The crypto markets have suffered another flash crash after the custodial service provider Celsius announced to put all withdrawals on hold.
Celsius is one of the largest centralized gateways to crypto.
It raised $864m of venture capital and at one point custodied over $3 billion of funds for 1m+ customers.
As of today, it appears insolvent, and it's taking the whole crypto market with it.
The Celsius Thread:
— jonwu.(🗽, 🍎) (@jonwu_) June 13, 2022
Insolvency worries grow
On Monday, Celsius pushed an announcement via email, notifying account holders that they will be temporarily unable to withdraw, swap, or transfer assets held on the custodial staking and lending platform, citing “extreme market conditions”. This became possible due to a clause in the platform’s terms of services. In a memo published on the Celsius blog, they wrote:
We understand that this news is difficult, but we believe that our decision to pause withdrawals, Swap, and transfers between accounts is the most responsible action we can take to protect our community. We are working with a singular focus: to protect and preserve assets to meet our obligations to customers.
According to the memo, the company will resume normal operations as soon as possible, although there might be “delays”. Nevertheless, many in the crypto community speculate that Celsius might already be insolvent. One of their competitors, Nexo, even declared interest in bailing out the struggling service provider. Their Twitter announcement states:
We firmly believe that acquiring all or part of Celsius’ qualifying, outstanding collateralized loan receivables will go a long way in providing immediate liquidity to Celsius clients. We are still waiting to hear from their management and will update you.
Celsius accused of mismanagement
In a lengthy thread, Twitter user @jonwu_ accuses Celsius of mismanaging their customers’ funds. According to his research, Celsius deposited their user funds on MakerDAO in order to borrow DAI. At the same time, they purchased stETH on Lido’s liquid Ethereum staking pool.
This made the platform attractive to users, as they offered low borrow rates on DAI and high yields on ETH deposits. Earlier this year, Celsius also deposited heavily into the Anchor protocol, which played a key role in the collapse of the Terra ecosystem, but narrowly escaped the disaster.
Their gamble on attractive interest rates has however created a funding problem for Celsius, as their deposits on MakerDAO fell under the threat of getting liquidated after the recent market pullbacks. Simultaneously, stETH became unpegged from the underlying Ether coins that were staked on the Beacon chain and cannot be withdrawn until months after the upcoming Merge. At the time of writing, stETH trades at a discount of 4.8%.
In what seemed to be a Hail Mary attempt to avoid liquidation, Celsius has deposited a total of over 6,000 WBTC worth around 130 million USD into their MakerDAO vault. @jonwu_ explains that this is another hint that Celsius might be insolvent, as they would repay their own debts otherwise:
You’d do it if you can’t actually repay. If you’re a degenerate gambler taking the little solvency you have left and putting it all on black, hoping to make it all back in one trade.
In the meanwhile, Celsius has repaid an additional 47.1 million DAI, which can be viewed on their MakerDAO vault. This reduced their debt on MakerDAO to 231 million DAI and now puts their WBTC vault at a liquidation price of 14,000 USD.