Wash Trading, Losses: Celsius Network Has Bigger Problems Than LUNA
Celsius Network has recently found itself in the limelight for its contributions to the LUNA downfall, but Terra’s demise is only the tip of the iceberg of problems the crypto staking platform, which has over 2 million community members and almost US$12 billion in assets, faces.
According to research firm Nansen, Celsius Network was one of the major entities involved in TerraUSD’s depegging.
“We refute the popular narrative of one ‘attacker’ or ‘hacker’ working to destabilize UST,” the analytics firm said in a research note.
“The de-peg of UST could…have resulted from the investment decisions of several well-funded entities, e.g. to abide by risk-management constraints or alternatively to reduce UST allocations deposited into Anchor in the context of turbulent macroeconomic and turbulent conditions,“ said Nansen.
Nansen further added that these decisions could have been made maliciously, although also stated that they may not have been.
Two addresses that “significantly impacted the UST de-peg” withdrew about 420 million UST from Anchor, according to Nansen. One of the addresses was associated with Celsius.
Celsius was also “a close counterparty that has sent and received funds” from another wallet whose activities led to the de-pegging, Nansen added.
Amid the LUNA fallout, it was also reported that wallets controlled by Celsius had sent over 261,000 ETH to Anchor Protocol over the past five months. Celsius reportedly withdrew the entirity of the the funds during the chaos.
Terra-ble track record
Highlighted by Dirty Bubble Media, Celsius Network allegedly has a rather shady past. Describing aspects of the firm as “questionable and potentially fraudulent”, the media site brought attention to the arrest of Celsius Network CFO Yaron Shalem. The CFO was arrested alongside eight people, including venture capitalist ringleader Moshe Hogeg, in Israel for crypto-related fraud.
Alex Mashinsky, CEO of Celsius, also has a “tenuous relationship with the truth” according to Dirty Bubble Media. Mashinksky claims to be the inventor of voice over IP (VOIP) and claims to have raised over US$300 million in funding for his first start up Arbinet. Both claims are reportedly false and Arbinet is described as a pump-and-dump.
Mashinsky also served as an advisor for two cryptocurrency-related firms: MicroMoney ($AMM) and Sirin Labs ($SRN). Both projects turned out to be rug pulls.
Celsius Network is known for generating enticing yield and lending to institutional clients. However, there is a “significant gap between what Celsius is paying and what they are receiving as interest on these deposits.” According to Dirty Bubble Media’s calculations, Celsius faces an annual defecit of US$86 million in interest payments to depositors.
The network then uses these deposits as collateral to borrow stablecoins, which they lend out to institutional clients. Celsisus needs to pay interest on these loans ammounting to US$20 million.
Even at 11% APY on their lent stablecoins, Celsius Network has an annualized loss of US$34 milliion. To break even, Celsius Network would need to receive 16% APY on their lent stablecoins.
Terra-ble wash trading
Celsius Network’s token $CEL has been trading on Uniswap, of which more than 59% of $CEL token volume is wash trading according to Dirty Bubble Media. Wash trading simply refers to illegal market manipulation.
According to Dirty Bubble Media’s findings, almost half of $CEL/$WETH swaps are performed by leading global algorithmic market maker Wintermute. The Wintermute system regualrly swaps $CEL in and out of DEXs to create the apperance of demand – i.e. wash trading.
“Wintermute’s $CEL trades are far larger than the average trade on the market, typically several thousand $CEL per trade. These trades are balanced over a few hours; Wintermute swaps $CEL into Uniswap, then shortly after swaps the same amount back out,” Dirty Bubble Media explained.
Furthermore, an additional 12% of the CEL/WETH volume on Uniswap is attributed to other wallets buying and selling balacned amoutns of $CEL over periods of several hours, in a similar but smaller pattern to Wintermute.
“Based on these data, we conclude that at least 59% of CEL/WETH volume on Uniswap from 3/21-3/26/22 was wash trading. Nearly half of the total volume came from a single “market maker,” with an additional 12% generated by other obvious wash-trading wallets,” the report concludes.
What was once a friend of the DeFi community, offering staggering APYs for staking, Celsius has become the enemy of the people thanks to its LUNA involvement. However, a deeper dive into Celsius Network’s past as well as present will uncover grave concerns.
Looking ahead, Celsius Network will either need to sharpen up or face collapse. With its founder having a history of rugpull involvement, there’s little hope for Celsius.