Celsius Network's Plan to Repay Earn Customers with Wrapped 'IOU' Tokens + AUDIO
Updated: Oct 7, 2022
Via the Internal All Hands Meeting: "The next part is a crypto-based solution to honoring creditor claims and we can’t get into too much detail at this stage, because the proposal is not public, but you know, Alex did make the proposal and got positive feedback and this is really how we resolve this: how we get out. What we do in this pivotal moment can be through unprecedented, really innovative solutions, and this is one of them - is to use crypto infrastructure as the framework for returning or for delivering or allowing our customers to get their claims on the assets that were in the earn program." - Oren Blonstein, Sept 8, 2022, Internal All Hands Meeting
Well, in full transparency, I received another audio file PRIOR to that of the Internal All Hands Meeting. In this audio, Nuke Goldstein, President of Celsius Network, discusses the company’s recovery plan to repay customers in Earn. He outlines Celsius Network's proposed “crypto-based solution”, which includes the consolidation of all assets (into BTC, ETH, USDC & CEL), and the subsequent creation of “wrapped claims tokens” that represent the ratio between the amount that Celsius owes us and the amount they actually have. These claims tokens can allegedly be sold on DEXs e.g. Uniswap, where their value in USD would ultimately be determined on the open market.
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NUKE GOLDSTEIN: There will be a wrapped token that represents, you know, the IOU (“I Owe You”), how much we owe the users and the valuation of that, and again, we’ll talk about the plan next week in more detail.
Just to take two minutes, what is the plan? So the plan is basically to wrap… first of all, simplify your assets. Instead of having 50 or 60 coins, we will owe Bitcoin, Ethereum, USDC and CEL tokens. Let’s put the CEL token aside, because that’s more than 2 minutes of explanation, but so Bitcoin, Ethereum, and USDC - and what we’re gonna do is we’re gonna spread our assets across these, you know, assets - you know like 45 % Bitcoin, 26% Ethereum, and 25% USDC and then we’ll have these buckets, which are basically wallets that have everything that Celsius has that can repay the customers will be in these buckets, and the wrapped tokens will represent the ratio between how much we really owe and how much we really have, and then you can redeem. You know, if it’s only 20%, you can redeem CxBTC to BTC on the platform, or you can wait.
Why would you wait? Because there is revenue coming from mining. There is revenue coming from the staked ETH. There’s coins that become liquid like ETH 2.0, or whatever they call it. So the more you wait, there’s a better chance that the gap will be closed. However, you can always redeem. But the most interesting piece of that plan, and I’ll take another 10 seconds on this is, you can withdraw those wrapped tokens and you can go to Uniswap or whatever - uh, you as users - and then let the market do its thing. And the market can decide hey, you know, we project this token, you know CxBTC will be worth half a bitcoin, or you can project that CxBTC will be two bitcoins. You know, I don’t know what the market will do, right? But next week, we’ll go over some reasoning why this is, will be a vibrant market for Cx tokens what at least Celsius X team or what’s left of it sees there. But in terms of Celsius itself, it’s very conservative, you can either keep your Cx tokens on the platform or you can redeem them for a certain ratio. That’s the plan. That’s the essence of the plan. We’ll go over details next week.
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CONTEXT: I am personally a Celsius Network customer who left 3.1 BTC & 11.5 ETH in the Earn program. I received this audio file from an anonymous source on September 1, 2022. As a depositor and unsecured creditor myself, I know many of us have been seeking transparency from the company as to what exactly is happening with our funds and what Celsius's next steps will be. Therefore, I felt it would be beneficial to many of us depositors to share what I was sent. Please keep in mind that I received this audio on September 1, 2022; Celsius Network's recovery plans may have evolved or shifted since this date.
MY PERSONAL TAKE: Due to Celsius Network’s balance sheet deficit, the price of a CEL-wrapped token (e.g. CxBTC) would clearly not be backed 1:1 with the value of the original asset in the same way that WBTC is backed 1:1 by BTC. If a mass of customers rushed to sell their CEL-wrapped tokens at once, the token price could plummet as there may not be enough Cx token liquidity in the open market; this could limit the potential recovery for those of us eager to cash out. However, the plan does allow customers who believe in Celsius's restructuring proposals to speculate on the company’s recovery over time.
The outlined IOU Wrapped Token plan echoes Bitfinex's recovery solution following the 2016 hack which drained 120,00 BTC from the exchange. Rather than pursuing liquidations, Bitfinex issued BFX tokens representing the value of the crypto lost; the tokens were designed to be bought back from users at a later date at $1.00 per token or to offer a % of shares in the platform, allowing customers to speculate on the company's recovery. Around seven months later, victims were allegedly able to recover between 75% -100% of their funds.
However, let's keep in mind that Bitfinex's tokens not only offered equity in their exchange but that they were also largely able to repay customers by reclaiming the stolen cryptocurrency (as the DOJ seized $3.6 billion worth of bitcoin from the hackers). Meanwhile Celsius's plans exclude equity in a NewCo and they instead hope to fill the colossal hole in their balance sheet through bitcoin mining, ETH staking, and through transaction fees from their proposed rebranding efforts as "Kelvin". For those with high conviction in Celsius's recovery plans who are willing to hold CEL-Wrapped IOU tokens longterm, there could in theory, be potential for increased recovery over time. However, personally, I am skeptical of Celsius's ability to profitably mine bitcoin or to successfully operate a NewCo under any name.
I have further concerns regarding how exactly CEL-Wrapped Tokens would be sold. Seeing as CEL is an ERC-20 Token and that Nuke Goldstein specifically mentioned selling the tokens on Uniswap (a decentralized exchange on Ethereum's blockchain), my impression is that these wrapped tokens may only be be tradable on DEXs, assuming Cx tokens are not listed on major CeFi exchanges e.g. Coinbase, FTX, Binance, etc. (even $CEL itself is NOT listed on major CeFi exchanges). This could pose an issue for customers who would like to promptly cash out of their Cx token positions, but do not have prior experience navigating DeFi protocols (obviously Celsius is CeFi), which could put these customers at a disadvantage. To be clear, I am obviously not a financial analyst or advisor. These are just my own opinions and concerns based on my limited knowledge of Celsius's full-fledged recovery plans.
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AUDIO AUTHENTICITY VERIFIED BY CNBC