Celsius suspected of being close to default
In recent days on Twitter, several observers have noted elements suggesting that the Celsius Network platform could end up in default of payment vis-à-vis its users in the coming weeks.
The conditional is important in the facts presented in this article, because we can not having all the elements available. Nevertheless, it is important to keep the community informed of the possible risks on this case.
According to Twitter user yieldchad, Celsius’ position in Ethereum (ETH) would not be liquid only up to 27%. The rest of the reserve would correspond to stETH and ETH2, i.e. tokens representing ETH, staked in the ETH 2.0 smart contract and which will only be released after the transition from the blockchain to proof- of-stake (PoS):
Celsius $CEL is functionally insolvent on their ETH position.
Only 27% of Celsius’ ETH is liquid, the rest is either stETH or staked in ETH2, so inaccessible for at least 1 year.
If withdrawals continue at the current pace of…(1/x) https://t.co/Q1xmWeDqc9 pic.twitter.com/4OyCylBw0F
— yieldchad (@yieldchad) June 5, 2022
Thus, in the event of a massive withdrawal and according to this information, Celsius is not able to honor the position of its customers on ETH. If the possibility of selling stETH against ETH is possible, the liquidity pool on Curve (CRV) is however slightly unbalanced for the moment.
The total value locked (TVL) on Curve stands at $1.5 billion on the stETH/ETH pair. This means that Celsius could not urgently sell its supposed 445,000 stETH, which is worth more than $785 million. would cause a total imbalance between the two assets.
👉 To go further – Find our guide on tokenomics to analyze a crypto project
The use of borrowing
Another Twitter user analyzed the activity of several addresses he attributes to Celsius Network. His conclusion is that the platform would resort to borrowing liquidity to honor user withdrawals :
🚨Over the last 30 days, #Celsius borrowed at least $76.7 million $USDC and $18.3 million $USDT to pay withdrawals. This is 29% of total sent out from known #Celsius hot wallets ($327 million).
Why is Celsius borrowing to pay customers back?@Bitfinexed @DoombergT @QTRResearch pic.twitter.com/REqtt8ec2Z
— Dirty Bubble Media: 🌡⏰💣 (@MikeBurgersburg) June 4, 2022
Alex Mashinsky, the platform’s founder, responded to the allegations in this tweet by informing that Celsius took advantage of low market rates to borrow cash. Conversely, the company lends liquidity when the rates are favorable.
In decentralized finance (DeFi), strategies involving the lending and borrowing of liquidity are commonplace, to optimize its returns. It is therefore not an alarming practice as such. However, it is true that this contributes to making said funds less liquidresulting in loss of agility.
What do you think of that?
It’s not just Celsius Network that runs the risk of default in the event of a massive cash withdrawal. Similar to what would happen with a traditional bank, this is potentially a risk run by other centralized platforms in our ecosystem.
On the other hand, even if this alarm bell may be unfoundedfor lack of a global vision of the situation, it is still necessary to take the measure, moreover after the events of Terra.
Moreover, it is just likely that Celsius Network, like other platforms, recorded losses on the UST and that it has not yet communicated fully on this subject.
Moreover, in a survey relayed by Bloomberg, we learn that an address, related to the platform, sold massively from UST at the start of the fall. This action, which contributed to the collapse, can be attributed to a risk management policy of the company, which then preferred to record its losses rather than wait.
If centralized platforms offer undeniable comfort, to easily generate returns, we cannot never be 100% sure how our funds are distributed. Therefore, it should be borne in mind that this practice is not without risk and that we may lose some or all of our investment.
👉 Also in the news – Gemini sued over security breach
Source: Curve, Bloomberg, Nansen Survey
Newsletter 🍞
Get a crypto news recap every Sunday 👌 And that’s it.
About the Author : Vincent Mayor
I timidly discovered the world of blockchain at the end of 2018 during my quest for financial freedom. Initially invested moderately, it was only two years later that I took the gamble of betting everything on the movement that was taking shape then. I then dedicate 2021 to training myself better to acquire more knowledge and seriousness. As I often like to say: I still have a billion things to learn. And what I do know, I want to share with you.
All articles by Vincent Maire.