After freezing user withdrawals on Sunday, Celsius has appointed Citigroup to advise on potential financing options. However, it might have limited opportunities to stay solvent after setting off one of the biggest crypto meltdowns in years.
Celsius Is Running Out Of Options
The crypto lending platform Celsius has brought the traditional financial bank Citigroup into an advisory role. While not directly providing any funds to Celsius, it would reportedly lay out possible financing routes for the crypto lender.
Reportedly, Citigroup will also help Celsius evaluate offers on top of its advisory roles, including the one made by Nexo. The rival crypto lending firm Nexo formally approached Celsius to buy qualifying loan assets when Celsius signaled liquidity issues.
Apparently, Nexo was aware that Celsius had trouble with its withdrawal obligations. Furthermore, its findings pointed to the “unsustainability” of Celsius’ business even before the firm publicly admitted to it.
Moreover, Celsius’ move to freeze user withdrawals and transfers has triggered a fearful crypto market sell-off. In fact, it is reminiscent of the catastrophic bankruptcy of Mt. Gox in 2014. At that time, the Tokyo-based crypto exchange got hacked, losing about 850,000 Bitcoins, which led to the firm’s collapse.
On Wednesday, crypto research firm Kaiko reported that Celsius suffered due to poor risk management, bearish market conditions, and overexposure to stETH. A research analyst at Kaiko wrote, “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.”
Meanwhile, it is not the first time Celsius has appointed Citigroup. Reportedly, the bank advised Celsius to make its bitcoin mining subsidiary business public. In May, Celsius submitted a confidential S-1 draft registration for its IPO, which was expected to become public after SEC’s review.
According to The Wall Street Journal, Celsius has hired lawyers from DC-based law firm Akin Gump Strauss Hauer & Feld to explore potential financing options from investors. Dane Lund of DeFi Alliance pointed it out to be a move to avoid possible small claims court actions.
Ledn Co-Founder Comments On Celsius’ Plight
According to Ledn co-founder Mauricio Di Bartolomeo, the chaos triggered by Celsius proves that not all lending platforms are equal. Now, clients can further be educated on how the yield they are paid is generated.
“If they are not satisfied with the answers they receive, they could proactively choose to withdraw their assets or close their loans at that particular platform,” Bartolomeo said in a statement.
Regarding how sustainable crypto lending platforms are, Bartolomeo said that the models used to generate yield vary for each firm. Therefore, he finds it unfair to put them under the same umbrella.
“There are significant differences in the risk management policies and in the yield generation strategies being employed by the various lenders,” Bartolomeo said. “Those lenders who took significant risks generating yield in DeFi with their depositors’ assets, lending uncollateralized to low credit quality borrowers, taking directional market risk with client assets may be finding themselves in some trouble now.”