Crypto lending platform Celsius (CEL, was riskier for users than traditional banks, according to a report by The Wall Street Journal based on investor documents.
The lending platform has been facing some serious problems over the past month, from freezing withdrawals as well as facing investigations from multiple US states.
According to the documents seen by the WSJ, Celsius had issued large loans that were backed by very little collateral, and it did not have much of a safety net in case the market started to trend downwards.
The company also made investments that would be difficult to quickly unwind in the event consumers hastened to withdraw their funds, according to the WSJ.
As of the summer of 2017, before it acquired further capital, Celsius had accumulated assets worth over $19 billion and had about $1 billion in equity. This gives the firm an assets-to-equity ratio of 19:1, which is almost double the amount of the average assets-to-ratio for all North American banks, which sits at 9:1, the WSJ reported, citing statistics from FactSet.
This ratio acts as an indicator of risk for investors, and the ratio is high for a company like Celsius since some of its assets are in the form of highly volatile cryptocurrencies. This is in contrast to traditional banks that hold assets in more stable sectors as well as have access to loans from central banks.
In 2021, Celsius raised $750m from investors to grow its lending ecosystem. The lending platform was popular with investors due to its high-interest rates, with users earning up to 18.6% annually for depositing their crypto on the platform and 7.1% for stablecoins which is much higher than the average interest rate for savings accounts which sit at around 0.1%.
However, the company has been experiencing some significant challenges during this year. Earlier this month, users reported difficulties attempting to withdraw funds. There were also rumors of Celsius’s CEO attempting to flee the US.