Celsius To Pay Off Aave, Compound Debt, Reclaiming $950M Collateral

Just days after paying off its $223 million debt to the blockchain protocol Maker to free up $450 million in collateral, Celsius is now trying a similar strategy with two other big decentralised-finance (DeFi) platforms – Aave and Compound.

According to DeFi data dashboard Zapper, a crypto wallet linked to Celsius by blockchain intelligence firm Nansen has reduced its outstanding debt to Aave and Compound to $235 million, down from $258 million on Friday.

If Celsius fully pays off the loans, the crypto lender will theoretically be able to reclaim about $950 million in assets that are pledged against the debt and are locked up as of now on the DeFi protocols.

These moves look like part of the firm’s effort to restructure its debt to DeFi protocols and reclaim the valuable collateral that is locked up for now to cover the alleged hole on the firm’s balance sheet.

The bigger picture is that keen observers with access to blockchain-data explorers are getting a front-row seat to watch a troubled crypto firm working to solve a liquidity crunch in the era of decentralised finance.

“DeFi debt repayment could provide necessary liquidity to maximize recoverable value in a potential transaction,” John Freyermuth, research analyst at Enigma Securities, claimed.

How Celsius pays off its debt

Celsius is reportedly working with restructuring experts from advisory firm Alvarez & Marshal and hired banking giant Citigroup (C) for advice on financing options. The company said June 30 that it was exploring options to “preserve and protect assets” – such steps might include pursuing strategic transactions and restructuring liabilities. The company announced on June 30 that it was exploring options to “preserve and protect assets”. These might include pursuing strategic transactions and restructuring liabilities.

Just one day after that announcement, Celsius started to reduce its debt to DeFi protocols, blockchain data shows.

These automated loans are typically overcollateralised, which means that borrower pledges more assets in value than the loan it can take out. To prioritise repaying these DeFi loans is net positive for Celsius, since the company can reclaim the valuable collateral for a fraction of its worth.

First, Celsius paid back its debt to DeFi protocol Maker, which totalled $223 million. In less than a week, the crypto lender paid off its loan and reclaimed $450 million in collateral in the form of wrapped bitcoin (WBTC), a bitcoin derivative product on the Ethereum blockchain.

Within a few hours after paying off its debt, Celsius transferred $500 million in WBTC to the crypto exchange FTX, possibly with the intention to sell.

And now, Celsius seems to be getting more active on Aave and Compound, where the payoff could be even bigger.

What does it mean for crypto prices?

According to Zapper, the Celsius wallet now owes $150 million to Aave in Circle’s USDC stablecoin and another $85 million to Compound in Maker platform’s DAI stablecoin. The collateral Celsius pledged against the Aave and Compound loans was valued around $633 million and $316 million, respectively, in the form of various cryptocurrencies or derivatives such as WBTC, ETH, LINK, SNX, UNI, and COMP.

According to blockchain data tracker Etherscan, Celsius transferred $16 million in Maker’s DAI stablecoin and a transaction of $3 million in Circle’s USDC stablecoin to Aave in the early hours of Friday.

FundStrat analyst Walter Teng said that the reclaimed collateral can then be sold on exchanges or via over-the-counter deals to meet creditor demands and customer withdrawals. Any dumping by Celsius might put pressure on prices for crypto assets.

Transaction history on Zapper also shows that Celsius converted yield-earning token derivatives issued by the Aave protocol of ETH, LINK, BAT and SNX back to regular tokens, which are worth around $50 million at current prices.

At press time, smaller altcoins among Celsius’ holdings such as BAT, COMP and SNX were down down 5%, 3.2% and 7.6%, while the rest of the cryptocurrency market trades flat.