FTX'ed: The Tangled Ties Of Celsius Network and Sam Bankman-Fried
Market manipulation, billions of dollars in transfers, preferential paybacks, and more...
Sam Bankman-Fried has gotten a lot of press lately. A former trader turned crypto mogul, he owns both one of the largest crypto exchanges, FTX, as well as one of the largest crypto trading firms, Alameda Research. FTX spent millions in the past several months buying naming rights to the Miami Heat’s arena, massive ad campaigns, and hiring Tom Brady (and giving him equity in the firm) to be the face of the exhange. At the same time, SBF (as he refers to himself) has spent millions of dollars on lobbying U.S. politicians to enact pro-crypto legislation.
The purported billionaire appears to be one of the last men standing after the recent crypto rout that brought down multiple other firms. SBF has used his apparent riches to go on a buying spree. FTX bailed out the crypto lending firm BlockFi to the tune of $400 million in a deal that gives the exchange the right to purchase the entire firm. FTX also bought substantially all of the bankrupt crypto lender Voyager Digital’s assets in a bid to have their former customers move their business to the FTX exchange.
SBF has recently hinted he may make a similar play for the remaining assets of Celsius Network:
However, it would behoove any interested parties to learn a little bit more about the many ties between Celsius Network and Sam Bankman-Fried. Public records, media reports, and blockchain analysis demonstrate that Celsius and SBF had a unique and multifaceted relationship. We show that:
FTX enabled Celsius to manipulate CEL token markets. During 2021, Celsius appears to have purchased well over 40 million CEL tokens on FTX to drive up and maintain CEL price. This period coincides with the due diligence and announcement of Celsius’ $750 million equity raise from Westcap and La CDPQ.
Celsius used FTX to liquidate hundreds of millions of dollars worth of user assets after freezing withdrawals. In addition to using the proceeds to pay back DeFi loans, a $104 million loan from FTX was discharged during this period.
Celsius sent hundreds of millions of dollars in borrowed stablecoins through FTX, possibly using FTX as a clearinghouse for distributing loans to their institutional borrowers. We show that Celsius’ loan to the failed crypto hedge fund (Ponzi scam) Three Arrows Capital appears to have gone through FTX.
Alameda Research is one of Celsius’ largest unsecured creditors, and Celsius’ largest unsecured creditor, “Pharos Fund,” is managed by a former co-founder of Alameda Research.
Celsius Network and SBF share very close ties to the dubious stablecoin issuer Tether.
Celsius Network Used FTX to Manipulate CEL Token, Purchasing Over 40 Million CEL in 2021
On January 1st, 2021, Sam Bankman-Fried tweeted that the Celsius Network propietary token, CEL, was being listed on the FTX exchange:
We have previously discussed the role Celsius Network played in the CEL market. Both regulators and a former employee have asserted that Celsius artificially maintained CEL token prices by buying CEL on the market. As Celsius was not generating enough return to pay customers’ yield, it has been alleged that they fraudulently used customer deposits and collateral to buy CEL token.
Based on a report filed by Vermont state securities regulators in Celsius’ bankruptcy, Celsius increased their net holdings of CEL token by 41.7 million between May and December of 2021:
During the same time, the CEL token balance held in FTX’s main exchange wallet increased by a very similar amount. Oddly, this growth appears to follow a linear trend; it’s almost as if some entity was purchasing a similar number of tokens at regular intervals during this period…
The CEL balance on FTX first maxed out around 60 million tokens in August of 2021. Celsius then withdrew 14 million tokens; 10 million of these went to the Celsius OTC address, which the company used to sell CEL tokens directly to customers. The CEL balance on FTX then continued to grow, albeit at a slower pace, until the end of December 2021 when it again hit around 60 million tokens. Then, in a series of transfers between December and February 2022, Celsius withdrew roughly 55 million more CEL tokens from the exchange to this wallet. Those tokens continue to sit in that address to this day.
In May of 2021, the CEO of the blockchain analysis firm Nansen noted the odd accumulation of CEL token on the FTX exchange. SBF did not directly answer the question as to why so many tokens were held by FTX’s wallet, instead responding to a reply about the mechanics of CEL being used as collateral on the exchange:
It is interesting to note how the price of CEL token changed over this period. The price of the token spiked soon after the first large transfers of CEL in late March. The price continued to fluctuate in this higher range during the first period of CEL accumulation between March and August. As the pace of accumululation appears to slow after August, the price of CEL begins to slide. And after the growth stops in December, the price of CEL quickly plummets. It’s almost as if Celsius buying massive numbers of the token on the market was the only thing keeping the price afloat. Almost.
Finally, the Celsius’ involvement in CEL markets on FTX corresponds temporally with Celsius’ major equity raise in 2021. Celsius announced their $750 million capital raise with Westcap and La CDPQ in October 2021, which valued the firm at $3 billion. The company would have owned over 300 million CEL tokens at that point, which marked-to-market would have been valued at $1.5 billion. Per the Vermont filing and other analyses, the company was insolvent without including CEL token on the balance sheet. One might wonder whether the firm was motivated to keep the CEL price up long enough to hook these institutional investors. One would also note that CEL price was maintained above $5 until October 2021, at which time the price of the token began its fall.
Celsius Liquidated User Assets Via FTX After Freezing Customer Withdrawals
We recently reported that, in the six weeks prior to filing for Chapter 11, Celsius transferred hundreds of millions of dollars in crypto to FTX. Most of those assets never returned to Celsius’ wallets. Instead, Celsius received over $1 billion in USDC from FTX, which was used to pay down loans to decentralized finance (DeFi) protocols and free up collateral.
In other words, it appears Celsius had to liquidate user assets to pay off their other debts. Celsius chose to use FTX for this purpose. During this period, per Celsius’ bankruptcy filings, a $104 million loan from FTX was also discharged. These payouts seem to meet the criteria for preferential payments, and one must wonder why Celsius chose to pay back SBF instead of their own customers.
This period of transfers coincided with a massive crash in crypto prices, with some speculating that Celsius’ selling may have been a precipitating factor in this crash.
Billions of dollars in asset transfers occurred between FTX and Celsius Network
Prior to the collapse of Celsius, FTX was one of the largest recipients of stablecoins from the lending firm. For example, between June and October of 2021, Celsius borrowed about $1.2 billion in USDC from the DeFi protocols Aave and Compound. FTX was the largest recipient of these funds, receiving some $750 million of those USDC over that time period:
FTX also received at least $437 million in the USDT (Tether) stablecoin from Celsius between 2019 and 2021. In the same period, an address we believe is controlled by Alameda Research received $83 million:
In return, there were hundreds of millions of dollars in asset transfers back from FTX to Celsius Network in that period. Overall, the transfers here are very complex and still under investigation. Suffice it to say that, as far as we have found, no other exchange received or transferred back a comparable amount of stablecoins during Celsius’ history.
FTX may have been a clearinghouse for Celsius loans to institutional borrowers
Where did these massive transfers of dollar equivalents go after landing on FTX? In at least one instance, it appears USDC was transferred via FTX to an institutional borrower. Per bankruptcy filings, the insolvent crypto “hedge fund” (Ponzi scam) Three Arrows Capital (3AC) borrowed some $75 million in USDC from Celsius Network.
On January 25th, 2022, Celsius transferred some $240 million in USDC to FTX over several transactions. One of the transfers was for $50 million, another for $25 million. A few hours later, 3AC withdraws some $100 million from FTX, depositing into the Luna Reserve Guard address (associated with yet another Ponzi scam).
This suggests that Celsius may have been using FTX as a distribution hub for sending loans to institutional borrowers. We have not been able to identify other addresses that received funds in a similar fashion to 3AC, but the patterns are identical and the flow of funds strongly suggests this to be the case.
Alameda Research is a major creditor in the Celsius Network bankruptcy, and Celsius’ largest unsecured creditor is managed by an Alameda cofounder
Among Celsius’ largest unsecured creditors is none other than Alameda Research, currently owed $12.8 million. This provides additional evidence that Celsius and Alameda were doing business together, lending credence to our assertion based on blockchain data that the two firms were transferring funds between each other.
Celsius’ largest unsecured creditor, per their filings, is a mysterious Caymans-based fund called the “Pharos Fund SP.” This fund was, as far as we have found, not publicly known prior to the Celsius filing. It is managed by a firm called Lantern Ventures, which also has largely flown under the radar during its existence. According to a Bloomberg report, Lantern’s CEO, Tara Mac Auley, has claimed that she was a co-founder of Alameda Research. Mac Auley was also the CEO of a charity called the “Center For Effective Altruism.” Sam Bankman-Fried is a member of that charity’s affiliate organization, “Giving What You Can.”
Celsius and Sam Bankman-Fried share close relationships with Tether
Both Celsius Network and SBF have multiple close ties to Tether, the Caymans-based issuer of the world’s largest stablecoin, USDT. Tether has been dogged for years by accusations of fraud, in particular lying about the reserves backing their over $60 billion in issued USDT. In 2021, a report by the New York State Attorney General demonstrated that Tether had repeatedly lied about their reserves and overall financial condition since 2017. One particularly egregious example happened in 2018 after their “banking partner,” an unregulated firm called Crypto Capital Corp, had its assets seized for providing money laundering services to drug cartels (yeah). Tether is currently a defendent in multiple lawsuits and potentially is under investigation by the U.S. Department of Justice.
Tether was the lead investor in Celsius’ first equity raise, investing $10 million in June 2020. This would have given Tether an 8% stake in Celsius. Tether later became one of Celsius’ largest creditors, having lent Celsius Network close to $1 billion in USDT in 2021. In May 2022, Celsius could no longer make payments or send more collateral to prevent a margin call on the $841 million outstanding debt. Celsius “agreed to an orderly liquidation and settlement of its loan… resulted in a loss of $97 million.” In other words, Tether ended up making $97 million on this deal. Not too shabby.
SBF’s ties to Tether are well-established, as his firm is their largest customer. As reported by Protos in 2021, Alameda Research was the largest recipient of USDT, having received $36.7 billion worth of USDT. Some $30 billion of this was sent directly to SBF’s FTX exchange. As noted by Protos:
Tether mints only increased exponentially after Bankman-Fried founded FTX in 2018.
Sam Bankman-Fried has been a vocal defender of Tether, taking to Twitter in January 2021 to support the company:
This was posted after the NY AG report demonstrated Tether had committed fraud.
Conclusion: A complex and unique relationship that needs further investigation
From the above, it should be clear that Celsius Network and Sam Bankman-Fried had a long and incredibly close relationship that touched multiple aspects of Celsius’ business. This relationship needs to be investigated in detail. Celsius ended up with a $2.4 billion hole in its balance sheet, and a very significant chunk of those funds appear to have traveled through the FTX exchange. FTX was the major exchange for CEL token trading, and Celsius did little to hide the fact that they used FTX to buy up tens of millions of their token to maintain its “value.” And FTX appears to have facilitated the liquidation of massive amounts of Celsius’ assets prior to declaring backruptcy.
And two parties, Tether and FTX, appear to have received preferential payments on loans owed by Celsius Network. Gee, I wonder why?
Hey regulators: Now it is your turn.
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