Report: Celsius Loses $350M in Client Funds on 'High Risk' Leveraged Trades

This article comes fromDecrypt, original author: Andrew Asmakov

Odaily Translator | Nian Yin Si Tang

This article comes from

, original author: Andrew Asmakov

Odaily Translator | Nian Yin Si Tang

Troubled crypto lender Celsius allegedly used $534 million worth of its clients’ funds to execute “highly risky leveraged crypto trading strategies” “through third-party asset managers,” according to a new report from blockchain analytics firm Arkham Intelligence. ".

The report, which used on-chain analysis, also noted that these strategies “resulted in an apparent loss of $350 million when asset managers returned capital,” equivalent to $210 million at current prices.The report noted that these crypto assets may be part of Celsius’ liabilities to clients.Arkham said it had identified the asset manager as the team behind investment firm KeyFi, led by CEO Jason Stone, one of the individuals linked to the “0xb1” account.

Just the day before, 0xb1 was also on Twitter

reveal their true identity

: His name is Jason Stone. The KeyFi he founded has been working for Celsius for a long time after being acquired by Celsius. He once managed hundreds of millions of dollars in customer deposits. However, Jason Stone said that Celsius did not conduct risk hedging and caused huge losses. Now he has initiated a lawsuit against Celsius. legal action.

According to Jason Stone, he founded KeyFi in 2019 and was acquired by Celsius in 2020. Since then, Jason Stone has turned KeyFi to pledge and deploy DeFi strategies for Celsius. In August of that year, Celsius created the 0xb1 address and transferred hundreds of millions of dollars of customer deposits to the address for investment, and then shared the private key with Jason Stone and handed it over to him for management.

Jason Stone said: "Celsius ensured that their trading team fully hedged any potential impermanent losses caused by our activities in the liquidity pool, and they performed risk management and hedging to deal with token price fluctuations. But in 2021 In late February, we discovered that Celsius had lied to us. They did not hedge our activities, nor did they hedge against volatility in crypto asset prices.”

According to Jason Stone, Celsius refused to admit the truth or their failures in risk management and accounting and tried to shift the responsibility to KeyFi, and has been owed to KeyFi millions of dollars in asset management fees to date. Jason Stone filed a formal lawsuit against Celsius on July 7 in New York State Supreme Court.According to Arkham, Celsius sent $534 million in crypto assets to 0xb1 in 260 transactions from August 2020 to April 2021, ranging in size from $10 million to $28 million. After that, 0xb1 invested these funds in various DeFi income activities, including providing liquidity on decentralized exchanges (DEX), and lending on Compound and Aave.0xb1 also reportedly purchased a $6.3 million collection of NFTs, including CryptoPunks, Beeple art, and several other projects.

Arkham cites a December 2020 publication by Chainalysis

, the report confirms Celsius was managing $3.3 billion in assets at the time.

By then, the company had sent $365 million in funds to 0xb1.

"Assuming Chainalysis' audit is correct, by the end of 2020, 0xb1 managed more than 10% of all Celsius assets." Arkham added that in the five months since the audit report was released, Celsius sent 0xb1 another $180 million in client assets.

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return funds at a loss

The report also said that between February and May 2021, 0xb1 appears to have returned $1.13 billion in crypto assets to Celsius, which equates to a 111% profit in U.S. dollar terms.

The report referred to the general performance of the cryptocurrency market, noting that during the study period, the price of Bitcoin rose from around $11,000 to around $60,000, an increase of more than 400%.

Meanwhile, ethereum, described as “another key asset that Celsius entrusts 0xb1 to,” has soared from around $400 to almost $4,000 in the same period, an increase of almost 900%.

"More simply, if Celsius had held these assets, rather than sending them to 0xb1, their value would have been $1.52 billion — nearly $400 million more than the value of the assets returned by 0xb1," the report states.

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Celsius questionable business model

Arkham detailed Celsius' decision to entrust the company's funds to a third party, reporting that the New York-based firm "may have sent 0xb1 user deposit assets that were accruing interest."

According to the report, “Due to Celsius’ relationship with 0xb1, Celsius could inadvertently cause a shortfall on customers’ deposits, not to mention the interest it guarantees for customers.”

Additionally, Arkham noted that Celsius' business model relies on "pocketing the difference between its rewards and the interest it pays users."