Hi all,
As I’m sure you’ve seen Celsius Network has filed for bankruptcy (chapter 11).
I am currently working on a detailed post about the Voyager Digital bankruptcy so this post will just be in quick notes form. Hope you enjoy it!
These are not the views of my employer or advice.
Highlights
Celsius is a privately owned cryptocurrency lending platform
Business model:
It’s a net interest business. Depositors are paid APY (up to 17% but 5% on average). Celsius uses deposits to generate yield via:
Lending to retail & institutional clients
Transaction fees from trading/buying/selling crypto assets
Crypto mining operations - generates c.14.2 Bitcoins per day and generated 3,114 Bitcoin during 2021
Funded via an intercompany RCF (will explain this in my Voyager blog) of up to $750m | Outstanding loan balance: c.$576m
APY spread on defi platforms – due to incentive programs, users could be paid to borrow…
Staking: 5% APY by locking Ethereum on the Beacon chain
Proprietary trading – strategies included market making, funding liquidity pools on exchanges and spot trading
Depositors’ assets were also sold to generate cash used to acquire Bitcoin mining equipment and the GK8 storage business (acquired for c.$100m in 2021)
Latest Valuation: Series B | Raised $690m | c.$3bn valuation
User base: c.1.7m users | c.300,000 active users (account balances >$100) | $4.7bn user deposits
Bankruptcy:
Press release - Celsius Network Initiates Financial Restructuring to Stabilize Business and Maximize Value for All Stakeholders
“Celsius has $167 million in cash on hand, which will provide ample liquidity to support certain operations during the restructuring process.”
To date, Celsius has a $1.2bn hole in its balance sheet
NB: Suggests a recovery of c.65% (assuming the CEL tokens are worthless) - https://coinmarketcap.com/currencies/celsius/. $600m is lower than both its market cap and fully diluted market cap. Its daily trading volume is only $63m
Top 50 Cumulative $ value of assets owed to creditors
Named creditors by $ value of assets owed
Notes
$ Amount deposited to Celsius (excludes withdraws)
Dec 2018: $50m
May 2019: $200m
March 2021: $10bn
Dec-21: Celsius announced its Series B – raised $600m @ an enterprise value of c.$3bn (first close)
May-22: Series B closed. Celsius raised c.$690m in total (this was erroneously quoted as $750m by the media)
“Company now holds approximately $4.31 billion in assets with only $780 million in non-user liabilities”
Quotes:
“The amount of digital assets on the Company’s platform grew faster than the Company was prepared to deploy. As a result, the Company made what, in hindsight, proved to be certain poor asset deployment decisions”
“The Celsius business model is centred on deploying digital assets to generate income for Celsius and its operations and growth”
Business Model:
Once users transfer their digital assets onto the Celsius platform, all rights to such digital assets are transferred to Celsius. Celsius then used this crypto to generate yield
Financial Services
Celsius paid up to 17% APY on certain assets to users. Average APY was 5%
Loans
Retail Lending:
Loans ranged from $100 to $14m
C.23,000 borrowers | Outstanding loans: c.$411m | Collateral: c.$765.5m
Institutional Lending:
47 institutional borrowers | Outstanding loans: $93m | Collateral: c.$98.5m
Trading services
Crypto mining operations:
01-Nov-21: Celsius entered into an intercompany RCF for up to $750m
As of 31-May-22, the outstanding loan balance is c.$576m
Mining owns 80,850 rigs with 43,632 in operation and had an investment plan to operate c.120,000 rigs by end of 2022
Mining generates c.14.2 Bitcoins per day and generated 3,114 Bitcoin during 2021. For 2022, it is projected to generate 10,118 Bitcoin
NB: BTC trades @ c.$20k
Defi Loans:
As of 27-Jun-22 Celsius had c.$648m in DeFi loans with $1.61bn collateral
These DeFi loans were held on four different DeFi protocols:
Maker - $225m loan / $499m collateral
AAVE - $263m loan / $708m collateral
Compound - $157m loan / $409m collateral
Notional Finance - $3.2m loan / $6.6m collateral
They are all virtually paid down with collateral returned
Staking:
$467m of Ethereum is staked on the Beacon chain (locked and unretrievable until ETH 2.0)
Held as 410,421 of stETH (1:1 to ETH but trades at a slight discount of 1% - 5%
Proprietary trading:
Celsius took part in “cash and carry” trading strategies, market making, swing trading and funding liquidity pools on exchanges and spot trading
12-Jun-22, Celsius paused all withdrawals, swaps, and transfers on its platform
***
19-Jun-22: Celsius retained Centerview and Alvarez & Marsal as advisors
To date, Celsius has a $1.2bn hole in its balance sheet
You can see when things fell over ^
- The recently acquired GK8 business (cold wallet storage) is being sold (acquired in Nov-21 for c.$115m)
Chaos:
Jun-2021: StakeHound, an Eth2 staking service provider, misplaced the “keys” to >38,000 Ethereum tokens, including 35,000 Ethereum belonging to Celsius
This was lost by StakeHound’s third-party crypto custody provider Fireblocks. StakeHound is now engaged in legal proceedings with Fireblocks
May/Jun-22: Celsius lost $97m when part of its collateral hosted at Tether was liquidated
Debt:
One party owes Celsius c.$439m ($361m in USD and 3,765 BTC)
3AC owe Celsius $40.6m
The Plan
The restructuring plan has not been completed but will likely include BTC from the mining rigs being sold as minted as well as stETH being sold OTC (opinion)
This was more of a straight edge, no thrills post. Back to original programming next time.
Thanks for reading,
Joseph
15th July 2022