ZeroX Dry Goods Store: A Few Thoughts on Celsius Network's 1 Million Ethereum Position Being "Underwater"

Author: Zero X Dry Goods Store

The background of the matter is that Twitter user @yieldchad claimed that Celsius's ETH position is "insolvent." The core logic is that out of Celsius's 1 million ETH, only about 27% is in ETH that can be withdrawn at any time. Of the remaining 73%, 44% exists in the form of stETH, and 29% is directly staked in 2.0. "If all 1 million ETH customers want to cash out in the short term," 730,000 ETH can only be redeemed for 280,000.

Regarding the negativity of this matter, you can refer to this tweet from @0x_Todd, and I agree with its core logic: if an extremely severe run occurs, it is very dangerous.

However, I would like to add some other information for everyone to consider:

1. How much did Celsius actually lose in the Stakehound incident?

The total amount of stakehound ETH is 65,270. In the fireblocks incident on May 2, 2021, 38,178 (58.5%) was lost. The original citation states that Celsius held 42,306 (st) ETH. Even based on this number, is the actual loss 24,750? This accounts for 2.5% of the current custodial ETH total assets.

2. How much are the ETH positions held by Celsius actually worth?

If we consider a timeframe of 12-18 months, then its 1 million ETH is still 1 million ETH; if we consider the current, immediate situation, is it about 550,000 ETH as the original author mentioned? (No) Yes, the stETH-ETH Pool has only about 300,000 ETH in liquidity. If there is a reckless trader who insists on selling their 440,000 stETH at an average price of 0.6E all at once, then the original author's calculation is correct. The question is, are there such reckless traders? Buying stETH at a discount is the most crowded trade; a 5% discount might attract a lot of buyers… Market liquidity is dynamic, not static.

3. The key factor in the entire event is the ratio of short-term / long-term / and demand deposits among Celsius's clients.

Avoiding this point when discussing liquidity is meaningless. Otherwise, go out and ask a bank which one has a 27% cash reserve? Ultimately, it’s a bank run issue. How do you calculate how much a bank's assets are worth? If you want it to cash out all deposits within a month, can all its assets be recovered at half price?

4. The original author, based on historical tweets, is also a specialized bearish account, consistently calling out targets like: Coinbase, Tesla, Tether, Celsius, Nexo; and has always questioned Celsius's excessively high interest rates, believing that on-chain yields cannot cover the interest paid to customers. However, he overlooks a very important business model of Celsius: customers can choose to settle interest using the Cel platform token (does this remind you of dydx or looks by Daming Lake?). Therefore, if Celsius has no risk of a run, its balance sheet could potentially be healthy (I say potentially, as there are no audited data).

5. Conclusion: Does Celsius have various controversial behaviors that pose potential risks? Yes; is it "insolvent/bankrupt"? No, it may be facing a market sentiment-driven run issue, rather than being strictly "insolvent." Given its overall asset scale and available lending tools, it has the ability to ensure liquidity for redemption. Even if we take a step back and say it really goes under, it is unlikely to sell assets at a significant discount, because selling coins at a rock-bottom price creates an irreparable hole for itself.

I have never been a fan of Nexo or Celsius, but this deliberate FUD rendering is somewhat off-putting. For those of us who are just watching, the FUD sentiment is something to pay attention to, because sometimes the truth doesn't matter; what matters is what the market believes. When a snowball effect from FUD really occurs, each of us will be caught in it.

6. Opportunity: The possibility of stETH being discounted due to FUD is far greater than the possibility of Celsius selling coins.