- Celsius, a do-it-all fintech app that gives people easy and trusted access to cryptocurrency services, appears to be insolvent.
- It seems like Celsius has made two very bad business moves.
- Now they are in the position where they have to pay back a lot of money, but do not have the reserves to do so.
As of June 14, Celsius, a do-it-all fintech app that gives people easy and trusted access to cryptocurrency services, appears to be insolvent.
It seems like Celsius has made two very bad business moves. The first is its use of on-chain leverage, and the second is stETH.
The stETH problem revolves around the fact that Celsius was using an ETH derivative called stETH to pump up its ETH yield and attract more investors. Unfortunately, while stETH can be traded for ETH on the open market, it cannot be redeemed for ETH.
In other words, Celsius bought a huge amount of stETH that cannot be redeemed until after the Merge took place. To make things worse, most people believe the Merge will not even take place until next year.
Adding to the bad news is the fact that stETH is no longer trading at 1:1 ETH. It is now worth only $0.96. The consequence of this is that there is no liquidity anywhere for Celsius to swap out their stETH for ETH.
(Source: Twitter (NYSE:TWTR))
Celsius has about 445k worth of stETH but there is only 143k worth of ETH liquidity in the Curve pool.
In other words, Celsius took out several loans, after which they took user deposits and traded them for stETH. Now they are in the position where they have to pay back a lot of money but do not have the reserves to do so. This means Celsius is insolvent.
Yesterday, Celsius also decided to stop all withdrawals and transfers. This gives users the choice to either top up on their collateral or get liquidated.
All of the uncertainty this caused led to the BTC and ETH prices dropping, which means Celsius now has even less collateral.