Crypto lender Celsius Network stung by sell-off in digital asset market

Crypto lender Celsius Network has suffered a 50 per cent decline this year in the value of assets deposited on its platform, a sign of the pressure the industry is facing in the wake of falling digital token prices.

Celsius, which borrows cryptocurrencies from its customers and lends them out to earn a return, had just under $12bn of assets as of May 17, according to its website, down from more than $24bn in late December 2021.

The company is one of the biggest players in the crypto lending business and says it has 1.7mn customers. Last year, it raised $750mn from investors including Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec.

Crypto lending boomed in recent years in lockstep with the broader crypto market. With prices now in retreat, companies with billions of customer deposits such as Celsius face the challenge of navigating a crypto marketwide slump.

Alex Mashinsky, who founded and runs Celsius, has sought to reassure customers this month after the collapse of a major stablecoin called terraUSD along with its sister token Luna shook confidence and hit prices across crypto markets. He said on Thursday the group had “minimal exposure” to the tokens.

At @CelsiusNetwork we have stated several times publicly that we had minimal exposure to $Luna and $UST

I understand people who are trying to sell you competing services are spreading these rumors but you have to trust our @Twitter posts.

— Alex Mashinsky (@Mashinsky) May 19, 2022

Celsius has sustained significant client outflows in recent months, including $750mn between May 6 and May 14, according to weekly statistics the company releases. Since March, net outflows have amounted to more than $1.1bn.

The decline in assets at Celsius has primarily represented a reflection of falling prices in crypto markets, said a person familiar with the matter. They added that the company has billions of dollars in liquidity and was providing customers with the funds they needed.

Celsius’s own coin called CEL is trading at just 80 cents, down from a peak of $8 in June 2021. The group is the biggest holder of the token and includes it as an asset on its balance sheet, according to accounts filed in the UK.

As part of its efforts to draw in new client funds, the company on Tuesday launched a promotion offering customers rewards if they transferred assets into Celsius accounts and kept them there for up to 180 days. A company spokesperson said it regularly offers promotions and that its promotion strategy had not changed recently.

Earlier this week, Celsius also said it had filed with US securities regulators to list its bitcoin mining subsidiary on Wall Street equities markets.

Celsius generates revenue in part from “discretionary trading” of cryptocurrencies, including “speculative trades” on prices, according to its UK accounts. Mashinsky has insisted the company does not trade customer assets. “How we earn yield does not involve trading the asset itself,” he told the Financial Times last year.

Celsius is one of several crypto businesses that offers customers interest on their digital assets, and advertises yields as high as 18.6 per cent. It has come under scrutiny from regulators in some jurisdictions who argue that such products should be registered as securities.

Last month, Celsius restricted nonaccredited US investors — individuals with an annual income lower than $200,000, or a net worth lower than $1mn — from earning rewards on the company’s Earn platform.

Celsius’ shareholders include Tether, the stablecoin issuer whose eponymous token, also known as USDT, traded below its $1 peg earlier this month. Celsius borrows USDT directly from Tether under a facility that requires it to post bitcoin as collateral.

Last year, the company’s then-chief financial officer was arrested in Israel as part of an investigation not related to Celsius. He denied wrongdoing and has not been charged.