Celsius Network, what mistakes led to its downfall?

Celsius harvests the fruits of his unconsciousness

For several months, many observers have been warning about the Celsius Network’s suspicious assets and unsustainable return strategiesbut also the fact that the company could default on its users, whose funds have also been frozen.

To delve into the details of this case, last week Cryptoast released a file explaining how and why the platform is crashing.

In order to draw up a non-exhaustive list of the steps that brought Celsius to the current situation, here we analyze the traces left by Celsius Network on the Ethereum chain dissecting various financial transactions undertaken by the platform.

Note that the “wash trading” strategies implemented via Wintermute and Uniswap, as well as the return mechanisms of Celsius’ DeFi strategies are circumvented here.

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How did the platform arrive?

The Stakehound affair

One of the operations recently documented by Dirty bubble holders reveals that Celsius Network has lost at least 35,000 ETH in the event of a key loss from the Stakehound company.

On June 22, 2021, the staking solutions company Stakehound announces that it has lost access to a wallet with over 38,000 ETH, deposited on behalf of its customers. The custodians found themselves grieved, with the only consolation being the Stakehound collateral token, STHETH, whose value plummeted to $ 34.

What matters to us in this matter is that Celsius Network sent 35,000 Ether to Stakehound in a single transaction on February 2, 2021, as illustrated by this view:

Figure 1: Capital transfers from Celsius to Stakehound

Celsius’s identified wallets currently hold a total of at least 42,306 STETH, making him the largest owner of a useless token. At the current price of Ether (1 ETH = $ 1100), this represents a loss of approximately $ 38.5 million.

Safe number 25977

On 7 October 2021, Celsius opens with the Maker DAO protocol a portfolio that he uses to finance many DeFi operations through the DAI loan, backed by wBTC.

By depositing 999.3 wBTC as collateral on the wallet for the first time, Celsius generates and withdraws 20 million DAI from the smart contract, repeating the operation several times until the first repayment of 50 million DAI on 4 December 2021.

This portfolio has recently come into the spotlight as its liquidation risk was high given the downward volatility of BTC’s price. In response to the market downturn, Celsius filed for it more than 6,000 wBTC collateral from June 12 and refunded nearly 42 million DAI in order to maintain a sustainable collateralisation rate.

Celsius Maker Vault 25977

Figure 2: Maker DAO # 25977 Vault associated with Celsius

With a debt of $ 224 million today, this portfolio shows a clearance price at $ 13,603making it a target for potential vulture funds betting on BTC to destabilize Celsius.

Losing DeFi operations

Nowadays, Celsius holds $ 651 million in Compound and Aave Protocol deposits. The company specifically has $ 229 million in wBTC on Compound and $ 422 million in stETH on Aave, interacting frequently with the wallet 0x8aceab8167 … by Celsius, known as the company’s leading DeFi portfolio.

Celsius Wallet Core DeFi

Figure 3: Celsius 0x8aceab8167 portfolio assets …

These deposits, made from the year 2021, are expected to generate interest. However, the average annual return on these deposits is quite loweven lower than many bank savings accounts: from about 0.005% APY per wETH deposited on Aave to 0.031% APY per wBTC deposited on Compound.

There is therefore a significant gap between what Celsius pays for its loans and what it receives as interest on its deposits. Based on a conservative estimate of the average annual return offered by Celsius to its customers, data from DirtyBubbleMedia suggests that the platform should have faced a annual deficit of 86 million dollars for the year 2021.

Overexposure to stETH and Staking Eth2

During the year 2022, Celsius Network has again taken the bet of exposing itself to stETH but also of betting the majority of the Ether deposited on the platformdirectly from the Eth2 deposit agreement.

In fact, although the most important deposits of the 0x8aceab8167 wallet … seem to be on Compound and Aave, a number of other protocols interact with the latter. One of the most important seems to be the Lido DAO, to which Celsius sent about 70,900 Ether in exchange for Lido’s “Liquid Staked Ether” (stETH)mainly from the address 0xef22c14f46 …

Tx Celsius LidoDAO

Figure 4: Capital transfers from Celsius to Lido

Additionally, Celsius Network has also transferred large amounts of Ether to the Eth2 deposit agreement, allowing Ether to be locked in preparation for when Ethereum switches from Proof of Work (PoW) to Proof of Stake (PoS). , through two wallets.

During the month of March, Celsius used the Figment Eth2 Depositor contract to send the funds, depositing a total of 112.352 Ethers from this wallet. A second wallet then transferred 90,368 Ethers directly to the Eth2 deposit agreement, followed by a further transfer of 28,325 Ethers.

Today Celsius is closer to 324,756 ETH with the Eth2 deposit agreement, locked up to merge. Centigrade it is therefore unable to repay 100% of the ET deposited by its customers, as well as being exhibited at the stETH depeg with Lido.

The recent liquidation of Tether

On June 15, Tether announced that it was liquidating Celsius’ collateral against it. In fact, Celsius Network has been claiming nearly $ 1 billion on Tether for months. After the announcement, a hundred million dollars were transferred from Tether to Celsius from this address.

Tx Celsius Liq Tether

Figure 5 : Capital transfers from Bitfinex to Celsius

Tether said it liquidated Celsius without incurring any losses, noting that the position was overly secured. The company took the opportunity to declare that it has no exposure to Celsius with regards to its shares.

Where are the remaining funds?

Following these operations and events, all on-chain portfolios identified as being held by Celsius are worth nearly $ 2 billiondistributed between the company’s portfolios and decentralized applications such as Coupond, Aave, Maker, Synthetix or Notional Finance.

These funds are mainly composed of debt, wBTC, ETH and stETH, partially blocked as collateral or detached. By itself, the amount of cash available to date is valued at $ 930,000, while the total debt on these portfolios exceeds $ 650 million.

However, this represents only a small part of the funds belonging to Celcius, the rest go through centralized exchanges or wallets not identified to date.

You will be able to view and navigate through this Zapper dashboard

Celsius wallet combination

Figure 6: Accumulation of Celsius on-chain wallets

πŸ‘‰ Must read: Nexo offers to buy assets from Celsius as the latter is in trouble

Summary and conclusions

Definitely, this series of deleterious financial transactions only revealed the lack of risk management exhibited by Celsius Networkdespite all the communication efforts made to maintain the trust of the community.

Today Celsius finds herself tied hand and foot, paralyzed by the immobilization of part of her funds, the consequent losses and exposure to unstable financial products.

All eyes are now on the liquidation threshold of Vault 25977 and possible future renovations of the Celsius Network. Since the tweet announcing the freezing of user funds, the platform has not posted an official statement on its Twitter account, leaving its custodians in a state of sensational uncertainty.

Other operations worthy of interest have been avoided here and will be published shortly on our Discord Channel, to go further join the Toaster composed of experts to accompany you in the world of cryptocurrencies!

Sources – Figures 1, 3, 4, 5: Bitquery, Figure 2: Oasis, Figure 6: Zapper

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About the author: Teacher. Chain

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On-chain analyst, fervent fighter of information asymmetry.

My goal is to inform everyone about the status of Bitcoin (as a distributed resource and network) through the prism of on-chain analysis.
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