Crypto lender Celsius was sued by Jason Stone, CEO of KeyFi, who alleged the firm used customer deposits to inflate the price of its own CEL token and manipulate the broader crypto markets. KeyFi is a DeFi platform that had managed assets for Celsius until March last year.
By offering high interest rates up to 18%, Celsius has attracted many investors and managed $20 billion worth of assets. A lot of investors were skeptical about the sustainability of this scheme, but founder Alex Mashinsky immediately denied it, and said his company has made high profits.
In fact, however, Celsius was struggling to cover payouts and suffered severe exchange rate losses due to price fluctuations of cryptocurrencies. According to Jason Stone, the problem was that Celsius mainly took deposits in Bitcoin and Ethereum, but Alex Mashinsky’s strategies earned rewards in other coins. That means if Ethereum and Bitcoin went up faster than others, Celsius would be in debt. Celsius had to borrow 1 billion USDT from Tether to cover the hole on its balance sheet, Mr Stone said.
In 2018, Celsius raised $50 million by selling a proprietary token called CEL, and its executives held large stock of the cryptocurrency. Jason Stone said that Celsius used $90 million worth of Bitcoin deposits from customers to boost CEL price, enriching CEO himself and Celsius’ leaders in the company. Celsius was not hedging KeyFi’s trading activities or fluctuations in the crypto-asset prices, Celsius and KeyFi’s partnership ended in March 2021. Initially Celsius assured “they had risk management and hedging in place to account for fluctuations in token prices” but the firm did not, in fact.
Due to the collapse of Three Arrows Capital in particular and the whole crypto market in general, Celsius has suspended withdrawals and transfers from June 12. On June 30, Celsius said the company was considering “strategic transactions” and “restructuring” its liabilities.
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