Troubled cryptocurrency lender pays down debt to decentralized exchange Maker
Blockchain data shows that the troubled cryptocurrency lender paid down $183 million of its debt to decentralized exchange Maker, which could be a move to retrieve the bitcoin collateral after an investment contract defaulted on Dec. 28, 2018.
Celsius, the crypto lender that is reportedly cutting jobs to avoid a liquidity crisis, has been repaying debt on one of the largest decentralized-finance protocols, blockchain data shows - possibly in an effort to get back bitcoin-equivalent tokens that were posted as collateral on the platform.
Since July 1, as recorded by the blockchain data, Celsius has paid down $183 million of its debt to Maker, one of the biggest decentralized lending platforms. The transaction on Etherscan's blockchain data tracker confirms that downpayments came from a wallet linked to Celsius. The debt was repaid in Maker protocol's native stablecoin, DAI.
The transactions resulted in not only the extinguishment of the debt but also the release from Maker of 2,000 bitcoin (worth $40 million), which had been posted as collateral. WBTC is a token configured for Ethereum blockchain that represents BTC – the largest cryptocurrency and one of the most liquid.
Celsius still owes 41 million DAI in loans to Maker, but it has about 22,000 wrapped bitcoin (about $440 million worth) posted against those loans. So there could be a bigger potential kicker if the rest of the debt were repaid.
Walter Teng, a CoinDesk analyst, said that by repaying the debt, Celsius may be freeing up collateral (BTC) to be sold on centralized exchanges or over-the-counter to meet creditor demands and customer withdrawals.
"Since DeFi loans are overcollateralized, it makes sense for them to do this, as the value unlocked from paying back their loans (collateral less loans) is greater than the value of the loans themselves (if they choose not to repay).
The company didn't immediately respond to requests for comment on the blockchain data or the transactions.
The crypto lender that is in trouble is trying to keep its assets safe and preserve them, to avoid bankruptcy. The lender faced financial losses from the collapse of the Terra blockchain and its UST stablecoin in May, and then again from the failure of the once-top tier crypto hedge fund Three Arrows Capital in June.
On June 12, Celsius Network suspended withdrawals and transactions for its 1.7 million users and hired restructuring consultants, while regulators have opened investigations into the company.
CEL, the native token of Celsius platform, has fallen by 80% this year.
At the end of May 2022, the company had extended $8 billion in loans to clients and managed $12 billion in assets.
When a borrower takes out a loan on a decentralized finance platform, such as Maker, the lender will often require the borrower to put up more collateral than is necessary to cover the amount of the loan.
When wBTC are used to repay loans, the collateral for Celsius will be less likely to be sold off by the Maker protocol.
After the payments, the liquidation level of Celsius wBTC collateral fell to $2,774 according to DeFi Explore's website. WBTC now trades at $20,200 and the loan is 1,101% (about 10 times) overcollateralized.