- Celsius allegedly transferred $320 million to FTX, while pausing the users' withdrawals.
- The Protocol came under scrutiny from the SEC.
- Will Celsius continue sink in a Terra-like spiral?
YEREVAN (CoinChapter.com) – Crypto lending platform Celsius Network is in muddy waters again, as the team allegedly transferred $320 million onto crypto exchange FTX before halting user withdrawals to “stabilize liquidity.”
In detail, Celsius “unstaked” $247 million worth of Wrapped Bitcoin (WBTC) from AAVE and moved 54,749 Ethereum worth $74.5 million.
Celsius transfers millions to FTX while halting user withdrawals
The atypical liquidity movements from Celsius’s main DeFi wallet allegedly began at 18:00 ET on June 12. A Twitter user with the handle Dirty Bubble Media commented on the transaction.
I can think of two possible explanations: 1) Borrowing from FTX against this collateral to move their leverage off-chain 2) Selling assets. What other possible explanations might there be?added the user.
It is not yet confirmed that Celsius moved the funds or did it with malice aforethought. However, traders are worried that the protocol can pull a Luna 3.0 and leave them in the red. Given the sharp drop in its native toke CEL price, a Terra-like scenario seems plausible.
In detail, CEL/USD exchange rate lost over 60% in the previous two weeks and over 90% quarter-to-date.
Meanwhile, a deeper look into Celsius might point to a future direction for the platform.
Terra-like implosion ahead?
The Celsius whitepaper contains several problematic areas. For example, it has an executive team but at the same time calls itself a Network. Additionally, the project fails to “adequately explain” its need for a token. Finally, the whitepaper states that its “lending and borrowing model requires a blockchain and an open ledger technology,” citing that such needs come “in order [for the project] to gain traction.”
Furthermore, the platform indicated its token allocation in the whitepaper as well. The latter shows that 40% of tokens were distributed during a Presale, which took place in 2017. As a result, the ICO invited heightened attention from the U.S. Securities and Exchange Commission, with possible charges of unregistered securities distribution.
What’s wrong with Celsius?
Celsius’ yield generation strategies give the situation an extra Terra-like taste.
In detail, the platform offers users yield on their crypto assets and the ability to borrow against them. Throughout 2021, multiple arbitrage strategies offered traders “risk-free return,” mirrored Terra lending protocol Anchor’s unrealistic 20% APY promises.
In short, arbitrage is taking advantage of a difference in prices in two or more markets. It involves striking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded.
These arbitrage strategies, which took advantage of pricing dynamics between spot market and derivatives, allowed for market-neutral arbitrage. As a result, many individuals, funds, and companies capitalized on the massive “yield.”
However, as demand for yield products grew, the arbitrage in the futures market disappeared.
The ability to generate yield did also. Dylan LeClair, the head of market research at Bitcoin Magazine, called Celsius a “company starving for yield” in mid-May when the Terra ecosystem imploded and predicted a similar outcome for Celsius.
Celsius has found themselves in the middle of another yield harvesting trade that is turning south. Growing risk of large losses and potential insolvency. Get your coins out of “HODL Mode” and into your own custody. Not a drill. […] This is what a rush for liquidity in an illiquid market looks like.added the researcher later in the thread.
Even if the platform implodes, it could pull off a Terra-like resurrection. But, for the time being, a fall is possible, with Celsius’s reputation being ruined and its CEL token being 96% down from its all-time high.