Celsius Continues To Struggle With Solvency

The crypto lending platform is trying everything, including a company restructuring, to stay solvent after it decided to suspend withdrawals.

Can Celsius Win Back Liquidity? 

Celsius’s move to suspend withdrawals has landed the company in hot water, as several leading coins plummeted in an already unstable market. Now the company is exploring all options to stay solvent. Crypto research firm Kaiko acknowledged Celsius’s misfortunes to a combination of poor risk management, bearish market conditions, and its dependence on its Staked Ether (stETH) holdings. Chief Financial Analyst at Kaiko, Conor Ryder, believes that Celsius needs to use its significant stETH holdings as collateral in an over-the-counter agreement to manage some liquidity somehow. 

Ryder wrote in a report on June 15, 

“Even if they do survive this onslaught, I don’t see how anyone can trust the likes of Celsius to keep their assets safe going forward…perhaps in a few years’ time we will look back on this as a watershed moment for decentralized finance adoption, but that’s probably just the optimist in me.”

How stETH Landed Celsius In Trouble

Even though the firm has lost a lot of funds in the Terra (LUNA) crash and the BadgerDAO hack, the stETH token is being held primarily responsible for its solvency issues. 

The token was created by Lido to be tied to ETH and be redeemable on a one-for-one equation after the upgrades to the blockchain. However, as the price of stETH moved away from ETH, Celsius was forced to freeze withdrawals over the lack of liquidity. Now the platform has around $500 million trapped in stETH, which they cannot bulk sell without absolutely destroying the price. 

Restructuring An Unsustainable Business Model 

It looks like Celsius is exploring all possible avenues to get itself out of the fix, even going as far as consulting with its investors. The financial advice from the investors prompted the firm to go for complete financial restructuring, for which it has hired a team of lawyers from the law firm Akin Gump Strauss Hauer & Feld LLP. 

The high yield rate (going as high as 18.63% APY) from this crypto lending platform has always raised eyebrows. At one point, the company held around $11.8 billion of client assets and a total of $8.2 billion of loans. Its total number of users also was close to 1.8 million. Naturally, the concerns over its business sustainability levels have now been vindicated, especially since the firm is planning to restructure its entire business model. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.