Nexo Circles Celsius for Potential Loan Asset Buyout

Key Takeaways

Crypto lender Nexo has offered to buy Celsisus’ qualifying assets as the rival deals with what appears to be a severe liquidity crisis.
The offer, valid until Jun. 20, proposes buying Celsius’ collateralized loans, brand assets, and customer database.
Earlier this morning, Celsius froze all customer withdrawals, swaps, and transfers, citing “extreme market conditions.”

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The crypto lender Nexo has sent an official letter of intent to Celsius, offering to buy some or all of its collateralized loan assets to secure sufficient liquidity for its clients.

Nexo Offers to Buy Celsius’ Portfolio

Nexo allegedly extended a helping hand to Celsius Sunday, but the beleaguered lender appears to be refusing help.

In an early Monday Twitter thread, crypto lender Nexo shared an official letter of intent offering to buy Celsius’ remaining qualifying assets, specifically its collateralized loans, brand assets, and customer database. “Nexo is in а solid liquidity and equity position to readily acquire any remaining qualifying assets of Celsius, mainly their collateralized loan portfolio,” the lender wrote on Twitter this morning.

The offer, valid until Jun. 20 unless withdrawn by Nexo before that time, came only hours after Celsius announced that it would freeze all withdrawals, swaps, and transfers between accounts, citing “extreme market conditions.” “We are working with a singular focus: to protect and preserve assets to meet our obligations to customers,” Celsius wrote in an early Monday blog post, adding that its “ultimate objective is stabilizing liquidity and restoring withdrawals, swaps, and transfers between accounts as quickly as possible.”

Celsius CEO Alex Mashinsky had repeatedly denied that the firm was dealing with any insolvency or liquidity issues up until the point when the lender paused withdrawals. In a late Sunday Twitter spat with Mike Dudas, Mashinsky wrote:

“Mike do you know even one person who has a problem withdrawing from Celsius?, why spread FUD and misinformation. If you are paid for this then let everyone know you are picking sides otherwise our job is to fight Tradfi together…”

Celsius, which is among the three-biggest crypto lenders in the industry alongside Nexo and BlockFi, is dealing with what appears to be cash-flow insolvency or a severe liquidity crisis that has left it unable to honor customers’ withdrawals on time. The firm’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 yields. It then redistributes part of the revenue it makes through lending back to its customers as double-digit yields on crypto assets like Bitcoin and Ethereum, while retaining a smaller cut for itself as profit.

However, the continually worsening conditions in the crypto market over the last six months have hindered Celsius’ ability to generate high yields, which in turn has negatively affected its capacity to attract and retain depositors. With disproportionately more customers 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 nearly 450,000 stETH—receipt tokens representing ETH staked through the decentralized liquid staking protocol Lido—worth around $813 million. However, due to a lack of liquidity between stETH and ETH, the beleaguered lender is now allegedly unable to exit its stETH positions to provide ETH withdrawals for its customers. 

To generate yield, Celsius had allegedly staked a small part of its customer’s ETH directly in the Ethereum staking smart contract and a more considerable portion through Lido’s liquid staking platform, assuming it would always be able to redeem stETH for ETH on decentralized exchange Curve to honor withdrawals. However, over the past week, the Curve liquidity pool was drained of most of its ETH liquidity, leaving it severely imbalanced. Currently, the pool has only around $128 million of ETH left, accounting for approximately 20% of its total liquidity.

This means that unless Celsius manages to secure a favorable over-the-counter deal with a big crypto market maker, it has no way of redeeming its stETH tokens for ETH to honor its customer’s withdrawal requests. If the lender, which admittedly counted 1.7 million customers at its highs, doesn’t solve its liquidity issue via negotiation with Nexo or another big institution promptly, its cash-flow insolvency may lead to bankruptcy.

Celsius’ native token CEL, which the firm is using to supplement the yields on its high-interest crypto accounts, has plummeted over 50% today. Per CoinGecko data, CEL is currently trading at around $0.19, 97.5% down from the all-time high price of $8.05 it had reached in June last year. Despite boasting a strong balance sheet, Nexo’s native token NEXO also fell 22% on the day.

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

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