- DeFi aggregator KeyFi has filed a complaint against Celsius accusing him of committing fraud through a Ponzi scheme.
- According to Jason Stone, CEO of KeyFi, Celsius reportedly used client funds to manipulate crypto asset markets.
- Since Celsius started offering highly attractive interest rates with the aim of bringing in new users, it is what the CEO of KeyFi pointed out as a Ponzi scheme.
Over the past few weeks, the market has watched crypto companies go under, one after another, and one of them is the centralized cryptocurrency lending platform, Celsius Network.
Having lent more than US$8 billion and having $12 billion in assets under management as of May 2022, on June 12 Celsius announced that it would stop withdrawals from its platform.
The reason? Well, they argued that the measure would have been taken due to “extreme market conditions.”
In the midst of a bear market and much uncertainty, rumors began to spread that Celsius was insolvent. In fact, the rumors are supported by the fact that there is currently a major liquidity crisis in the cryptocurrency sector, with other companies experiencing more or less the same situation.
A liquidity crisis? Or, has it all been a scam?
Until now it was believed that Celsius Network was experiencing a liquidity crisis that could be resolved at any time. However, this Thursday a lawsuit has been filed that has changed the whole panorama, since last July 7 it was presented a complaint by the DeFi aggregator, KeyFi Inc. where it is alleged that Celsius would have committed fraud by having operated in the style of a Ponzi scheme.
According to Jason Stone, CEO of KeyFi, Celsius would have used customer funds to “mmanipulate active crypto markets, it failed to apply basic accounting controls that jeopardized those very deposits and failed to deliver on its promises.”
KeyFi Inc, a company that once operated as an asset manager for Celsius, sued Celsius for allegedly refusing to honor its contract, and according to court documents, KeyFi was in charge of managing Celsius’s investments between August 2020 and March 2021.
In fact, in a Twitter thread, Stronge explained that oxb1’s DeFi account was managing nearly $2 billion in assets for Celsius at one point and that Celsius “assured” him that it was taking proper risk management measures, such as ” cover any possible temporary loss of our activities in liquidity funds”. But according to Stone, Celsius’s promises were empty.
“Nwe realized that Celsius had lied to us. They were not covering our activities, not even in terms of crypto asset price fluctuations. The company’s entire portfolio was fully exposed to the market”, declared the CEO of KeyFi.
alleged mismanagement
As proof of the mismanagement that Celsius was having, an inability to respond to withdrawal requests was observed, Stone argues.
“When users wanted to withdraw their ETH deposits, Celsius had to make purchases at historical prices, suffering huge losses. Faced with a liquidity crisis, Celsius began offering high interest rates to attract the attention of new clients. Your deposits were used to make payments to old customers”, argues the lawsuit.
Basically Celsius began to offer highly attractive interest rates with the aim of attracting new users and it is precisely for this reason that Stone assures that Celsius Network was operating in the style of a Ponzi Scheme. since he was using the funds from new customers to pay those who were leaving.
Of course, these types of systems depend on the entry of new customers to keep the money flowing; here is the beginning of the end according to Stone.
“Thus, while Celsius continued to trade as a transparent and well capitalized business, it had in fact become a Ponzi scheme.”states the lawsuit.
Additionally, the lawsuit indicates that Celsius owes KeyFi “a significant sum of money”. But still, “Celsius has refused to acknowledge the truth or its failings in risk management and accounting.” wrote Stoney added that he will take legal action against the company in an effort to “rSolve this problem once and for all.”
The truth remains in the dark
The reality is that little is known about what is going on with the Celsius Network and who is right.
In this story there are still many inconsistencies; for example, according to a report from Arkham Intelligence, oxb1 lost”$61 million of what appears to be Celsius money in settlementsAnd, although the report claims that oxb1 “returned most of the funds to Celsius”, it would still have lost more than $350 million.
Meanwhile, oxb1 stated on Twitter that:
“A Despite our good sense, and due to what I believe was motivated by the huge hole in its balance sheet, Celsius has refused to acknowledge the truth or its failures in risk management and accounting. Instead, they have tried to shift the blame onto me.Yo”.
Therefore, it will only be necessary to wait for the legal investigations and the processing of the case to understand in greater detail what happened and is happening with Celsius Network.
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