Category: Celsius

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Celsius Crypto Staking DeFi Ethereum Lido stETH

Celsius and the Risk Posed by Staked ETH Losing its Peg

After pausing all withdrawals, swaps and transfers between accounts on June 13, there are now fears the popular staking platform Celsius is facing a more serious liquidity crisis triggered by the declining value of Lido Finance’s staked ETH token relative to the value of real ETH. 

If the value of staked ETH doesn’t regain parity with ETH, it is feared Celsius may be left unable to pay out all users wanting to withdraw their funds.

Staked ETH, which is used extensively by Celsius, started to lose parity with ETH when DeFi markets were sent into chaos last month in the wake of the Terra ecosystem collapse.

What Is Staked ETH?

Staked ETH (stETH) is an artificial representation of ETH created by the DeFi platform Lido Finance. When users stake their ETH through Lido, it’s not locked up as it would be if it were staked directly to Ethereum 2.0. 

Rather, any ETH users who stake through Lido receive the equivalent amount of stETH in return, allowing them to then lend, stake or trade their stETH for other tokens. This kind of staking is known as liquid staking because the users’ assets effectively stay liquid.

Regular crypto users along with other DeFi platforms can use Lido Finance to stake real ETH in return for stETH. Celsius is one of Lido Finance’s major clients, staking large amounts of ETH through Lido on behalf of its users, and in the process generating staking rewards, with which it in turn pays its users’ annual percentage yield (APY). 

This system of liquid staking works well while stETH and ETH maintain parity. But once stETH starts to drop in value, as it now has, the system starts to unravel.

What Does This Mean for Celsius?

According to blockchain analytics platform Nansen Research, Celsius has over US$475 million worth of stETH and has been sending large quantities to exchanges over the past few days, presumably to sell in an attempt to increase liquidity. 

Unfortunately, this also has the effect of reducing the price of stETH, exacerbating the disparity between stETH and ETH. Other whales have also been selling large amounts of stETH over the past few days, which has further suppressed the price of stETH and increased pressure on Celsius.

In addition, according to Jack Niewold, founder of the Crypto Pragmatist newsletter, only around US$1.5 billion of the $US10 billion worth of customer assets held by Celsius are currently accounted for on-chain, a rather large discrepancy that has further spooked users.

It’s not known if Celsius has the remaining user funds and, if it does, where they are exactly. Niewold provides a fascinating breakdown in a detailed Twitter thread:

How can Celsius resolve this crisis? Niewold says there are four major possibilities:

  • it receives external funding;
  • it gets a loan;
  • it’s acquired by another company with enough capital to deal with this situation (Nexo has already expressed interest); or
  • it simply declares bankruptcy, ending the crisis but leaving users very much high and dry.
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CeFi Celsius Crypto News FTX

Claims Surface ‘Celsius’ Sent $320 Million to FTX Before Halting User Withdrawals

Before halting all withdrawals this week, crypto lending platform Celsius is alleged to have quickly transferred over US$320 million worth of cryptos to Bahamian exchange FTX. Rumours are now running rampant that Celsius may be heading to zero.

Celsius token (CEL) fell nearly 70 percent since the firm announced on June 13 it was pausing all withdrawals to “stabilise liquidity”. It now finds itself in troubled waters as the company is rumoured to have unstaked US$247 million in Wrapped Bitcoin from AAVE and sent it to FTX.

Transactions commenced over the weekend, with the first batch of 3,500 Wrapped BTC and 50,000 ETH, and continued to increase in subsequent hours. Celsius has yet to comment on the transfers, with the only communication coming from an announcement halting all users’ services, including withdrawals.

Twitter Accusations of Mismanagement

While the firm has not yet addressed the transfers to FTX, the crypto community is up in arms on Twitter and speculation runs wild that there are associated issues of liquidity.

Users have also criticised the platform for how they believe the project has mismanaged its funds following the collapse of the Anchor Protocol on the now-renamed Terra Classic blockchain. Celsius has been surrounded by scandal since its chief financial officer was arrested in December 2021 on charges of money laundering.

Some believe that if Celsius were to fail, it would precipitate a sell-off of its significant stack of staked ETH, which could cause it to depeg further from ETH.

While it is still unclear what the team at Celsius plans to do with the crypto it has moved, there is a real possibility that it could sell the assets it sent to FTX. Another option might be that it intends to stake the tokens it is sending to the exchange to earn yields. At this early stage, there appear to be more questions than answers. Hopefully some clarity will emerge shortly, particularly for those users who funds remained locked up.

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Celsius Crypto News

Crypto Lender ‘Celsius’ Pauses Withdrawals, ‘Nexo’ Proposes Buying It Out

Crypto services business Nexo is interested in buying “qualifying” assets from rival Celsius, since the latter appears destined for insolvency after freezing user withdrawals and transfers due to what it terms “extreme market conditions”:

Celsius Halts Withdrawals, Nexo Offers to Rescue

In its now infamous June 13 blog post, Celsius said it would pause its swap and transfer products, without offering any timeline as to when withdrawals would be resumed.

We are working with a singular focus: to protect and preserve assets to meet our obligations to customers. Our ultimate objective is stabilising liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible. There is a lot of work ahead as we consider various options; this process will take time, and there may be delays.

Celsius blog post

To be sure, Celsius is a controversial business that has made news for all the wrong reasons. Last year, its CFO was arrested on charges of money laundering, and then in April the company halted interest accounts for retail investors without due notice.

In a now widely circulated letter addressed to Celsius, Nexo has suggested that it is specifically interested in the former’s collateralised loan portfolio, however no mention of price was made:

As per the letter, Celsius has until June 20 to respond, however unconfirmed reports have circulated online that Nexo’s advances have been rejected.

For now it appears as if users will need to sit on the sideline hoping that all turns out well. However, with the price of digital assets collapsing, the situation is likely to get even worse for some users, according to Casa CEO Nick Neuman:

What Happened at Celsius?

In a fascinating breakdown of the mechanics behind Celsius, Bitcoiner Dylan LeClair outlines how the company has earned a yield on its products. In short, it used user funds to arbitrage inefficiencies in the crypto market, and over time, found itself employing increasingly risky strategies to maintain artificially high yields.

Initially, it was the Grayscale Bitcoin Trust, which when implementing the so-called “contango trade” enabled a “risk-free” return:

Later, when that opportunity closed, on-chain analysts found evidence of Celsius turning to Terra’s Anchor protocol for its “risk-free” 20 percent return:

And then following the Terra meltdown, Celsius relied upon synthetic ethereum (sETH) to earn a yield on Lido. However, sETH has since decoupled from ETH:

Celsius Exposed to Attack

Celsius is now in a transparently precarious position, which unfortunately means it is susceptible to attack. It has since defended its reserves, though its current liquidation level is available for all to see here.

Notably, as LeClair comments, bitcoin is expected to wick down further in the days to come as the position is likely to be attacked until Celsius is liquidated:

Arguably the most egregious part of this saga is that Celsius is using user funds to defend its risky yield strategies. You’d imagine that few users were fully informed of the risks upfront. It’s become trite, but now more than ever – “not your keys, not your coins”.

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Celsius Crypto News Regulation

Crypto Lender Celsius Halts Interest Accounts for Retail Investors Amid Regulations

Effective April 15, non-accredited US retail investors will no longer be paid rewards on any new deposits into Celsius interest accounts. The news comes in a statement from Celsius, which also notes that these rules will not impact customers outside the US.

Celsius Prioritises Regulation

The move by Celsius, a leader in centralised finance (CeFi), sees it fall into line with crypto regulations. From April 15, only accredited investors will be able to receive rewards and add new assets to the company’s Earn platform.

The update only applies in the US, and to be considered “accredited” an investor must have a net worth greater than US$1 million or a minimum annual income of $200,000. After April 15, those who aren’t accredited will have their coins held in custody, meaning they can still swap, borrow and transfer, but cannot earn interest.

As we previously have acknowledged, Celsius has been working closely with regulators around the world. It is our intention to be as transparent with our community as possible.

Celsius custody solution statement

Any US non-accredited Celsius users who were intending to use their crypto as loan collateral prior to April 15 will have their assets returned to their account on completion of the loan.

Other Offers and Rates

In March, Crypto.com slashed its return rates on token deposits, its second cut in a month. More recently, digital asset exchange Zipmex launched its ZipUp+ program, which offers Aussies very attractive yield returns. Zipmex is one of the major regulated Australian exchanges and may become even more popular with this new offer as the project allows interest of up to 10 percent APY without a lock-in period.