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Crypto Celsius

Breaking: KeyFi Files Lawsuit Against Celsius, Millions Of Dollars At Risk?

Reynaldo Marquez
by Reynaldo Marquez
2 years ago
·
Posted in Breaking News
Trusted Editorial content, reviewed by leading industry experts and seasoned editors. Ad Disclosure

The popular pseudonym Twitter account Oxb1 has revealed the identity of the user behind it and, as rumors claimed, it is linked to lending company Celsius. Jason Stone founder and CEO of investment firm KeyFi wrote a thread explaining its relationship with the lending company and why it has decided to file a lawsuit against it.

Related Reading | Why Reddit Will Launch NFTs On Ethereum’s Polygon

Filed on July 7th in the Supreme Court of the State of New York, KeyFi accused Celsius of not honoring its contractual obligations to pay for “the millions of dollars it is owed” to the Stone-led company. This entity entered into a handshake agreement with Celsius to manage its clients’ funds.

The lending and borrowing crypto company attracts clients by offering high interest on their deposits, as the document explained, this forced them to seek yield with an external party, KeyFi. The latter took the funds and invested them in decentralized finance protocols, staking, non-fungible tokens (NFTs), and other strategies.

The company managed the funds via the Oxb1 Ethereum address which held millions of dollars in Celsius’ client funds. In late 2020, the document claims, KeyFi and Celsius decided to formalize their agreement and create a new company called Celsius KeyFi. Stone explained:

After discussions with Celsius in mid 2020, Celsius began an acquisition of KeyFi’s assets and team. Thereafter, I pivoted KeyFi to staking and deploying DeFi strategies for Celsius. In August 2020, 0xb1 was created, along with other addresses, to send Celsius’ customer deposits to us to manage.

Clients were unaware of these activities and were unaware that the company included, as part of their terms of service, a clause in which they allegedly agreed to transfer ownership of the funds from their addresses to Celsius. At one point, KeyFi managed over $2 billion in assets.

Bitcoin Celsius BTC BTCUSD
BTC’s price trends to the downside on the 4-hour chart. Source: BTCUSD Tradingview

Celsius A Ponzi Scheme?

In late 2021, Stone and his team discovered that “Celsius had lied to us”. KeyFi was tasked with setting positions and applying investment strategies under the agreement that Celsius was hedging their actions.

However, Stone discovered that the company had “naked exposure to the market”. In other words, Celsius was not mitigating the risk from KeyFi positions or protecting itself against impermanent loss.

In addition, the document clients that the company was using its clients’ funds to prompt up the value of its native token CEL and manipulate the market. The document filed with the NY court says:

The parties’ relationship began to break down when Stone discovered that not only did Defendants lack basic security controls to protect the billions of dollars in customers’ funds they held, but that they were actively using customer funds to manipulate crypto-asset markets to their benefit. The most egregious example of this was Plaintiff’s discovery that Celsius used customer bitcoin deposits to inflate its own crypto-asset called the “Celsius token” (“CEL”).

In March 2021, Stone and his team decided to terminate the relationship but were met with opposition from Celsius. Stone claims he has been trying to reach an agreement with the company but failed.

Celsius has been attracting a lot of attention after it halted all users’ withdrawals, and allegedly entered a state of insolvency. Thus, Stone and KeyFi are looking for compensation via court.

The exact amount of money to be paid to KeyFi, if they win the case, will be determined by the court.

Given the public speculation about the company’s solvency, and my observation of Celsius’ loose relationship with the truth, I feel it is only prudent to finally set the record straight. I have brought legal action against Celsius to settle this issue once and for all.

— 0xb1 (@0x_b1) July 7, 2022

Related Reading | U.S. Bank Will Connect With Ethereum’s MakerDAO To Borrow $100 Million

The document accused the CEO and Celsius’ founder Alex Mashinsky of “enriching himself” and allegedly transferring funds from the Oxb1 address to “his wife” and the company of running a “Ponzi Scheme”. At the time of writing, there is no official statement from Mashinsky or Celsius about these accusations.

Editorial Process for bitcoinist is centered on delivering thoroughly researched, accurate, and unbiased content. We uphold strict sourcing standards, and each page undergoes diligent review by our team of top technology experts and seasoned editors. This process ensures the integrity, relevance, and value of our content for our readers.
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Reynaldo Marquez

Reynaldo Marquez

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As an editor at NewsBTC, Reynaldo is an experienced journalist passionate about all things crypto. Reynaldo has interviewed key industry leaders, and created unique pieces analyzing the promise of crypto as the next frontier for an economic and social transformation of humanity. Since 2018, he has been at the forefront of the industry, closely following every major development and analyzing critical events at the heart of the crypto industry. With a keen eye for detail and an unwavering commitment to excellence, Reynaldo has been instrumental in bringing the latest news and insights to the crypto community. Outside of work, Reynaldo enjoys lifting weights and literature, which he believes gives him a unique perspective into the world of crypto. As an aspiring trader, he is always looking for new opportunities to explore and believes that crypto holds the key to unlocking the future of finance.

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