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June 22, 2022

Celsius Causing a Doozy

Are you ok? It’s been a scary few days with Celsius freezing withdrawals, causing a 17% drop in bitcoin.  What caused this? Celsius was a massive holder of stETH (Liquid staked ETH via Lido Finance) to earn yield on their ETH while waiting on the merge to proof-of-stake. Once ETH is staked for stETH, it cannot be unstaked until “the merge” is successful.

stETH had traded 1:1 with ETH since its inception. It began trading at 97 cents in May and declined to 93 cents this Monday morning, which people are calling a “de-peg” but isn’t technically. 

“The exchange rate between stETH:ETH does not reflect the underlying backing of your staked ETH, but rather a fluctuating secondary market price,” Lido explained on Twitter. “The market is naturally finding a fair price for stETH as some participants need to find liquidity.”

Lido attributed the price fluctuation of stETH to “the Terra collapse, market-wide deleveraging and now withdrawals from larger lending platforms.”  

Celsius also had $535 million on the Anchor Protocol earning an unsustainable 20% APY, which it withdrew as UST losses began to mount. 

Now, with the price of bitcoin trading at $21,500, Celsius was on the verge of a margin call on 17,900 wBTC (wrapped bitcoin on Ethereum) to be liquidated at $20,272, but has been adding more bitcoin to their collateral over the last couple days pushing the liquidation price to $18,387 then to $16,852, to now $14,002. 

It looks like Celsius is in a much healthier position than it was 48 hours ago.  What’s the lesson here? Celsius operates in a black box chasing unsustainable yields for their depositors, who have no visibility into or control over their funds. 

At Ember Fund, if you have invested in our self-custody portfolios, our Metaverse Index or Top NFT Index, your investments are visible on the blockchain. 

Additionally, our due diligence standards and risk management practices are protecting our positions and products.  We are well-capitalized and laser-focused on building and growth as we enter this challenging environment. 

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