Did Celsius Lose $10 Billion in Customer Deposits?

Celsius in the Hot Seat

It has been a turbulent month in the crypto markets, all kicked off by the collapse of the Terra ecosystem and the evaporation of billions of dollars in a matter of days. Understandably, speculators and investors alike have been forced to reevaluate their outlooks and proceed with an air of caution. Confidence is shaken, and that matters in crypto.

Now, crypto lending firm Celsius is in the hot seat. Their business model relies on a certain degree of trust from their customers. The way they generate revenue is by staking the Ethereum that customers deposit in order to generate yield, usually netting the customer between 6-8% interest.

Staking Ethereum ordinarily involves locking up 32 ETH tokens on the Ethereum 2.0 chain to secure the network before it switches to proof-of-stake in the fall. In turn, stakers will receive rewards for helping the network reach consensus. Celsius, however, utilizes a DeFi protocol called Lido which allows for liquid staking.

This means that it is possible for users to stake any amount of ether, and in return they will receive stETH tokens. stETH tokens are meant to trade at parity with ETH tokens, meaning that one stETH token will get you one ETH token. However, following a rapid decrease in the price of ETH and a rush to withdraw staked tokens from Lido, stETH is now only trading at 96% of the value of ETH. This has resulted in concern among Celsius customers regarding the value of the funds they have deposited with Celsius. The total value of Celsius deposits sits at around $10 billion at time of writing.

Fears were only exacerbated on Monday, as a statement was released by Celsius announcing that they would be “pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community.”

Customers are now forced to sit and wait, and it is not clear if their funds are as liquid as they previously thought. Given the amount of capital at stake, the possible insolvency of a company like Celsius has only worsened conditions in the crypto market. With the continued occurrence of instances like this, as well as the collapse of the Terra ecosystem, people sometimes forget that there are legitimate companies in this space, and Nexo is a fitting example.

Nexo Aims to Acquire Celsius Portfolio

In a letter sent to Celsius on June 13th, Nexo expressed interest in the Celsius collateralized loan portfolio.

Regarding the possible acquisition of certain assets, Nexo wrote

The purpose of the letter was regarding the possible acquisition of certain remaining qualifying assets, collateralized loan receivables secured by corresponding collateral assets, brand assets and customer database of the business.”

Nexo’s business model does not contain the weaknesses found in Celsius. Furthermore, Nexo states the company is in a position with ‘solid liquidity and equity to help mitigate the consequences of Celsius’ distressed state.

Based on current business metrics, Nexo, its partners, and affiliates could readily acquire from Celsius part, or all qualifying assets held.

Nexo’s offer will remain in effect until 4:30am UTC on June 20th, 2022.

In a customer audit released Monday, June 13th, Nexo reported having $6.2 billion in customer liabilities and held assets greater than that amount.

Celsius did not respond to Nexo at the time of this publication.

Where do we go from here…?

Celsius released a statement on Tuesday, in which they stated that “our ultimate objective is stabilizing 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.”

No clear timeline has been presented and depositors are, understandably, growing increasingly anxious by the day. A continued decline in the crypto market would result in a continuation of the inability for Celsius to honor their customers’ funds. Even if the market turns around, it is unclear whether Celsius will be able to recover from this catastrophic shaking of confidence. For now, we will continue to monitor the funds deposited in Celsius for any signs of movement, but until then, depositors can only hope their funds will eventually be available for withdrawal.

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