Today we finish our review of the Celsius bankruptcy Interim report. Starting back up on page 50, the report detailed the difference between what Celsius clients viewed in the app versus what was actually happening at Celsius. Customers saw their funds deposited and reflected in their account balance. But on the Celsius end, this did not happen at all. Funds went into a pooled and aggregated wallet, and Celsius even lost the ability to track the assets back to the customer who deposited them. Instead of moving coins to reflect the user’s balances, they simply manually reconciled their accounts again to make everything appear alright. No automated process existed.
Celsius Employees Relied on Intuition to Decide if Accounts Were Good?
On top of that, they only performed 53 manual reconciliations in an 85 day period. No reconciliation procedures were ever actually finalized nor did they have a plan in place of how to address a shortfall. Employees reported that they thus relied on their “innate sense of how liquid or illiquid the coins were.”
They did start using Google Sheets to create snapshots of the accounts. But these reported how much Celsius held in its Custody wallets, not how much their client’s balances reflected.
The ‘Withhold’ accounts were a separate deal entirely according to Celsius. For customers that could not have a custody account, their funds were deposited into a ‘Withhold’ account that was again supposedly separate from ‘earn’ and ‘custody.’ These funds were also held in the same main wallet. Clients were told they would no longer earn rewards on ‘Withhold’ account funds but by June 12 Celsius realized they could not honor withdrawal requests.
Most importantly, the legal team instructed employees to respond to all requests about the safety of funds with “yes, Celsius continues to safeguard customer assets.” They paused withdrawals but also continued to accept deposits. It wasn’t until June 28th that they announced their substantial shortfalls. After the pause on withdrawals, they also stopped reconciling accounts completely.
In conclusion, Celsius seemed to lack the framework and basic technological infrastructure to carry out the program they had set out to provide. Rather than shut down until they were better prepared, they continued their risky lending habits and risked customer funds. Celsius had an excellent marketing program. While the fine print did not let its clients know how ill prepared they were, hopefully retail investors and project founders can learn from Celsius and their obvious errors.
While the crypto world waits for the reports and investigations from FTX, Celsius and their bumbling attempts may provide some insight into the reckless mismanagement that has led to the downfall of so many platforms. Stay safe out there.
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