Shalini Nagarajan

<div id="highlights-block_62aaed53cdd11" class="highlights">
 <ul>
 <li>Citigroup will also advise on offers, including Nexo’s bid to buy some of Celsius’ assets</li>
 <li>Abrupt user withdrawals echo the Mt. Gox meltdown in 2014, a crypto exec told Blockworks</li>
 </ul>
 
</div>



After freezing user accounts on Sunday, <a href="https://cms.blockworks.co/tag/celsius/" target="_blank" rel="noreferrer noopener">Celsius</a> has recruited Citigroup to advise the crypto lender on its next steps.



Celsius has brought on the bank in an advisory role, <a href="https://www.theblock.co/post/152230/citigroup-celsius-advising-after-withdrawal-freeze" target="_blank" rel="noreferrer noopener">The Block</a> reported on Wednesday. While Citigroup won’t directly provide any funds to Celsius, it will lay out possible financing routes, the report said.



In addition to its advisory role, Citigroup will reportedly help Celsius evaluate offers, including one made by rival lender Nexo, which formally approached its competitor to buy some of its distressed assets, at the time Celsius signaled liquidity issues. 



Nexo <a href="https://cms.blockworks.co/nexo-knew-celsius-was-in-trouble-before-lenders-withdrawal-freeze/" target="_blank" rel="noreferrer noopener">told Blockworks</a> it was aware Celsius had trouble with its withdrawal obligations and its findings pointed to the “unsustainability” of its business, even before the lender publicly admitted to it.



Celsius’ move to pause user withdrawals and transfers due to “extreme market conditions” triggered a fearful crypto market sell-off reminiscent of Mt. Gox’s catastrophic <a href="https://www.reuters.com/article/us-bitcoin-mtgox-bankruptcy/mt-gox-files-for-bankruptcy-hit-with-lawsuit-idUSBREA1R0FX20140228" target="_blank" rel="noreferrer noopener">bankruptcy</a> in 2014, said Youwei Yang, director of financial analytics at StoneX. At the time, the Tokyo-based crypto exchange lost about 850,000 bitcoin in a hack, leading to the firm’s collapse.



In a <a href="https://blog.kaiko.com/celsius-reaches-boiling-point-c9b258f4474f" target="_blank" rel="noreferrer noopener">report</a> Wednesday, crypto research firm Kaiko said Celsius suffered from a combination of poor risk management, bearish market conditions, and overexposure to stETH (<a href="https://cms.blockworks.co/will-lido-staked-ether-trigger-the-next-big-crypto-crash/" target="_blank" rel="noreferrer noopener">staked ether</a>, a derivative of ether locked in the Ethereum Beacon Chain), which drove the firm into a “Lehman-esque” position.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Even if they do survive this onslaught, I don’t see how anyone can trust the likes of Celsius to keep their assets safe going forward,” Conor Ryder, research analyst at Kaiko, wrote.</blockquote>



Citigroup declined to comment, while Celsius didn’t respond to a request for comment by Blockworks. On Wednesday, Celsius CEO Alex Mashinsky did <a href="https://twitter.com/Mashinsky/status/1537147449088872449" target="_blank" rel="noreferrer noopener">post a brief note</a> on Twitter — his first since his company suspended withdrawals — thanking the Celsius community for their patience.



Citigroup’s appointment wouldn’t be a new one for the crypto lender. The bank reportedly advised Celsius on taking its bitcoin mining subsidiary business public. In May, the network <a href="https://www.prnewswire.com/news-releases/celsius-network-announces-confidential-submission-of-draft-registration-statement-by-bitcoin-mining-subsidiary-celsius-mining-llc-301547547.html" target="_blank" rel="noreferrer noopener">submitted</a> a confidential S-1 draft registration for the subsidiary’s initial public offering — expected to become effective after the SEC’s review.



<h3 class="wp-block-heading">Prospects for reorganization</h3>



Celsius has also <a href="https://cms.blockworks.co/celsius-lawyers-up-following-account-freeze-liquidity-crunch/" target="_blank" rel="noreferrer noopener">tapped</a> Washington, DC-based law firm Akin Gump Strauss Hauer &amp; Feld to explore potential financing options from investors, the Wall Street Journal reported.



Dane Lund of DeFi Alliance sees that as a move to head off potential small claims court actions from its customers, which would become impossible if the company files for bankruptcy protection.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Yesterday, the WSJ reported that Celsius engaged Akin Gump for restructuring advice. This tells unsecured creditors that efforts to seek judgments in court are unlikely to unlock liquidity soon enough to beat the automatic stay.&mdash; Dane Lund (@lund_dane) <a href="https://twitter.com/lund_dane/status/1537091805061296130?ref_src=twsrc%5Etfw">June 15, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The chaos triggered by Celsius is proof that not all lending platforms are equal, according to Mauricio Di Bartolomeo, cofounder of Canada-based crypto lender Ledn.



Clients will be further incentivized to ask the right questions to gain more information on how the yield they are paid is generated, he told Blockworks. “If they are not satisfied with the answers they receive, they could proactively choose to withdraw their assets or close their loans at that particular platform,” he added.



When asked how sustainable companies in the crypto lending space are, Bartolomeo said the models used to generate yield by each vary widely, and it would be unfair to characterize them under the same umbrella.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“There are significant differences in the risk management policies and in the yield generation strategies being employed by the various lenders,” he said.</blockquote>



“Those lenders who took significant risks [such as] generating yield in DeFi with their depositors’ assets, lending uncollateralized to low credit quality borrowers, taking directional market risk with client assets may be finding themselves in some trouble now,” he added.



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Celsius Calls on Citigroup for Options After Liquidity Squeeze, Report Says

Michael Bodley

<div id="highlights-block_62838d7288eda" class="highlights">
 <ul>
 <li>The derivative was a cash-settled bitcoin swap denominated in US dollars</li>
 <li>It’s the first step toward building out a growing crypto business line that would likely include market making</li>
 </ul>
 
</div>



Derivatives specialist StoneX Group has pulled off its first US dollar-denominated bitcoin swap, joining a growing cadre of legacy financial players making first forays into crypto markets.&nbsp;



A subsidiary, StoneX Markets, made the cash-settled swaps — derivatives contracts that exchange two financial instruments at a predetermined time — available to clients earlier this month, a company executive told Blockworks.



The trade’s counterparty was <a href="https://www.drivewealth.com/liquidity-solutions-global" target="_blank" rel="noreferrer noopener">Liquidity Solutions Global</a>, a subsidiary of London-based DriveWealth Holdings that provides digital asset liquidity.  



For StoneX, which has been exploring the digital assets space for years, the move is the first step in building out an institutional-grade crypto book, Eric Donovan, the company’s global head of institutional foreign exchange trading, told Blockworks.



<div class="wp-block-image"><figure class="alignright size-thumbnail"><img loading="lazy" decoding="async" width="150" height="150" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg" alt="" class="wp-image-21749" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Eric-Donovan-Headshot-150x150.jpeg?w=600 600w" sizes="auto, (max-width: 150px) 100vw, 150px" /><figcaption>StoneX&#8217;s Eric Donovan</figcaption></figure></div>



The expansion, which StoneX views as a viable source of revenue down the line, is likely to include a spot crypto trading product that will act as a market maker, providing liquidity to institutions, including hedge funds, trading digital assets. The company could partner with a major crypto custodian to safekeep its client assets. 



The financial services firm has already been acting as a fiat off-ramp for crypto companies shut out from the traditional banking system due to regulatory matters, Donovan said. That includes providing foreign exchange trading for currencies worldwide. Digital assets exchanges, for instance, may take in currencies from around the world, but prefer to keep dollars and euros on their balance sheets  — making a conversion at a decent exchange rate a must. 



“The place that we occupy in the market is that when you look at a multi-asset advisor or a multi-asset fund, they may be in equities,” Donovan said. “They may be in commodities. And they want some exposure to crypto. We think that is a huge growth area.”&nbsp;



StoneX joins other Wall Street players, including Goldman Sachs, in setting up in-house crypto trading operations. Goldman has both originated a bitcoin-backed loan and traded non-deliverable bitcoin options.&nbsp;



For StoneX, part of the delay has been waiting for ample liquidity in options markets for digital assets. In addition to offering derivatives on other cryptocurrencies, including ether, the firm will in the future look to trade so-called “crosses” or exchanges between digital assets — or digital currencies to fiat and vice-versa, Donovan said.



“Crypto is not just in the United States,” he said. “It’s in the whole world. And we need to be able to denominate assets against every other fiat currency in the world.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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