Celsius Network, one of the crypto lenders dealing with liquidity issues as a result of the industry’s current credit crisis, appears to have used a decentralized finance (DeFi) protocol measure to free up hundreds of millions of dollars in trapped collateral.
On Tuesday, a wallet associated with Celsius transferred $81.6 million in Circle’s USDC stablecoin to the automated decentralized lending protocol Aave, according to blockchain transactions. Celsius’s debt to Aave was reduced to $8.5 million as a result of the transaction.
Crucially, the transfer released $410 million in stETH, a type of staked ether token that Celsius had pledged as collateral for the Aave loan. The stETH tokens are a fork of the Ethereum blockchain’s native token ether (ETH); one stETH token represents one ETH locked up on Ethereum’s upcoming proof-of-stake network.
The stETH token has been at the center of the crypto market’s liquidity crisis after its price deviated from the alleged 1-to-1 peg to ether. At the time of writing, stETH was trading at a 3% discount to ETH.
According to blockchain data firm Nansen’s portfolio tracker, Celsius is one of the biggest single holders of stETH, holding at least $426 million of the tokens. At $4.4 billion, the stake represents nearly one-tenth of stETH’s total market capitalization.
Celsius liquidity
Celsius, which once managed over $20 billion in client deposits, is one of the crypto lenders that halted withdrawals to avert a run on its deposits. According to CoinDesk, it also laid off 150 employees and hired restructuring consultants.
Celsius’s down payment is yet another measure to reclaim collateral by repaying the debt to decentralized finance (DeFi) protocols.
According to blockchain data, Celsius paid off its $228 million debt to Maker, another DeFi lending platform, and received $440 million in collateral in the form of wrapped bitcoin (WBTC), a BTC derivative, last week. Following that, Celsius began to repay its Aave and Compound loans, paying down $95 million of the debt by Monday.
According to data on crypto data tracker Zapper, Celsius owed DeFi protocols $59 million as of press time: $8.5 million to Aave and $50 million to Compound, with $28 million and $199 million locked up on the platforms as collateral, denominated in various tokens.
If Celsius pays off the remaining debt, it could theoretically recover the combined $227 million in digital assets, which would help it with liquidity.
