Celsius lost $390m in client funds due to ‘high risk’ leveraged trading: Arkham report

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Struggling crypto lending firm Celsius reportedly used client funds worth $534 million to execute ‘high-risk, leveraged crypto trading strategies’ through an investment manager third-party assets, according to a new report from blockchain analytics firm Arkham Intelligence.

The report, which uses on-chain analyses, also states that these strategies “resulted in apparent losses of $390 million when the asset manager repaid capital,” corresponding to $210 million at current prices.

These crypto assets, as the report suggests, may be part of Celsius’ liabilities to customers.

Arkham said it identified the asset manager as the team behind investment firm KeyFi, led by CEO Jason Stone, one of those associated with the yield farming account 0xb1.

Yesterday, 0xb1 also confirmed his identity in a Twitter thread announcing a lawsuit he has launched against the loan company.

According to Arkham, from August 2020 to April 2021, Celsius sent $0xb1,534 million worth of crypto assets in 260 transactions ranging in size from $1,000 to $28 million. 0xb1, in turn, invested these funds in various Challenge yield-bearing activities, which included the provision of liquidity on decentralized exchanges (DEX), as well as loans and borrowings on Compound and Aave.

0xb1 would also have purchased a selection of NFT worth $6.3 million, which included CryptoPunksBeeple art and several other projects.

The report cites a Chain analysis audit released in December 2020, which confirmed that Celsius had $3.3 billion in assets under management.

By that date, the company had already sent $365 million in funds to 0xb1.

“Assuming the Chainalysis audit is correct, 0xb1 had over 10% of all Celsius assets under management at the end of 2020,” Arkham said, adding that within five months of the audit, Celsius had sent 0xb1 an additional $180 million worth of crypto assets from their clients.

Return at a loss

The report adds that 0xb1 appears to have returned $1.13 billion in crypto assets to the crypto lender between February and May 2021, which works out to a profit of 111% if denominated in US dollars.

While this “may seem like an exceptional return on Celsius’ $530 million investment,” Arkham noted that it is “not as impressive when expressing 0xb1’s performance in crypto assets as it is.” he received from Celsius rather than US dollars”.

The report highlights the general performance of the crypto market, noting that the price of Bitcoin rose from around $11,000 to around $60,000 over the period under review, posting gains of over 400%.

At a time Ethereumdescribed as “another big asset that Celsius entrusted 0xb1 with,” jumped almost 900% from around $400 to nearly $4,000.

“More clearly, if Celsius had held these assets instead of sending them to 0xb1, their value would have been $1.52 billion, or nearly $400 million more than what 0xb1 appears to have brought in,” the report says. report.

Celsius’ questionable business model

Elaborating on Celsius’s decision to take the company’s funds to a third party, Arkham says the New York-based company “may have sent 0xb1 of user-deposited assets that were accumulating interest.”

According to the report, “due to Celsius’ relationship with 0xb1, Celsius could have inadvertently run out of the assets deposited by its clients, let alone the interest it was guaranteeing them.”

Additionally, Arkham noted that the lender’s business model is based on “pocketing the spread between its returns and the interest it pays its users.”

“Thus, Celsius users’ account dashboards may have informed them that they were accumulating crypto rewards that did not actually exist,” the report said.

Jason Stone did not immediately respond to Decryptrequest for comment from when contacted via Telegram.

Decrypt also contacted Celsius, which returned an automated response stating that the company is “working to respond to the many requests we receive as quickly as possible”, while encouraging users to check out the company’s official blog and Twitter account. .

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