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Celsius: A Headless Chicken Leaking Yield

A fundamental concept for anyone running a bank-like operation is the "net interest margin," or NIM. Celsius did not get even this right.

The Celsius examiner's report is out and it has lots of detail. Quite a while ago we sketched a theory of what might have happened. The key elements were:

  1. Mistakenly staked ETH
  2. Pledged some BTC for a loan that they then defaulted on
  3. Promised 10%ish more yield to depositors than they could earn on the assets
  4. Spent a bunch of money pumping its CEL token
  5. Had high cash expenses
  6. Also lost some money due to bad trading and hacks

Broadly speaking this looks right. The report has a lot of detail regarding CEL and a wide range of pump-and-dump schemes. Much of that is now widely reported. But there are also fascinating details of #4 and #6 – the degree to which their "market" activities were failures – in the report.

Among other problems, we can see clearly that much of Celsius' trading operation had no idea how to operate their business. Celsius got a range of basic concepts wrong and never seemed able to repair the damage. Let's dig in to a few highlights.

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