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 Client’s Funds
A new report by blockchain analytics firm Arkham Intelligence stated that Celsius entrusted corporate funds of around $530 million. Failing to hedge the risk resulted in a loss of $350 million when the asset manager returned capital corresponding to the value of the crypto assets.
The asset manager was identified as the team behind the investment firm KeyFi, led by CEO Jason Stone (who recently outed himself as the manager of the wallet associated with yield farming account 0xb1).
The research further speculated that the crypto assets could be part of Celsius’ liabilities to customers. 0xb1 received $534 million in digital assets from Celsius from August 2020 through April 2021. Arkham observed that a total of 220 transactions were made, ranging in size from $10 to $28 million.
0xb1, then poured these funds into various yield-bearing activities, such as offering liquidity on DEXs, lending and borrowing on Compound and AAVE, as well as yield farming on multiple platforms. It even bought $6.3 million of NFTs.
A Chainalysis audit released in December 2020 confirmed that Celsius had $3.31 billion in AUM. Up until the audit, the crypto lender had already transferred $365 million to 0xB1. Arkham speculated that if the audit is correct, then 0xb1 had more than 10% of all Celsius’ assets in late 2020. Five months after Chainalysis’ release, Celsius sent another $180 million of their customers’ funds to 0xB1.
Celsius Short of Customers’ Deposited Assets
Between September 2020 and September 2021, 0xB1 appears to have returned the majority of funds, around $1.14 billion of crypto assets, to Celsius, according to Arkham. It further added,
“This 113% USD-denominated, profit may appear to be an exceptional return on Celsius’ $534 million investment. However, the performance is not nearly as impressive when denominating 0xB1’s performance in the crypto assets it received from Celsius rather than in US dollars.”
The market went on a bull run over the time period, which saw Bitcoin peaking above $60k while Ethereum surged to almost $5k. The report pointed out that if Celsius had held these assets instead of sending them to 0xB1, it would have been able to rake in $350 million more than what the latter appears to have returned.
The report also claimed that Celsius’ business model is based on “pocketing the spread between its returns and the interest it pays its users,” hence, the platform’s users’ account dashboards possibly informed them that “they were accumulating crypto rewards that did not actually exist.”
As a result of its relationship with 0xB1, Celsius was inadvertently out of the funds deposited by the customers, not to mention the interest it guaranteed them.
Akham’s finding comes just a day after CryptoPotato reported that 0xB1’s Stone sued Celsius and alleged that it used customers’ funds to manipulate the price of its native token, CEL. He even accused the lender of operating a Ponzi scheme.