Celsius bid to rival Wall St with crypto lending scuppered by risky bets

Celsius co-founder Alex Mashinsky has been in a defiant mood on Twitter this past weekend. When asked by one user why he had so many enemies, Mashinsky boasted: “Because I win and give everything to my community.” Days later, his crypto investment firm was in crisis after blocking customer withdrawals, a move that shocked the crypto markets.

The sudden halt to redemptions underscores the risks for investors stacked into complex digital asset products that offer high returns. Celsius claimed to have 1.7 million retail customers, including in the US, UK and Israel, and gained a reputation for aggressive gambling with its depositors’ money.

The investment group, which is generally unregulated beyond the lending licenses in a handful of U.S. states, grew to $ 24 billion of crypto assets under management in December last year. Québec (CDPQ), and Westcap, a foundation led by Blackstone and former Airbnb executive Lawrence Tossi.

Celsius presents itself as a simple company that helps day-to-day investors achieve “financial freedom” that is not available in mainstream financing.

“Crypto is the first time in history that the average Joe is ahead of Goldman Sachs and Morgan Stanley,” Mashinsky told the Financial Times in a September interview.

Celsius’ troubles, on the other hand, lie in complex and dangerous deals usually hidden in the belly of Wall Street.

The group, founded in 2017, rode the latest crypto bull run and has become one of the most prominent companies offering eye-popping returns of up to 18% to customers who have deposited their digital assets. Similar to how a bank super deposits as liabilities, Celsius customers are unsecured lenders, even though in the lightly regulated crypto world they do not have government-backed insurance for their funds.

Celsius has deployed these deposits in loans to large crypto market makers and hedge funds, as well as in so-called decentralized financing projects. Several players in the market have had a policy of not giving credit to Celsius even when they borrow from it, according to people familiar with the subject.

As crypto prices plummeted this year, Celsius was hit with withdrawals, totaling $ 2.5 billion withdrawn from the platform since March. In May, the company had assets of only $ 12 billion, half of where it started the year. It then ceased to disclose the total assets under management; However, CDPQ told FT that Celsius has suffered a “strong amount of pulls” from customers in recent weeks. Celsius did not respond to a request for comment on Monday.

The crypto lender was also there challenged In recent months by several U.S. regulators who claim its deposit accounts are unregulated securities. Celsius, in April, said it was in “ongoing discussions with U.S. regulators” and that as a result it would stop new deposits from U.S. retail investors To its yield-bearing accounts.

The final blackmail came last week with a severe mismatch of liquidity that Celsius had created. The company Borrowed site – Central digital token – from users, and then locked huge sums of the property for an indefinite period in a new version of the cryptocurrency that is currently under construction and experiencing delays. Website locking in the new version has won awards that will eventually be released.

Celsius locked the site directly, but also through a service called Lido that issues a derivative of the locked site, known as a “locked site” or stETH, which should be easily tradeable and treated as a one-to-one equivalent site itself. She used this STTH as collateral for additional loans, and advertised for $ 450 million on a platform called Aave, according to public blockchain data.

StETH holders sold the derivative last week due to concerns about delays in the exit of the new Ethereum network, the main digital ledger where the site is traded. The sale drew liquidity from the derivative’s main trading pool, leaving Celsius unable to replace its stETH with regular ether to meet customer attraction requests without incurring huge losses, according to crypto analysts.

What makes up the challenge is the threat that it may be forced to put more collateral on Aave or be liquidated on its loans if the price of stETH continues to fall.

The group announced on Monday that it would suspend the withdrawal due to “extreme market conditions”, saying the decision had been made to place Celsius “in a better position to honor, over time, its withdrawal commitments”.

The company’s crypto token, CEL, has dropped to just 30 cents following recent troubles. It traded at almost $ 8 last June. The wider crypto market has also been hit According to Celsius’ troubles, Bitcoin has fallen 25 percent since Friday and traded below $ 23,000.

A $ line chart for a currency showing dives of about Celsius token

Celsius has managed to extricate herself from the previous hard spots, all of which were spelled out by a growing band of online critics, who have been warning for months of the risks Celsius is taking. Among them was an American blogger, CJ Block, who writes under the pseudonym Mike Burgersburg, and bitcoin entrepreneur Corey Clippsten.

“They invested their money in all kinds of risky gambling… At best they were like a hedge fund that uses retail money,” said Block, who recently graduated from medical school after spending months analyzing Celsius’ positions using blockchain data.

In May, Celsius withdrew $ 500 million from Tara’s ecosystem shortly before it collapsed, contributing to the rapid exit Pulled the terra stablecoin and its linked luna token. The company had a harder time last year when it lost 900 bitcoins it deposited in a crypto venture called Badger DAO which was hacked at the time. Celsius was also the owner of large amounts of stETH issued by another company, Stakehound, which became almost worthless when Stakehound lost the keys to the basic site.

Max Bonan, founder of B2C2 crypto broker, compared crypto lenders to banks that need to carefully adjust their assets and liabilities to stay solvent.

“Banks have learned from crises in the past and are now quite cautious and sophisticated about the mismatch between their assets and liabilities. It’s a skill set and I do not know to what extent the crypto loan market has learned that yet,” he said.

Another report by Josephine Combo

Celsius bid to rival Wall St with crypto lending scuppered by risky bets Source link Celsius bid to rival Wall St with crypto lending scuppered by risky bets

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