Celsius has paid its debts to the biggest DeFi lenders, recovering more than $1 billion in collateral

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Struggling cryptocurrency lender Celsius Network has fully repaid its debts to decentralized finance (DeFi) protocols, getting its hands on more than $1 billion worth of cryptocurrencies pledged as collateral on the platforms.

Analysis of the company’s crypto wallets conducted by Arkham Intelligence, an Austin, Texas-based blockchain intelligence firm, indicates that Celsius owed more than $500 million worth of crypto to the three largest DeFi lenders, Compound, Aave and Maker, backed by over $1 billion. in various tokens. Due to the high volatility of digital assets, loans on these platforms are usually over-collateralized, meaning borrowers must deposit tokens of greater value than their loans. In the case of Celsius, at least part of the collateral was several times the value of the loans.

It remains unclear how much of Celsius’ total assets under management has been deployed in these applications, says Arkham CEO Miguel Morel, but the apparent fragility of these positions in the recent crypto market crash may have -being forced Celsius to use liquid assets to repay the debt. and releasing collateral instead of honoring customer withdrawals, which have been suspended since early June.

“Celsius had to prevent its collateral from being liquidated,” explained Dan Morehead, CEO of crypto-focused investment firm Pantera Capital, in a blog post. “There is no possibility to ‘restructure’/disclaim smart contracts. In DeFi, ‘a deal is a deal’ – you can’t back down.”

On July 7, Celsius recovered $440 million in collateral denominated in wrapped bitcoin (WBTC), a token that represents bitcoin on the Ethereum blockchain, after fully repaying a loan on Maker, DeFi’s largest lending protocol. Additionally, CoinDesk reported that a Celsius-linked cryptocurrency wallet reduced its debt on Aave on July 12, releasing 410,000 in staked ether, derived from the native blockchain asset Ethereum, worth $426 million.

Earlier this morning, the company paid Compound $50 million, picking up 10,000 WBTC worth around $195 million at current prices.

Blockchain analytics platform Nansen, which tracks Celsius’ cryptocurrency wallets, claims that much of the stablecoins used to pay off its debts on DeFi protocols come from crypto exchange FTX, but there is little information to infer what this means in terms of the company’s overall holdings, especially those that are off-chain.

With the troubled lender seeking cash tied to its old loans, regulators may have questions about the nature of these transactions. “The main problem is that the source of funding is unclear,” says Kevin Kaiser, senior director of the Harris family’s alternative investments program and assistant professor of finance at the Wharton School at the University of Pennsylvania. “If the source of the funding is from uninformed providers who don’t have enough transparency to recognize that they’re probably lending money or giving money to a very illiquid and possibly insolvent borrower, that’s is where a business gets in trouble.”

Arkham Intelligence’s analysis of Celsius’ materials and investments suggests the lender had misrepresented its business model. The company offers users annual percentage returns of almost 19% on cryptocurrency deposits and provides crypto loans as well as cash loans backed by digital tokens. But Celsius has managed a notable portion of its assets more like a hedge fund than a bank, aggressively investing deposits in crypto markets rather than loaning them out at low risk to sophisticated institutions.

“It’s fair to say that after reviewing the Celsius documents, the average person would come away thinking that the majority of their money was only put at risk through sophisticated securities lending arrangements with the counterparties to which Celsius was lending. “, explains Morel. “In reality, despite the public focus on institutional lending, Celsius was looking for yield in other places that many would not characterize as low risk.”

Celsius did not respond to Forbes’ investigation of these transactions.

The posted collateral could help Celsius deal with the financial fallout from the recent crypto crash. The New Jersey-based company reportedly replaced its restructuring lawyer this week, bringing in attorneys from Kirkland & Ellis LLP, the same firm that was operated by crypto broker Voyager Digital, which filed for bankruptcy last week. .

“In a typical restructuring scenario, cash is king. You need cash to have the flexibility as a debtor to execute whatever plan you’re trying to implement, especially through a bankruptcy process,” says Robert Gayda, partner in the restructuring and corporate bankruptcy of Seward & Kissel. “We don’t really have a ton of transparency, so we can only guess, but it’s certainly an interesting fact that they haven’t filed yet.”

Meanwhile, Vermont’s Department of Financial Regulation (DFR) said it believes Celsius is “deeply insolvent” and lacks the assets and cash to meet its obligations to customers and other creditors. The agency said Tuesday it has joined a multistate investigation into the company.

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