Celsius Trading Strategies Lost Millions of Client Funds: Report
Following its solvency crisis, new details have emerged of Celsius using funds from investors to conduct high-risk leveraged crypto trading strategies.
Lose client funds
A new report by blockchain analytics firm Arkham Intelligence said Celsius has entrusted corporate funds of around $530 million. Failure to hedge the risk resulted in a loss of $350 million when the asset manager repaid the capital corresponding to the value of the crypto assets.
The asset manager has been identified as the team behind investment firm KeyFi, led by CEO Jason Stone (who recently introduced himself as the portfolio manager associated with the 0xb1 yield farming account).
The research further hypothesized that crypto assets could be among Celsius’ liabilities to customers. 0xb1 received $534 million in digital assets from Celsius from August 2020 to April 2021. Arkham observed that a total of 220 transactions were made, ranging in size from $10 million to $28 million.
0xb1, then invested these funds in various yield-bearing activities, such as providing liquidity on DEXs, lending and borrowing on Compound and AAVE, as well as yield farming on multiple platforms. He even bought $6.3 million worth of NFT.
A Chainalysis audit published in December 2020 confirmed that Celsius had $3.31 billion in AUM. Until the audit, the crypto lender had already transferred $365 million to 0xB1. Arkham speculated that if the audit is correct, then 0xb1 owned more than 10% of all Celsius assets at the end of 2020. Five months after Chainalysis was released, Celsius sent an additional $180 million from client funds to 0xB1.
Celsius short of assets deposited by clients
Between September 2020 and September 2021, 0xB1 appears to have returned the majority of funds, approximately $1.14 billion in crypto assets, to Celsius, according to Arkham. He further added,
“This 113% USD-denominated profit might seem like an exceptional return on Celsius’ $534 million investment. However, the performance isn’t as impressive when expressing 0xB1’s performance in the crypto assets it received from Celsius rather than US dollars.
The market had a bull run during the period, which saw Bitcoin peak above $60,000 while Ethereum surged to near $5,000. The report pointed out that if Celsius had held these assets instead of sending them to 0xB1, it could have raised $350 million more than the latter appears to have brought in.
The report also claimed that Celsius’ business model is based on “pocketing the spread between its returns and the interest it pays its users”, hence the user account dashboards of the platform may have informed them that “they were accumulating crypto rewards that didn’t actually exist.”
Due to its relationship with 0xB1, Celsius inadvertently ran out of funds deposited by clients, not to mention the interest it guaranteed them.
Akham’s discovery comes just a day after CryptoPotato reported that 0xB1’s Stone sued Celsius and alleged that it used client funds to manipulate the price of its native token, CEL. He even accused the lender of operating a Ponzi scheme.
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