Celsius Obtains $100 Million Loans From FTX

[TL; DR]

Celsius Network is a cryptocurrency-related financial service provider incorporated in London in 2017.

With over 1.7 million users, the crypto platform allows retail and institutional investors to earn rewards on crypto tokens transferred to Celsius.

Users can send, receive and store digital assets or borrow fiat using crypto tokens as collateral.

Celsius attracts users by returning high deposit yields, charging fewer transaction fees, and quick transactions.

Recently, the crypto market crash affected the operations of Celsius.

Celsius stopped its users from withdrawing their digital asset deposits to stabilize its operation and sought a credit facility from FTX.

FTX, another decentralized crypto platform, agreed to loan Celsius about $108 million by taking $403 million of digital assets.

These users who could not withdraw their digital assets became petitioners and enquired about the operations of Celsius.

Celsius disclosed that it had about $648 million borrowed in Maker, AAVE, Compound, and Notional Finance, asides from the FTX borrowing.

Keywords: Celsius, loan, cryptocurrency, lending, trading, credit facility, collateral, digital assets.

[Full Article]

The crypto winter is causing havoc and leaving a destructive toll on trading and exchange platforms. To cushion the effects of this sharp decline in the cryptocurrency market, trading and exchange platforms seek credit facilities from other multinational platforms. One of those crypto platforms that has continued to come to the rescue of others is FTX.

Since there is no Government institution or financial agency to support these platforms during “hard times,” the FTX is stepping up to take the role. Recently, Celsius joined the likes of BlockFi and Voyager to take loans from FTX.

In this article, we shall identify the conditions that necessitated Celsius to seek financial assistance from FTX, the agreements surrounding the loan, and other happenings around the Celsius crypto platform.

Let's begin!

Celsius Exchange And Trading Platform

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Image: Decrypt

Celsius Network was incorporated in London in 2017 and founded by Alex Mashinsky, Daniel Leon, and Nuke Goldstein. It was founded as a cryptocurrency-related financial service provider.

Celsius Network has its native token called CEL, and it uses CEL to take loans, provide rewards and make payments. In 2018, Celsius raised about $50 million in its Initial Coin Offering (ICO) by selling 325 million CEL.

It allowed retail and institutional investors to earn rewards on cryptocurrency transferred to Celsius. Celsius allowed its users to send, receive and store digital assets or borrow in fiat using crypto tokens as collateral. There are four key players in Celsius: the lenders, borrowers, the Celsius platform, and external exchange markets.

Celsius network is considered one of the leading crypto platforms enabling users to receive interest when depositing or taking out crypto collateralized loans. Celsius is known for returning high yields on their deposits, charging fewer transaction fees, and ensuring quick transactions.

Celsius $100 Million loan from FTX

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In July 2022, Celsius joined the likes of BlockFi and Voyager to solicit credit facilities from FTX. BlockFi agreed to a $250 million credit facility from FTX, while Voyager signed a $200 million credit facility in cash and USDC with FTX.

Considering the fall in the cryptocurrency market, one of the worst hit platforms is Celsius. To survive and continue operation, Celsius had stopped customers from making withdrawals. It was, therefore, necessary for Celsius to file for voluntary restructuring.

In the voluntary restructuring filing, Celsius requested a loan of about $108 million from FTX and staked $403 million worth of digital assets in return. The agreement is that in getting the loan, Celsius will repay four times the amount of the received credit facility.

The credit facility became easier for Celsius because it has large illiquidity of client funds. Celsius locked up about $467 million worth of Ether in a new ethereum network.

It would be recalled that during May and June, Celsius almost had its collateral liquidated three times. In this period, the value of Celsius collateral fell close to the 150% mark.

Similarly, Celsius suspended withdrawals for its customers; it had to disclose its other steps to “stabilize operation.” According to Celsius, the platform had about $648 million in “DeFi borrows,” and these borrowings are collateralized by approximately $1.61 billion worth of digital assets.

These loans were allegedly spent on financing Celsius’s operations and were held on four different DeFi protocols. They include;

Maker (MKR): Celsius took a loan of $225 million from Maker and collateralized it by $499 million.

AAVE: Celsius said it took a loan of about $263million and collateralized it by $708 million.

Compound: A loan of $157 million was taken and collateralized by $409 million.

Notional Finance: In Notional Finance, the credit facility of $3.2 million was taken and collateralized by $6.6 million.

It is worthy of note that all the collaterals are in digital assets.

Aside from trading and exchange, Celsius told its petitioners that it has five other ways to generate funds to stabilize its operations. All these are to get the petitioners to exercise patience and allow the crypto platform to get back to its entire operation. Celsius describes five other “exchange deployments that were overall intended to be market neutral” they include;

Funding: Celsius uses the funding markets that exist in several exchanges. It allows users of these exchange platforms to borrow digital assets from Celsius accounts (directly) on such exchanges. The borrowed assets will be used for trading, and Celsius will get paid the financing fee.

Cash and Carry: Celsius uses the cash and carry technique to leverage demand in the future markets to benefit from the funding costs that long future holders were willing to pay short holders.

Market Making: In market making, Celsius will hold both long and short futures positions in a way that will benefit from the inefficiencies in the future market. Celsius has benefited from this market-making arrangement over the years.

Swing Trading: In this arrangement, Celsius will hold both long and short positions, with an imbalance between the number of long and short options. Celsius will deploy its experience as an active participant in the futures market, so either of the positions will favor Celsius. However, Celsius is always wary of narrow risk limits on such activity, which are accompanied by strict-loss mechanisms.

Conclusion

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Image: CoinQuora

Celsius is a crypto lending platform that has recently been entangled in quite a several financial crises. The crypto market crash has undoubtedly dealt a heavy blow to Celsius operations. All thanks to FTX for the recently released credit facility.

Similarly, users of Celsius have turned to petitioners after the platform stopped them from withdrawing their deposited assets. Industry players are, however, optimistic that Celsius will bounce back again alongside the crypto market.

Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute investment suggestions.

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