FTX:CELUSD   Celsius Token / USD
WAS CELSIUS overleveraged ?
Why stETH and ETH "peg" breaking should cause you to worry.
2/x - stETH is a form of Lido Staked ETH. Upon the merge happening, if nothing goes wrong - it should be redeemable for ETH with some amount of staking yield included.
3/x Hence, stETH in a post merge era can be priced like a short dated forward. However, prior to the merge, it is more like an illiquid vault of ETH
4/x There are already many threads out there talking about the mechanics of stETH/ETH. What i will expound further is the mechanics of the players in this stETH/ETH trades
5/x Enter the delta-neutral traders. A few months back, one of the most popular trades was to borrow ETH at ~2% and conduct recursive farming or to do some form of stETH. This is because stETH was generating ~4% of yields and on a giant loan book, stETH was one of the few ways
6/x - to efficiently "generate" yield on ETH. There were few other real opportunities to utilize ETH. As such, behemoths like Celsius went tits long into this trade. But not only celsius. Take a good hard look at any big entities with loan books.
7/x In doing so, these entities have created a gigantic asset-liability mismatch. Luna and UST was a situation of solvency. stETH/ETH is a situation of liquidity. That does not mean that the stETH/ETH situation is any less serious than the LUNA collapse
8/x - given that in 2008, what we had was also a crisis of liquidity and confidence. The stETH is there, but the asset/liability mismatch in these lenders have created a situation where they are forced to sell - just like LFG in LUNA
9/x - these lenders are long illiquid ETH and owe liquid ETH that can be withdrawn at any time. Should they stop withdrawals, they risk sparking a greater crisis of confidence and a bank run. Given the giant loan books that these entities run -
10/x - stETH/ETH going to 0.9 will create serious pain. This is because assets just got marked down by 10% while liabilities stay the same. Lenders naturally have "thin" equity cushions vs the assets they run.. - this is how a crisis of illiquidity becomes a crisis of solvency.
11/x why should we care? This is because there is a few bn of stETH out there. There is not enough demand for stETH or illiquid ETH. Look at the discounts in GBTC and ETHE. There will be mark to market losses inflicted on players. He who panics first, panics best.
12/x ultimately, panic selling in stETH will lead to selling in ETH and drag down the broader crypto complex. We already have macro headwinds, these structural selling flows will exacerbate the crisis. In my opinion we will see a repeat of march 2020.
13/x - When lenders like Celsius collapse - they trigger contagion in the ecosystem as they have a complicated web of transactions with other players. Counter party risk becomes real. Credit shrinks - loans have to be repaid and assets have to be sold for dollars.
14/x the ultimate impact if celsius goes under is indeterminate...but crypto prices will definitely be much lower as the flow of money exits the system. Stay safe.
15/x - Also Celsius is probably insolvent. Lets run the numbers together. Celsius has an asset base of ~5bn. Typical borrower lenders have an equity cushion of 5%. That brings Celsius to 125m in equity.
16/x - Celsius has about 700k in stETH. At 0.95, that's a hit of 56m in mtm value. If stETH/ETH goes to 0.9, Celsius will have gone from a crisis of illiquidity to insolvency.
17/x - He who panics first, panics best. There is no upside in holding any assets with celsius. Get out if you can.


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