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Nexo Knew Celsius Was in Trouble Before Lender’s Withdrawal Freeze


blockworks.co 13 June 2022 17:58, UTC
Reading time: ~3 m

It wasn’t a fun start to the week for cryptocurrency enthusiasts. Prices fell across the board and well-known crypto lender Celsius announced it would pause withdrawals indefinitely. 

But rival Nexo wasn’t surprised by the firm’s message — it even pitched acquiring some of Celsius’ distressed assets just hours after its worrying announcement frustrated customers. 

On June 13, Nexo said on Twitter it had extended a formal offer to buy assets from Celsius. The crypto lending firm told Blockworks it was already aware of Celsius’ looming troubles.

“As a major participant in the [over-the-counter] interbank digital asset markets, Nexo is naturally close to all that is happening in the space,” a Nexo spokesperson said. 

“From the publicly available on-chain data and client reports, it has been clear for some time that Celsius is having difficulties meeting the withdrawal obligations. From a risk management perspective, our findings have pointed to the unsustainability of Celsius.”

Nexo reached out to Celsius on Sunday to see how it could help in liquidity provision, but “they claimed there is no need and refused our help,” the spokesperson said. This led Nexo to submit a formal offer on Monday, which it shared publicly.

When asked what led Nexo to immediately offer to buy up Celsius’ assets, the Zug-based firm reiterated it just wants to look out for crypto investors. 

“Timing is of the essence because, ultimately, Nexo’s main concern is protecting the interests of crypto users in this unfortunate situation,” Nexo said. “As events develop, the company hopes Celsius will accept this help and as few investors will be affected adversely as possible.”

As of press time, Nexo said it hadn’t yet received a response from Celsius about its formal offer.

Celsius offers high interest to customers for token deposits, which it lends out to other crypto companies to earn a return. From a regulatory point of view, the business of crypto lending is still obscure. 

The network, headed by chief executive Alex Mashinsky, had about $12 billion in assets under management as of May and bills itself as both a decentralized finance (DeFi) and centralized finance lender.

“This is the issue with Celsius — it’s not inherently transparent with an open ledger. It’s run by centralized actors, and you have to basically trust the custodians of the platform,” Valour CEO Russell Starr said.

“DeFi is the opposite. If anything, I see this event as a long-term call for strengthening DeFi protocols.”

The “extreme market conditions” that Celsius cited as the reason for its withdrawal freeze seemed to have spread to crypto exchange Binance. Industry commentators pointed out that the twin incidents might amplify investor anxiety about the market in the coming days, causing further fallout.

“Investors are clearly worried of a situation that would be similar to the Luna crash,” said Walid Koudmani, chief market analyst at financial brokerage XTB, adding that regulators are already closely scrutinizing crypto financial products with high returns on passive investments.

“The situation with the Celsius network could be an omen of what’s to come in the near future as regulators begin to pay closer attention and as investors become more sceptical of such projects and the sector as a whole,” he said.

But others suggested any early-stage sector will go through rocky patches before calm sets in.

“If you’re in crypto, this event unfolding with Celsius is the rollercoaster you’ve signed up for,” said Garry Krugljakow, CEO at DeFi protocol GOGO Protocol. “It’s painful for some and could get even more painful if there are other blow-ups that end up happening as well – which is certainly possible – but this is the nature of this emergent market.”

Celsius didn’t immediately respond to a request for comment by Blockworks.

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