The Celsius Network has recently received lots of criticism following the loss of millions the protocol experienced in the ongoing bear market. Lucas Nuzzi, the head of research and development at Coin Metrics, was particularly displeased with the protocol’s approach to investment. He blasted the network for exposing investors’ funds to risks that are not worth the marginal yield.
Celsius’ Investment Framework
Celsius serves as an investment intermediary for cryptocurrency users. The protocol accepts funds from investors in BTC, ETH, SOL, and some stablecoins, then stakes these funds in DeFi protocols to earn appetizing gains. Celsius then returns a part of the profit to investors while keeping some profits.
Lucas Nuzzi pointed out that Celsius’ investment framework was solid during the crypto bull run. However, the network has failed to maintain its clean sheet recently.
Last December, the network deployed WBTC to the BadgerDAO protocol but eventually lost about $120 million worth of WBTC when the protocol was hacked. Undoubtedly, investing so much in a protocol that young raised many questions for the Celsius network.
Celsius also had investments in UST worth $500 million or more. The investment protocol was able to pull out some millions before Terra’s UST crashed to zero. However, losses were incurred in millions of dollars already, again, with funds from investors.
It seems the storm is not over yet for Celsius, as it currently battles against liquidation. Celsius has 24K BTC in Maker Vault, and the downward spiral of BTC means their holdings may get liquidated soon.
Interestingly, the network has been actively adding BTC to its position recently, with over 6K BTC added in the last two days to prevent liquidation. The current liquidation price for its BTC holdings is $17,000 per BTC. As it stands, no one wants a trend reversal for Bitcoin more than the Celsius team and its investors.
Finally, Celsius holds $500M worth of stETH. Its stETH holdings cannot be unlocked until the ETH merge is complete. The protocol is running out of funds, and if the ETH merge is further delayed or the market conditions keep worsening, Celsius will pay heavily for its poor investment strategies.