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Blockchain data reveals that Celsius, the crypto lender that has halted withdrawals and is reportedly laying off employees to avert a liquidity crisis, has been aggressively repaying debt on one of the largest decentralized-finance protocols, presumably to retrieve bitcoin-equivalent tokens that had been posted as collateral.
According to on-chain statistics, Celsius has reduced its collateralized debt to Maker, one of the powerful decentralized lending platforms, by $183 million since July 1. The blockchain data tracker Etherscan verifies that the initial deposits come from a wallet associated with Celsius.
DAI, the Maker protocol's native stablecoin, was used to repay the loan.
According to the data, the transactions resulted in the cancellation of the debt and the release by the Maker of 2,000 wrapped bitcoin (worth $40 million) that had been posted as collateral. Wrapped bitcoin (WBTC) is a token designed for the Ethereum network that symbolizes bitcoin (BTC) — the largest and hence one of the most liquid cryptocurrencies.
Celsius still owes Maker 41 million DAI (about $41 million worth) in loans, but it has 22,000 wrapped bitcoin (approximately $440 million worth) placed against those loans; therefore, if the remainder of the debt were serviced, there may be an even larger potential kicker.
“By repaying the debt, Celsius is possibly freeing up collateral (BTC) that then can be sold on centralized exchanges or via over-the-counter to meet creditor demands and customer withdrawals,” Fundstrat researcher Walter Teng stated In an interview with CoinDesk.
“Given that DeFi loans are overcollateralized, it makes sense for them to do this, as the value unlocked from paying back their loans (collateral less loans) is greater than the value of the loans themselves (should they opt to not repay).”
Representatives of Celsius did not immediately respond to emails demanding comments on blockchain data or transactions.
After the implosion of the Terra blockchain and its UST stablecoin in May and the loss of the once-preeminent crypto hedge fund Three Arrows Capital in June, the distressed crypto lender is trying to defend and preserve its assets to escape insolvency.
Beginning on June 12, Celsius stopped withdrawals and transactions for its 1.7 million users, recruited restructuring experts, and allegedly eliminated 150 staff. Authorities have launched an inquiry into the corporation.
CEL, the native token of the Celsius network, has decreased by 80% this year.
As of May 2022, the business has lent more than $8 billion to clients and managed assets worth $12 billion.
Loans on decentralized finance platforms like Maker are typically overcollateralized, meaning the borrower promises more valuable assets than the loan’s worth.
A further advantage of loan paydowns is that they lessen the price point (in wBTC) at which the Maker protocol would automatically liquidate Celsius collateral.
According to the website DeFi Explore, the liquidation level of the Celsius wBTC collateral decreased to $2,774 after the payments. WBTC is currently trading at $20,200, making the loan 1,101 percent (about ten times) overcollateralized.
Celsius still owes Maker $41 million, secured by around 22,000 WBTC ($440 million).