Celsius Calls On Citigroup For Options After Liquidity Squeeze, Report Says

After freezing user accounts on Sunday, Celsius has assigned Citigroup to advise on the next steps it should take.

The cryptocurrency lender has brought on the traditional financial bank in an advisory role, The Block reported on Wednesday. While Citigroup won’t directly provide any funds to Celsius, it will lay out possible financing routes, the report said.

In addition to its advisory role, Citigroup will reportedly help Celsius evaluate offers, including one made by rival lender Nexo, which formally approached its competitor to buy some of its distressed assets, at the time Celsius signaled liquidity issues. 

Nexo told Blockworks it was aware Celsius had trouble with its withdrawal obligations and its findings pointed to the “unsustainability” of its business, even before the lender publicly admitted to it.

Celsius’ move to pause user withdrawals and transfers due to “extreme market conditions” triggered a fearful crypto market sell-off reminiscent of Mt. Gox’s catastrophic bankruptcy in 2014, said Youwei Yang, director of financial analytics at StoneX. At the time, the Tokyo-based crypto exchange lost about 850,000 bitcoin in a hack, leading to the firm’s collapse.

In a report Wednesday, crypto research firm Kaiko said Celsius suffered from a combination of poor risk management, bearish market conditions, and overexposure to stETH (staked ether, a derivative of ether locked in the Ethereum Beacon Chain), which drove the firm into a “Lehman-esque” position.

Citigroup and Celsius didn’t immediately respond to a request for comment by Blockworks.

Citigroup’s appointment wouldn’t be a new one for the crypto lender. The bank reportedly advised Celsius on taking its bitcoin mining subsidiary business public. In May, the network submitted a confidential S-1 draft registration for the subsidiary’s initial public offering — expected to become effective post the SEC’s review.

Prospects for reorganization

Celsius has also tapped Washington, DC-based law firm Akin Gump Strauss Hauer & Feld to explore potential financing options from investors, the Wall Street Journal reported.

Dane Lund of DeFi Alliance sees that as a move to head off potential small claims court actions from its customers, which would become impossible if the company files for bankruptcy protection.

The chaos triggered by Celsius is proof that not all lending platforms are equal, according to Mauricio Di Bartolomeo, cofounder of Canada-based crypto lender Ledn.

Clients will be further incentivized to ask the right questions to gain more information on how the yield they are paid is generated, he told Blockworks. “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,” he added.

When asked how sustainable companies in the crypto lending space are, Bartolomeo said the models used to generate yield by each vary widely, and it would be unfair to characterize them under the same umbrella.

“Those lenders who took significant risks [such as] 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,” he added.

Source: blockworks.co