Celsius withdrawing nearly $800 million of Ether from Lido

Key Takeaways

Bankrupt lender Celsius is trying to withdraw $779 million worth of ETH from Lido
The ETH represents 7% of the total amount staked with Lido
Celsius has $4.7 billion of debts with creditors, and sent the market into a tailspin last year after it got caught up in the Terra contagion
Celsius also staked $75 million of ETH with staking provider Figment last week

Celsius is the temperature unit of choice for all bar three countries: Liberia, Burma and the United States. Celsius is also the name of a popular energy drink beginning to make rounds on social media. But utter the word “Celsius” around a cryptocurrency investor, and they will think of neither of these things. Rather, they’ll likely shudder and picture nothing but lost cash.

Celsius, of course, is the crypto lender which suspended withdrawals on June 12th, 2022. Getting caught up in the contagion that followed the spectacular death spiral of the Terra ecosystem a few weeks prior, it did not have the necessary funds on deck to honour the flood of withdrawal requests. 

It was forced to declare bankruptcy, a gruesome $4.7 billion owed to creditors. 

Now, it is trying to withdraw 428,000 ETH from Lido, equivalent to $779 million at current market prices. Transaction data on the blockchain can be seen here (withdrawn in increments of 1,000). 

Lido is a liquid staking platform, where ETH stakers have been able to lock up their ETH in return for stETH tokens, receiving a yield in the process. Until the Shanghai upgrade (also known as Shapella) went live in April, the any ETH staked, regardless of platform, was locked and could not be withdrawn. This changed once the upgrade went live, and last week, Lido opened up withdrawals.

Looking at the total amount of ETH staked on the network, it sits at 21.8 million, equivalent to 18.15 of the total circulating supply. 

Celsius’ requested withdrawal of 428,000 ETH constitutes 0.36% of the entire ETH supply (it also represents 2% of the total staked ETH). 

Looking at the amount of ETH staked with Lido specifically, Celsius’ withdrawal of 428,000 ETH represents nearly 7% of all the ETH staked with Lido. Lido has a 28% market share with regard to Ethereum staking. 

The ETH withdrawals will all be processed, but such is the size of the outflux that it may take time, especially if others move to withdraw from Lido. In this event, validators could exit which would slow down the process. 

What is more interesting is the reasons behind this Celsius withdrawal. The locked ETH was cited as one of the reasons that Celsius was unable to honour withdrawal requests last summer, although with $4.7 billion in debts, it is hardly the only one. And to be clear, this was very much an insolvency crisis rather than a liquidity crisis. 

The funds may be getting moved to prepare for a (partial) repayment of creditors in future. The bankruptcy process is notoriously slow, however, with Mt Gox users still awaiting compensation, despite the exchange succumbing in 2014. 

The intriguing aspect to this is the inherent volatility of the underlying assets. When Celsius suspended withdrawals, ETH sat close to where it is now, around $1,800, but the road in between has been far from smooth. It nearly halved in the ten-day period following the news last June, dropping to $990. During the pandemic bull run, it came close to breaching $5,000.

This means creditors awaiting payment are subject to the wild volatility – against their own will. This could also be a reason that Celsius is withdrawing the underlying ETH. 

On the flipside, according to data released by blockchain analytics firm Arkham Intelligence, Celsius staked $75 million worth of ETH last week with the staking provider Figment. This is surprising for multiple reasons. Most notably, Celsius operates its own staking pool with nearly $300 million in assets under management, so it is curious why it decided not to funnel the ETH into its own pool. 

Perhaps this suggests that the ETH withdrawn from Lido will be sent there, but that pure speculation. Either way, the entire process is confusing, although that has been the case with many of Celsius’ actions in the past. 

One thing crypto investors may fear is the ETH being monetised quickly. Were Celsius to flood the market with the $779 million of ETH it is withdrawing from Lido, this would have a tangible effect on prices, especially as liquidity continues to thin in crypto markets.