Today, Celsius announced that it will sell some of its Ethereum in staking to finance the costs incurred during the restructuring process.
The company went bankrupt in June of last year, but still had some ETH in staking that were continuing to generate profit. With this decision, it will instead remove them from staking and sell a portion of them because it did not have enough funds to cover all expenses.
The goal is to eventually return part of the funds to the creditors, and the refunds will be distributed in BTC and ETH.
Summary
The failure of Celsius
Celsius was a company specialized in cryptocurrency lending.
In other words, it allowed cryptocurrency holders to deposit their funds on their platform in exchange for payment of interest.
The platform was centralized, and the company did not manage the funds deposited by customers well.
In the end, she was no longer able to sustain all the debts and losses she had accumulated due to poor fund management, to the point of not having enough cash in hand to satisfy all withdrawal requests.
This does not mean that it no longer had any funds, but that it no longer had enough to satisfy all withdrawals. In other words, at the time of the bankruptcy, the company blocked user withdrawals, but continued to have cryptocurrencies in its treasury.
In theory, those cryptocurrencies were owned by the users, but in reality, the users have completely lost control over them, which are now managed by bankrupt trustees.
Ethereum staking sold by Celsius
Some of the customer funds that were still in the cash register at the time of the final closure of withdrawals were Ethereum (ETH). Apparently, these were put into staking to generate profits, with which the bankruptcy trustees perhaps hoped to be able to pay part of the ongoing restructuring expenses.
Evidently, however, the liquid funds have not proven to be sufficient even to pay for the current expenses of the restructuring process, and so they were forced to remove the Ethereum from staking.
Part of the ETH mobilized should be sold in order to pay for some expenses of the restructuring process, while another part should then be returned to the creditors.
Returns to creditors
The company currently does not have sufficient funds to return to all users the funds they had deposited with them at the time of the suspension of withdrawals.
However, from June 2022 to today, the market value of those funds has increased.
For example, the price of ETH has gone from $1,100 to $2,200, while the price of BTC has gone from $20,000 to $44,000.
Therefore, even if the failed company is unable to return all the funds that users had deposited, it may be able to give them a lower amount in crypto, but perhaps equal to or higher in fiat currency.
However, since the refunds should be made in ETH and BTC, creditors will then have to proceed with the sale if they want to monetize the gains from the portion of crypto funds they will receive back.
To be honest, part of the funds’ return has already taken place, as the company emerged from bankruptcy in November. However, it still has two billion dollars in crypto to repay.
The hypothesis is that this final return could already take place in January 2024.
Ethereum Staking: Celsius takes advantage of it
Since Ethereum has abandoned Proof-of-Work (PoW) and switched to Proof-of-Stake (PoS), it no longer has mining but has staking.
Staking consists of immobilizing ETH on a validator node, which can then participate in the transaction validation process in exchange for a portion of the fees paid by users.
Since at this moment the fees are relatively high (on average $5 per transaction), the earnings from staking are significant.
Furthermore, when ETH is staked directly on a validator node, it takes some time before it can be reclaimed in case of disengagement. This means that the staked ETH is effectively immobilized and unusable except for staking purposes.
Currently, there are almost 29 million ETH staked on Ethereum validator nodes, out of a total of 120 million circulating ETH. This means that 24% of the existing ETH is effectively locked up.
Those who put ETH in staking are rewarded in ETH, thus simply increasing their own ETH. Currently, staking on Ethereum validator nodes yields less than 4% per year in ETH.
