In the wake of its solvency crisis, new details have emerged about Celsius using investor funds to conduct high-risk leveraged crypto trading strategies.
losing customer money
A new report from blockchain analytics firm Arkham Intelligence states that Celsius has handed over corporate funding of about $530 million. Failure to hedge the risk resulted in a loss of $350 million when the asset manager returned capital commensurate with the value of the crypto assets.
The asset manager was identified as the team behind investment firm KeyFi, led by CEO Jason Stone (who recently exited himself as the manager of the wallet linked to the yield farming account 0xb1).
The research further speculated that crypto assets may be part of Celsius’s liabilities to customers. 0xb1 received $534 million in digital assets from Celsius from August 2020 to April 2021. Arkham observed that a total of 220 transactions were made, ranging in size from $10 to $28 million.
0xb1, then pumped these funds into various yield-bearing activities, such as offering liquidity on DEXs, lending and lending on Compound and AAVE, as well as yield farming on multiple platforms. It also bought NFTs worth $6.3 million.
A Chainalysis audit released in December 2020 confirmed that Celsius had $3.31 billion in AUM. By the time of the audit, the crypto lender had already transferred $365 million to 0xB1. Arkham estimated that if the audit is correct, 0xb1 held more than 10% of Celsius’ total assets at the end of 2020. Five months after Chainalysis was released, Celsius sent $180 million of its clients’ funds to 0xB1.
Celsius less of the deposited assets of the customers
According to Arkham, between September 2020 and September 2021, 0xB1 returned most of the funds, approximately $1.14 billion worth of crypto assets, to Celsius. It added further,
“This 113% USD-denominated, gain may appear to be an extraordinary return on Celsius’ $534 million investment. However, the performance is not nearly as impressive, reflecting the performance of 0xB1 in crypto assets derived from Celsius instead of US dollars. “
The market turned bullish over time, with Bitcoin reaching above $60k, while Ethereum surged to around $5k. The report said that if Celsius had kept these assets instead of sending it to 0xB1, it would have been able to rake in more than $350 million, which appears to have since been returned.
The report also claimed that Celsius’ business model is based on “pocketing the spread between its returns and the interest it pays by its users”, therefore, the account dashboard of the platform’s users likely informed them that “they were collecting crypto rewards that didn’t actually exist.”
As a result of its relationship with 0xB1, Celsius inadvertently ran out of funds deposited by customers, not to mention the interest it guaranteed them.
Akham’s discovery comes a day later cryptopotato reported that 0xB1’s Stone sued Celsius, alleging that it used customer funds to manipulate the price of its native token, CEL. He also accused the lender of operating a Ponzi scheme.
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