Heat Gets Turned Up On Celsius

Market Meditations | June 13, 2022

The weekend wasn’t good for Celsius. The lending platform’s CEL token sharply fell from a local high put in yesterday as Celsius froze user funds.

  • The Celsius Network is a platform that offers services like interest-bearing opportunities for cryptocurrency deposits and lending.
  • Celsius has a massive position on Lido’s staked ETH (stETH).
  • stETH is fully backed by ETH at a 1:1 ratio. It’s also very illiquid. Platforms like Aave and Curve Finance offer solutions by providing a place for people to deposit stETH as collateral for loans, or to earn swapping fees as liquidity providers.
  • At the moment, the curve pool is imbalanced, being made up of over 75% stETH, instead of the ideal 50/50 ratio. This symptom of high supply with low demand has manifested in stETH available at a discount when compared to ETH.
  • If Celsius needs to access the liquidity they have tied up in stETH (to honor users’ withdrawals and yield payments for example) it will prove difficult. 
  • stETH cannot be redeemed for ETH until Ethereum’s merge is complete. In the meantime, if Celsius finds itself in dire need of liquidity to meet its users’ demands, it may have to sell its stETH in an open market at a significant discount.

Thankfully, some stability in the space still exists, as Nexo offered to buy qualifying assets from Celsius after their withdrawal freeze. There’s no way to tell how this is going to play out for Celsius Network in the end, but a worst-case scenario almost certainly concludes without a happy ending.

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