated, it would put enormous sell pressure on Wrapped Bitcoin,” Thurman said.

However, Celsius repaying their debt is a good sign, and likely a “huge sigh of relief for Wrapped Bitcoin holders,” he said. “There's less risk of a massive sell pressure event from a possible liquidation there.”

According to Adam Levitin, a Georgetown University Law Center professor who specializes in bankruptcy, “there’s no obvious immediate liquidity event,” he tweeted on Wednesday.

“But I think there's a decision Celsius will ultimately have to make: whether to try to sell its good assets as fast as possible (which assumes BTC falls or is steady) or to hope that BTC prices will rebound,” Levitin said, adding that it’s “very likely” Celsius will end up in bankruptcy.

Nonetheless, investors are keeping an eye on Celsius’ on-chain movement.

After the Terra ecosystem collapsed, with failed algorithmic stablecoin TerraUSD (UST) and cryptocurrency Luna (LUNC) becoming nearly worthless, there has been a ripple effect throughout the space.

While investors worry about Celsius, it’s been reported that prominent cryptocurrency fund Three Arrows Capital (or 3AC) is also facing possible insolvency after facing $400 million in liquidations. “We are in the process of communicating with relevant parties and fully committed to working this out,” 3AC co-founder Zhu Su tweeted on Tuesday. 3AC did not immediately respond to Fortune’s request for comment.

Bitcoin, the largest cryptocurrency by market value, hit as low as $20,193 in the last 24 hours. It’s now trading at around $21,324. Ether, the second largest, hit $1,023 in the same timeframe, and is currently trading at $1,112.

This story was originally featured on Fortune.com