Hey everyone week, kevin here, good news, it's the last day of my vacation, so hopefully markets will rebound by tomorrow, but quick background on what the hell is going on in the crypto space, especially with massive developments with what's going on with celsius and one of the Largest crypto hedge funds attorneys are now involved folks. There are a lot of dirty things going on here. Let's get right into it: okay, so quick background. We talked about celsius a little bit already the other day, but some quick background celsius is supposed to be a fintech app that gives you high yields on crypto and stable coins.

They also give loans backed by crypto, think of them, as kind of like a vanguard. Almost, although at this point that's kind of disrespectful to vanguard, they've got some pretty classic catchphrases for a fintech like military grade security and withdraw your crypto at any time. Yeah, that's no longer true by the way, because remember on monday, they froze everybody's ability to actually swap or withdraw their crypto. Remember not your keys, not your crypto.

They also promise to keep your crypto safe and have next level transparency oops. They also say that traditional banking is broken, that you should unbank yourself and that you should replace wall street with blockchain and really be part of the 99 and screw the one percent so really like popular things, especially amongst younger individuals and mostly dudes. Now one of the downsides of this is, if you go to reddit r celsius network you'll, see a lot of individuals who have their life savings in celsius, and now they can't get any of it out and the problem could be because of what celsius was doing With some of their coins now, some of this is part speculation and part. You know research based on what's going on in the blockchain here, but we want to be very clear.

We obviously don't have all of the details, but one of the reasons that celsius is falling into issues is because of their promise to pay yields of between seven to 17 percent on their stable coins in crypto. But this is often done or achieved for celsius through a manner known as recursive farming which we're going to talk about in just a moment, but it's also achieved by continuously attracting new customer deposits. So, while there are a lot of positive suggestions on reddit for celsius to just stop paying yields, people have to remember that celsius is trying to attract new capital to pay people who are trying to get out. Unfortunately, that's also how ponzi's work and i'm not calling celsius a ponzi, but just saying there's no surprise also that gary gensler, the chairperson of the sec and it's kind of like kicking you when you're down but comes out yesterday and going you know when you start Getting promised double digit yields it's a red flag, but anyway, here's what's going on with celsius and something known as staked ethereum, now again, rumors speculation and some fact we're putting all the pieces together that we can.

But some of these things may not be perfectly accurate and if you have more information, please comment them down below and let's vote up new information, so we as a community can learn more. So by now you probably know that ethereum can be staked by locking up at least 32 ethereum into the eth 2.0 merge the beacon chain right. It's supposedly coming this year. Well, companies like lido were really innovative because they gave you the ability to stake your ethereum.

That is get yields on your ethereum without the lock up all the way to 2.0. This has given lido control of almost a third, potentially even more at this point of the entire ethereum network, because they have so much ethereum staked is incredible, but via a smart contract, they can now allow you to receive staked eath so kind of think about this. Imagine you take ethereum and that you have you have an ethereum token and you kind of deposit it into a vault. And then the banker gives you a little piece of paper that says all right.

You we owe you one ethereum and we're gon na call. It staked eth, so in theory, that piece of paper should be worth exactly one ethereum. You should be able to go to the bank and go give me one ethereum and they go here. You go so it's basically a peg.

It's a one to one peg and in theory, because of this ethereum is more valuable in the short term, because it removes the risk of that peg breaking. It gets the banker out of the middle right, but as long as everything's going good and the banker is actually operating properly and you're getting that one-to-one peg. Who cares if you have the paper or the token okay? Well, this is where not your keys, not your crypto, comes into play because see in the long term, ethereum or staked ethereum might give you this trading flexibility. But if there's a short-term panic, you might not be able to go to that banker and give your ticket to the banker, because if there's a line of 10 000 people ahead of you at the bank, all of a sudden, you have a bank run and they're.

Not actually giving you tokens anymore and they're, just closing the vault saying you know what never mind hold on to your worthless pieces of paper. Well, not necessarily worthless, because in theory they still have rights to that token in the vault. But this could be potentially part of what's happening over at celsius, see in order for celsius to get the yields that they were promising so that they could actually run a potentially profitable business. If they're promising people, you know 7 to 17 percent, they got to make it money somehow right.

So here's potentially what celsius could have done celsius could have taken your ethereum put it into the vault, with a banker gotten staked eath. Now what they may have done with the staked eath is conducted recursive farming, so recursive farming kind of works like this staked eath can earn a yield. Just like ethereum can and steak eat, steak teeth or s-t-e-t-h can also be deposited as collateral for stable coins. So imagine taking that piece of paper now and going to somebody else and going hey.

I want a loan from ftx or whomever, and i want in exchange for me, giving you my piece of paper saying i have staked each. I want fifty percent or seventy percent, depending on how high quality of a borrower. You are a bunch of loans, uh against the staked eath, and then that money can be then deposited into stable coins which could potentially provide a yield. And you could take that stable coin and potentially then sell it and buy more staked, eath and basically over and over and over again farm yields.

Let me give you a really over simplified example, because that may have sounded slightly complicated, but listen to this example, and i think it'll give you a lot of clarity right after. Of course, i mentioned that if you want to buy stocks on an amazing brokerage platform - and you want to take advantage of doing so with the potential of getting up to a thousand dollars in free stocks and no payment for order flow go to metkevin.com public. When you go to medkevin.com public, you can get up to a thousand dollars in totally free stock and you can buy stocks without payment for order flow or the fear that public is going to buy or sell. Your information instead go to public, go to medken.com public and get yourself up to a thousand dollars in free stock.

So let's give this example here on yield, let's say and we're making this up: okay, but here's how this could work. This is called recursive farming. Let's say you have a hundred thousand dollars and you stake it. You turn it into staked eath and you get a four percent yield well now in a year, you're going to get four thousand dollars, but now i'm going to take those tickets, that's staked aetherium and i'm going to farm stable coins in a recursive manner.

So i'm going to take those tickets deposit them and let's say i could get a 50 loan. This isn't even potentially making the argument that i could get an 80 loan because i'm such a good big company like celsius. So now i get 50 000 more dollars which i then have in a stable coin, making eight percent or four thousand dollars again. Now i take that stable coin and i throw it back into the circle, and i borrow on that 50 000 again and then i stake that twenty five thousand now new dollars worth of stable coins at eight percent.

I make two thousand dollars now. I do it again use that that new money that i borrowed as collateral again, this could be at different exchanges or whatever. Now i get another fifty percent or twelve thousand five hundred dollars, and then i get eight percent on that or a thousand dollars. I do it again.

I get six thousand two hundred fifty dollars times: eight percent five hundred dollars. I do it again. I get three thousand one hundred two hundred uh twenty five dollars. You know stake that at eight percent or or yield farm that at eight percent.

I get 250 dollars. If you add this all up, i just turned up. I turned a hundred thousand dollars into 196 875, so six thousand eight hundred seventy five dollars and now i'm making eleven thousand seven hundred fifty dollars per year or boom eleven point. Seven five percent you could see if i could borrow up to eighty percent and i do recursive farming.

I could probably get this number up to 20: give people a yield of 17 and profit the 3 difference, but this works as long as that staked ethereum is worth the same number as or the same value as ethereum and that stable coins don't lose their pegs Right if celsius had any exposure to lido, they would have lost a substantial amount of money if they had exposure to staked aetherium, which they know we know they have a lot hundreds of millions of dollars of exposure to staked aetherium. Well, now, you've got a problem. Why? Because ethereum right now at the time of this recording is trading for one thousand, sixty six dollars staked aetherium is trading for one thousand and two dollars. That's a sixty four dollar discount just over five percent of a discount and the more that discount expands.

The more money celsius loses because, as people demand, withdrawals celsius is actually having to pay people a hundred dollars, but they're only getting out. Maybe ninety four dollars or ninety dollars out of their staked aetherium. This is a problem. How do we know they have staked aetherium? Well, here's a wallet that we believe belongs to celsius that has approximately 400 million dollars worth of staked ethereum, which is now only worth about 94 cents on the dollar.

We're also seeing what we believe is celsius, sending thousands of staked ethereum to ftx likely to sell it, but a lot of those sale transactions happen in batches and they happen off chain. So it's actually a little bit more difficult to track now. Celsius is supposed to have about 10 billion dollars in customer assets. Some say five, some say ten, but the problem is: we've only been able to account for about one point, three to four billion dollars of that.

According to decrypt and this blockchain wallet that you have on screen now, the illiquidity of staked aetherium could, however, now create a solvency crisis for celsius. The reason for that is celsius a few days ago says: hey. We've got plenty of ethereum to cover withdrawals. Sure.

Maybe you did while the peg between ethereum and state ethereum was still one-to-one. However, if let's say you had five billion dollars of customer assets and you had thrown everything into staking or staked ethereum or whatever, except for maybe five percent to where you'd have maybe a 125 million dollar cash buffer. But you just lost five to six percent on staked ethereum depending all of your cash buffer and liquidity could be gone and so now you're having to dump more assets, making uh or providing essentially more liquidity to something like staked ethereum. But by providing more liquidity for staked ethereum you're actually increasing the supply of that then dropping the value of that creating less liquidity for your company and when your company has obligations of, let's say 125 million dollars in withdrawals.

But all of a sudden, you only have 120 million dollars. Who's gon na lose that five million dollars well potentially an equal share to all of the people who had money with celsius and that now becomes a solvency crisis because of the deep pegging of uh staked, aetherium and ethereum. Creating an illiquidity crisis for ethereum you're, actually creating the potential for insolvency over at celsius. I'll now enter a report by the wall street journal.

The wall street journal is now reporting that reportedly - and this is based on people who are not authorized to speak on behalf of this manner, but reportedly restructuring lawyers have been called in to enact emergency measures at celsius. This uh, according to celsius at least, has nothing to do with the fact that celsius token is down 62 percent uh or sorry it's actually up 62 today, but even after being up 62. Today, it's down 88 percent on the year celsius says. Don't worry.

This has nothing to do with our sell token crashing, even though we had money in sell token. Don't worry about that, but what we do have to worry about is the fact that now we got lawyers swooping into celsius, raising fears that the celsius lender might be facing mass liquidations lawsuits and a potential bankruptcy. Now, according to people familiar with, what's going on at celsius, celsius has fired the uh or hired the law firm, akin gump strauss, hoyer and feld dude. I don't know, i don't know about the name, but anyway, apparently they're supposed to advise on possible solutions due to quote mounting financial problems and again, the expectation is that celsius could file for bankruptcy and that this could take years to settle and remember what coinbase told Us you are as a depositor, an unsecured creditor in the event of a bankruptcy which basically means you get last dibs after the bankruptcy.

Now some say: don't worry that restructuring is a positive thing, that if lawyers can come in and restructure the debt, then hey. Maybe you could get your money back out, but let me tell you any lawyer: renegotiating a debt restructuring generally only gets a restructuring if equity is given up or underlying assets are shaved. That is maybe there's a debt restructuring and the lenders take a haircut, but usually only if people with assets in the company take some form of a haircut as well. How much will that end up being well depends on the extent of the problems five percent 10.

50, who knows either way many are now suggesting that celsius just gave people their money back. Obviously i imagine they would want to do that, but they probably don't have enough money to pay off their debt and pay people back. This is despite the fact that they're starting to pay people back, at least, if you look at their blockchain activity, it does look like celsius, is starting to pay off some of their debt, but uh well, and then there's speculation that maybe celsius won't have issues until Wrapped bitcoin hits a low of 14 000, which hopefully we're far away from we're sitting at you know just above 20, 000 right now, but hey you know. We were sitting above 30 000 not too long ago.

So we'll see what happens anyway. This is creating a lot of fear and it's leading other companies to collapse as well. Take, for example, three ac one of the largest crypto hedge funds, supposedly with 18 billion dollars in assets under management huge number. By the way, three ac is rumored now to also be insolvent, meaning they can't cover their margin call.

Now. This is a rumor and there's no confirmation. Yet, however, the ceo did tweet or the co-founder did. Tweet quote: we are in the process of communicating with relevant parties and fully committed to working this out kind of a cryptic tweet, which again is raising fears that now the largest crypto hedge fund is underwater.

Now this company also borrows from every single major lender like block phy genesis and exo and celsius, and so, if they're going insolvent and they borrowed a ton of money from let's say celsius and they can't repay celsius. Well, no wonder celsius would be having issues. But this also means all of the other platforms could be having issues this one, twitter, user, who's been pretty uh detailed about providing information called huddle kryptonite at hotel kryptonite did give a hypothetical example for 3ac. They suggested that if half of three ac's assets under management went into venture capital funds, so basically money, that's usually locked up until like an ipo like five to ten years out, then that money's locked up it's not liquid right, so nine billion dollars, let's say, goes Into uh you know again venture capital funds, the other nine billion dollars goes into.

Let's say liquid assets like bitcoin. Well, if they did that in november, they'd be down 70 on their liquid they'd, literally be down to 2.7 billion dollars, barely enough to probably cover margin. Calls depending on how much they borrowed and if you're losing 70 on the assumption of having been invested in the safest asset. What happens if all of a sudden they also had exposure to tara, luna or, dare i say, the shoot coins, because, presumably, if you're a crypto hedge fund, you wouldn't only be putting your liquid into bitcoin, because hey you're, a hedge fund, you should be able to Find better deals right anyway, long story, short the best way to protect yourself is to make sure that you have your hands on your keys.

Not your keys, not your crypto, thanks! So much for watching folks, we'll see in the next one bye.