Celsius Network, a platform that offers investments and loans with bitcoin (BTC) and cryptocurrencies, has paused all withdrawals indefinitely.
As CriptoNoticias announced this morning, the decision was made —according to the company— “for the benefit” of “the community in order to stabilize liquidity and operations.” Furthermore, they explained that are taking steps to “preserve and protect digital assets”.
In the absence of a specific explanation (and while waiting for it) it is possible to “connect the dots” to reach provisional conclusions. This medium has reported, days ago, that Celsius I had about 445 thousand stETH tokenswhich makes it one of the largest holders of this digital asset. The company has exchanged ether (ETH) deposited by its customers for stETH.
This is a synthetic token that maintains parity with ETH, the native cryptocurrency of the Ethereum network. It is issued by the Lido staking pool and is used so that those who invest with this pool have liquidity, that is, they can withdraw from Ethereum 2.0 staking whenever they want.
It is the stETH holders who will benefit from the performance of Ethereum 2.0 staking. That is why Celsius made the aforementioned cryptocurrency exchange.
If we turn to price trackers like CoinGecko either CoinMarketcapwe can observe that, on the last day, stETH parity with ETH was far from 1 to 1. On several occasions, the synthetic token – which maintains its price through an algorithmic mechanism – fell below the price it should have.
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Even at the time of this publication, it is observed that such a condition is met. While ETH is trading at $1,237, stETH is trading at $1,164.
What if all Celsius Network investors decided to withdraw their funds at the same time, with stETH decoupled from ETH? The company would not be in a position to make the payment. This is possibly one of the reasons that led them to make the decision to suspend withdrawals.
By acting in this way, the company is reneging on the promise made on its website:
Celsius also has bitcoin tokenized
Not only has Celsius put much of its funds into the synthetic token stETH, but it is also a large holder of wrapped bitcoin (wBTC). This is a “wrapped bitcoin” in a token from the Ethereum network. Those tokens are invested by Celsius on the MakerDAO platform.
The company has 17,919 wBTC leveraged on MakerDAO, which it used to borrow 278,000 units of the DAI stablecoin. It’s the largest single debt position on MakerDAO.
If the price of BTC were to drop below $22,534.79, those wBTC could be liquidated. That is Celsuis would lose that money (and possibly, if that happened, Celsius customers would lose the ability to withdraw their funds).
What can Celsius users do if the company stops paying?
The Celsius Network terms and conditions state that the user “will not be able to exercise property rights” over the digital assets that he deposits on the platform. That is, they belong to the company.
There, in addition, it is indicated: «in the event that Celsius goes bankrupt, it goes into liquidation [como podría ocurrir con wBTC] or you are unable to pay your obligations, eligible digital assets used in the “Earn” service or as collateral in the loan service may not be recoverable and you may not have any recourse or legal rights is not your right as a Celsius creditor under applicable law.”