Why Did Celsius Move $529M Worth of WBTC to FTX?
- Celsius said it would need time to regain its financial position.
Crypto users were alerted after reports emerged that troubled crypto loan provider, Celsius, had moved about 25,000 wrapped Bitcoin, (wBTC) to popular exchange, FTX. Many users grew concerned about the possibility of a dump following this news. Celsius made the move after it had cleared its $41.2 million debt with the Maker, (MKR) Protocol.
The crypto community has mixed feelings over the wBTC movement from Celsius to FTX. Many have wondered if this transfer could cause the price of Bitcoin to slump further down the drain. However, others believe that it could signal a positive start for Celsius.
Some users noted that the action might be a prelude to Celsius exchanging their wBTC for BTC, which may be encouraging for investors anticipating the return of Bitcoin withdrawals on Celsius. Celsius had previously announced in a blog post that it was pausing all transfers and withdrawals between accounts following the market crisis. Celsius is known for offering high-interest rates, climbing up to 18% on crypto deposits. The loan provider pays interest in several crypto assets including its, CEL token.
The blog post read,
Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations.
Celsius and a Quest for Liquidity
There have been questions on how Celsius will return from its liquidity crisis. The crypto lender had close ties with the embattled Terra and found itself in a bad situation after Terra crashed. Celsius is now on a long adventure of getting back to its glory days. Celsius’s CEL token was trading at $7 last year but has fallen to $0.7.
Celsius, in a message to its community, noted that additional time is needed for it to regain its financial stance. It wrote,
We want our community to know that maintaining the stability of our operations and liquidity is our goal. This process might take some time.
Celsius generates revenue through rehypothecating customer deposits, which ultimately results in yields for its consumers. Rehypothecation is a strategy in which banks and brokers use assets that their users have placed as security for their own objectives. Clients who consent to the rehypothecation of their collateral may receive remuneration of a fee refund or a reduction in the cost of lending.
However, centralized lenders like Celsius might need to sell off some of their various assets if withdrawal requests surpass their liquid reserves. Projects run into a liquidity crisis occurs when the assets generated by such exits eventually are unable to meet withdrawal demand.
Liquidity has been a huge concern during this bear market. Some of the top cryptocurrency businesses are already in crisis or have failed because of a lack of liquidity.