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Celsius Pivots Toward Paying Off Aave, Compound Debt, With $950M Collateral as Prize

Celsius, the liquidity-strapped crypto lender that this week paid down $223 million of loans on the blockchain protocol Maker to free up $450 million in collateral, now might be trying a similar strategy with two other big decentralized-finance (DeFi) platforms – Aave and Compound.

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

Should Celsius fully pay 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.

Celsius owes $235 million in stablecoins to Aave and Compound, collateralized by $950 million of various digital assets. (Zapper)
Celsius owes $235 million in stablecoins to Aave and Compound, collateralized by $950 million of various digital assets. (Zapper)

These moves look like part of the firm’s strategy 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 as it works to solve a liquidity crunch in the era of decentralized finance.

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

How Celsius pays off its debt

Celsius, helmed by CEO Alex Mashinsky, 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.

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

These types of automated loans are generally overcollateralized, meaning that the borrower pledges more assets in value than the loan it can take out. To prioritize repaying these DeFi loans is net positive for Celsius, because the firm can reclaim the valuable collateral by spending a fraction of collateral’s value.

First, Celsius started to pay back its debt to DeFi protocol Maker, which amounted to $223 million.

In less than a week, the crypto lender fully paid off its loan and got a hold on the debt’s collateral worth $450 million, CoinDesk reported Thursday, in the form of wrapped bitcoin (WBTC), a bitcoin derivative product on the Ethereum blockchain.

Hours later, the firm transferred $500 million in WBTC to the crypto exchange FTX, possibly with the intention to sell.

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

What does it mean for crypto prices?

At press time, the Celsius wallet owed $150 million to Aave in Circle’s USDC stablecoin and another $85 million to Compound in Maker platform’s DAI stablecoin, according to data on Zapper.

The collateral Celsius pledged against the Aave and Compound loans was worth about $633 million and $316 million, respectively, in the form of various cryptocurrencies or derivatives such as WBTC, ETH, LINK, SNX, UNI and COMP.

Nansen portfolio tracker shows that the Celsius wallet in question holds $950 million in assets and $235 million in debt. (Nansen)
Nansen portfolio tracker shows that the Celsius wallet in question holds $950 million in assets and $235 million in debt. (Nansen)

Blockchain data tracer Etherscan shows 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.

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, amounting to $50 million at current prices.

FundStrat analyst Walter Teng told CoinDesk earlier this week that the reclaimed collateral can later 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.

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.