How Did Celsius Lose 800M? 📉

Plus: AAV3 Launches V3, Ribbon Smart Targeting

February 01, 2023

GM folks 👋🏻 - let's get over this hump day together 🐫. We have a lot for you today. Celsius examiner report is out 📝, it’s almost 700 pages and the content alleged that it has been a Ponzi from the start. In other news, SudoSwap releases its token and Uniswap VCs are maneuvering again.

In Today's Email:

What Matters: Celsius failed to report $800M loss 🤦
Case Study: Ribbon targets Friktion’s users 🎯
Features: AAVE launches version 3 👻

WHAT MATTERS

Celsius Failed to Report $800M Loss

State of play: Shoba Pillay, an independent examiner for Celsius case has released a report detailing that Celsius has been operating a different business model than the one advertised to customers. It made risky bets and concealed its market-making effort for the CEL token. All the while its founder Alex Mashinsky cashed out $68M. Yikes 😬

Celsius told customers that it’s doing low-risk and fully collateralized investments, but reports a $1.2 billion in its balance sheet during its bankruptcy filing.
Celsius book during the bull market height of June 2021 was more than 50% under-collateralized
Celsius lost $800M in 2021 from investments in Grayscale, KeyFi, Stakehound, and Equities First Holdings — but didn’t report these losses 🤥

Why it matters: Other than seeing how the bankruptcy case will affect the broader crypto market, Celsius OTC flywheel strategy described below is an important aspect that founders need to consider when conducting transactions with their own tokens. Pay attention to the extent of market-making activities that you can do for your token 🤔

Its OTC flywheel strategy whereby the firm sell CEL tokens via OTC providers and creates offsetting buys in the open market is extremely questionable behavior. The report highlights that Celsius’ Coin Deployment Specialist describes the firm’s practice of “using customer stable coins” and “growing short in customer coins” to buy CEL as “very Ponzi like”.

17/ Mashinsky describes the $CEL flywheel below.
He describes a perpetual motion machine that we would call a Ponzi scheme.
— Ram Ahluwalia, crypto CFA (@ramahluwalia)
1:21 PM • Jan 31, 2023

For builders: In crypto, there are temptations to do related parties transactions and excessive rehypothecation even in the on-chain space. For instance, two brothers can create 7 protocols and prop up the valuation of those protocols’ tokens via related parties dealing and multiple loops of lending-borrowing strategies. Founders of said protocols then cashed out by selling the tokens at a high price. Sounds similar? Just don’t do this.

For investors: Invest in blockchain analytics tools to track the on-chain funds of your portfolio companies. Demand financial reporting for off-chain expenses at least every quarter. These are basic practices that new investors in crypto often overlook, either because of the mania, or because they’re not professionals in the space, but simply get lucky and made a lot of money via the bull market. Implement controls.

CASE STUDY

Ribbon Targets Friktion Users

State of play: Ribbon Finance announced its initiative to airdrop its revenue from the SOL ecosystem to former Friktion users (a competitor that shuts down) that decide to migrate to Ribbon. New users have to maintain their deposits for at least one month. The deadline for this program is February 17, 2023.

Ribbon’s move is brilliant. It reinvests the revenue generated via its products in the Solana ecosystem to acquire former Friktion users that are already using identical products 🎯
This also shows the importance of being multi-chain. By being on Ethereum and Solana, Ribbon can target various users, and get the insights that they need, while tapping into the liquidity available in the EVM-compatible ecosystem. Data from DeFiLlama shows that Ribbon’s market share in the Solana option vault niche is tiny in comparison to Friktion, but the entire market is under $10M in total.

How to deposit from Friktion:
- From the $SOL vault: withdraw directly into Ribbon
- From the $stSOL, $mSOL, or $scnSOL vaults: use to swap your token for $SOL and deposit into Ribbon
- Other vaults: convert that asset into $SOL and deposit into Ribbon
— Ribbon Finance (@ribbonfinance)
3:10 AM • Jan 31, 2023

Our take: Although the airdrop reward is small (550 SOL = ~$12,000), Ribbon is using crypto-native strategies to grow its user base. Using on-chain activities and wallet credentials to market your crypto product is akin to CPG brands using Amazon’s data to market Reese’s Peanut Butter to those who previously purchase Snickers. Again, brilliant move.

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FEATURES & GOVERNANCE UPDATE

AAVE Protocol Launches V3

AAVE

AAVE launches its Version 3. The crypto lending protocol with $4.5 billion in TVL has released its version 3. The upgrade focuses on mitigating user risk, increasing capital efficiency, and reducing gas costs. The AAVE token spiked to a high of $89 on the days leading up to the upgrade 📈. AAVE V3 features include:

High-Efficiency Mode: enables users can increase capital efficiency when supplying or borrowing stablecoins and liquid staking derivatives (LSDs).
Isolation Mode: enables more assets to be listed as collateral and for assets to be listed in isolation mode.
Gas Optimization: reduces gas costs across the board by 20-25%.

Why it matters: AAVE is one of the largest crypto protocols that has been able to build a moat around its products. As Ethereum staking withdrawals are enabled, LSDs narrative and rehypothecation across DeFi protocols will see a significant boom, and the upgrade made in V3 will prepare AAVE to service those users.

Other notable feature updates:

ParaSwap launches PSP 2.0.
Cap Finance launches v4 beta.
TreasureDAO launches MagicSwap AMM.
Sommelier Finance launches real yield USD strategy.
Lyra launches on Arbitrum.
Fantom upgrades fUSD to v2.
Celo releases 2.0 roadmap.

QUICK BITES

Twitter eyes crypto option for payments.
UK Treasury outlines regulatory plans for crypto exchanges and lenders.
Mastercard-Binance plans to launch prepaid card in Brazil.
Alameda sues Voyager Digital over $445M.
Osprey sues Grayscale over advertising.
Celsius failed to report $800M in losses.
Ethereum Shanghai Testnet goes live tomorrow.
Hong Kong plans on stablecoin licensing requirement.
SBF bond signers can be revealed.
Uniswap discussions on bridges and VC backroom maneuvering.

MEME & NOTEWORTHY READS

Ethereum Research’s article on a principled approach to crypto bridges.
a16z crypto’s article on consensus canon.
@RiddlerDeFi’s thread on the Ethereum Shanghai upgrade and LSDs.

gm, its the big day
— db (@tier10k)
7:36 AM • Feb 1, 2023

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.