Nexo Circles Celsius for Potential Lending Asset Redemption

Key points to remember

  • Crypto lender Nexo has offered to buy eligible assets from Celsisus as the rival faces what appears to be a severe liquidity crunch.
  • The offer, valid until June 20, proposes to purchase Celsius’ secured loans, brand assets and customer database.
  • Earlier this morning, Celsius froze all customer withdrawals, trades and transfers, citing “extreme market conditions”.

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Crypto lender Nexo has sent a formal letter of intent to Celsius, offering to purchase some or all of its secured loan assets to secure sufficient liquidity for its clients.

Nexo offers to buy Celsius wallet

Nexo reportedly reached out to Celsius on Sunday, but the beleaguered lender appears to be refusing its help.

In a Twitter thread early Monday, crypto lender Nexo shared an official Letter of Intent offering to purchase Celsius’ remaining qualifying assets, in particular its secured loans, branded assets and customer database. “Nexo is in a strong liquidity and capital position to easily acquire all of Celsius’ remaining eligible assets, primarily their secured loan portfolio,” the lender said. wrote on Twitter this morning.

The offer, valid until June 20 unless withdrawn by Nexo before then, came just hours after Celsius announced it would freeze all withdrawals, trades and transfers between accounts, citing “extreme market conditions“. “We are working with a singular goal: to protect and preserve assets to meet our obligations to clients,” Celsius wrote in a blog post early Monday, adding that its “ultimate goal is to stabilize liquidity and restore withdrawals, exchanges and transfers between accounts”. as quickly as possible.”

Celsius CEO Alex Mashinsky has repeatedly denied the company faced insolvency or liquidity issues until the lender suspended withdrawals. In a Sunday night Twitter conversation with Mike Dudas, Mashinsky wrote:

“Mike, do you even know anyone who’s having trouble withdrawing from Celsius?” , why spread FUD and misinformation. If you get paid for this, let everyone know you choose your side, otherwise our job is to fight Tradfi together…”

Celsius, which is among the top three crypto lenders in the industry alongside Nexo and BlockFi, is facing what appears to be a cash insolvency or severe liquidity crisis that has prevented it from honoring customer withdrawals. on time. The company’s business model involves borrowing crypto assets from typically smaller retail investors and lending them to institutional clients or using them in DeFi to generate high returns. It then redistributes some of the income it makes by lending to its clients in the form of double-digit returns on crypto assets like Bitcoin and Ethereum, while keeping a smaller cut for itself as profit.

However, the continued deterioration of crypto market conditions over the past six months has hampered Celsius’ ability to generate high returns, which in turn has hurt its ability to attract and retain depositors. With a disproportionate number of clients withdrawing assets than depositing them, Celsius now appears unable to honor redemptions on time.

According to DeFi commentator Small Cap Scientist and several other on-chain sleuths, Celsius had acquired a massive position of almost 450,000 stETH – receive tokens representing ETH staked via the Lido decentralized liquid staking protocol – worth around $813 million. However, due to a lack of liquidity between stETH and ETH, the embattled lender would now be unable to exit its stETH positions to provide ETH withdrawals to its clients.

To generate yield, Celsius would have staked a small portion of its client’s ETH directly into Ethereum’s staking smart contract and a larger portion through Lido’s liquid staking platform, assuming it would be still able to redeem stETH for ETH on a decentralized Curve exchange to honor withdrawals. However, over the past week, the Curve liquidity pool has been drained of most of its ETH liquidity, leaving it severely out of balance. Currently, the pool only has around $128 million worth of ETH, which is around 20% of its total liquidity.

This means that unless Celsius manages to strike a favorable OTC deal with a major crypto market maker, it has no way to redeem its stETH tokens for ETH to honor withdrawal requests. of its customers. If the lender, which admittedly had 1.7 million customers at its peak, does not quickly resolve its liquidity problem by negotiating with Nexo or another large institution, its cash insolvency could lead to bankruptcy.

Celsius’ native CEL token, which the company uses to supplement returns on its high-interest crypto accounts, fell more than 50% today. According to data from CoinGecko, CEL is currently trading at around $0.19, which is 97.5% below the all-time high of $8.05 it hit in June last year. Despite a strong balance sheet, Nexo’s native NEXO token also fell 22% on the day.

Disclosure: At the time of writing this article, the author of this article owned ETH and several other cryptocurrencies. Crypto Briefing has previously streamed sponsored content from Celsius.

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