Stablecoin Mechanics 2: Tether-Celsius

DataFinnovation - ChainArgos - 4AC
Published in
7 min readOct 17, 2022


Canonically a stablecoin is only issued in return for fiat currency. Everyone knows that rule is not followed 100% of the time in crypto. Here we are going to look, in depth, at not-for-fiat transactions between Tether and Celsius. There are also direct transfers but those are boring.

tl;dr: We found the Tether-Celsius loans, Tether’s equity investment into Celsius, and can therefore prove a lot about both defects in the Celsius business model and questionable conduct by Tether.

Our goal here is to show what sorts of flow-of-funds information can be gleaned from on-chain analysis with proper tools. The tools are not disclosed here — everything should look like magic and/or lucky guessing on etherscan. It’s obviously not that.

And understanding the flows of funds is a key part of understanding market dynamics.

The Tether-Celsius Ops Account

Address 0xD41CdB2A35a666e8e1F9F53054e85091b67E13Af is fascinating. This wallet transferred over a billion in USDT to Celsius. Mike Burgersburg independently found this wallet surely via different methods. We dig in sometimes overlapping fields.

And it gets more interesting. What happened 845 days ago that resembles these transfers?

This did:

We know Celsius borrowed about a billion dollars from Tether (and then defaulted) and that this equity investment occurred. The dates are tight on the equity. So what can we learn about the loans? Well, let’s just look at this address and see if it matches:

The recipient wallets are almost all well-known Celsius wallets. And the dates match: that CoinDesk article detailing the billion dollar balance is dated 7-Oct-2021 so this being written just about 370 days later.

What Does This Mean: Tether

Tether was supposed to cease doing business in New York from early 2021. This looks like clear evidence they dealt with Celsius after that date. And not just for some routine stablecoin issuance that maybe went through a intermediary: direct dealing in collateralized loans.

It is of course possible Celsius represented they were dealing with an entity somewhere else. Though, yeah, the New York courts probably beg to differ now following their bankruptcy filings. It shouldn’t even matter if these transfers are something else. They’re still business though maybe this is ont “trading.” Watch this space.

But even deeper: go back and look at the equity investment transactions. Those USDT come out of the treasury and go to Celsius. There is no way those were backed by USD because it’s a f’ing equity investment and equity investments do not feed back USD on day 1 they feed back equity. This means Tether was dropping irrefutable evidence in real time — on-chain with a corresponding press release!— about their reserve composition over 2 years ago. Is there more to find? Yes. Yes there is.

This chart contains about 3 thousand USDT prints on Ethereum. How many of those have an interesting story?

Also note this segregated address looks to have dealt almost exclusively with Celsius. Do we find other sorts of operations-esque addresses between Tether and known-counterparties? Yes we do. Not the direct transfers to places like Binance and FTX that are well known to receive Tether. Rather these sorts of indirect mechanisms, holding areas if you will, that likely serve an operational purpose regarding collateral or so. Here is some slightly filtered USDT flows data organized into a tree with the treasury at the top:

The top red dot is the well-known treasury.
Direct recipients. Fewer than 100 here.
Two levels out. About half.
Three levels. That’s about 85% of the “large recipients” this filter found.

Most importantly from a flow-of-funds perspective this proves we can identify collateralized Tether issuance on-chain (at least somewhat) and we can find unbacked issuances used for equity investments. There are plenty of direct transfers to Celsius and other counterparties. But this shows the Tether issuance process itself leaves useful data on-chain of a completely novel character vis a vis TradFi.

What Does This Mean: Celsius

This also tells us a lot about the Celsius business model. The stated plan was to borrow crypto from end users, lend it out to institutions, and use some of that spread to fund operations. They were going to find yield by tapping new lenders and being more efficient.

We now know, with absolute certainty, that had broken down by early 2021 at the latest. How do we know this? Because we can see Celsius borrowing from Tether. And we now know those loans were collateralized. Why is this a problem you say? Because pledged collateral earns no interest. Celsius could possibly offset the interest they paid to Tether, maybe with a small profit, by lending to their own clients. But unless those loans were at double the rate Tether charged where was the BTC interest supposed to come from? This is not re-hypothecation. Maybe it should be called de-hypothecation when you transfer assets and loose access to much-needed yield?

This activity is visible on-chain in late 2020 and continued all through the 2021 DeFi bull market. They look to have borrowed $100 million on June 9th 2022. They were borrowing in an unsustainable manner even during an epic bull market with massive inflows. Here are the loans:

And the cumulative borrowing:

Note that climbs to nearly $3 billion. Some of the loan was presumably paid down — there are large flows directly between Celsius and Tether but not via this address— but we know a billion was outstanding at the end. Some day when the court filings include the trade tickets we might revise the chart. Redemptions are harder to find as none of them flow through this wallet.

Now one plausible use of this sort of lending is to plug a “funding gap” for some short period of time. That suggests the borrowing is for a small fraction of the balance sheet. And we can see how significant this was by referring to an earlier post on this blog that totalled up Celsius’ reported inflows:

During the large run up in lending Celsius took in an awful lot of crypto. The quarter covered by that table takes in 11.5k BTC. At a 50k price with a 30% haircut that would be sufficient to borrow about $450 million. We do not know the precise collateral arrangements except that Alex Mashinsky told the FT:

If you give them enough collateral, liquid collateral, bitcoin, ethereum and so on . . . they will mint tether against it

So this is a bit of a rough, order of magnitude type analysis. We previously computed the net flows in USD terms as:

From 12 August through 2 Dec 2021 Celsius borrowed — gross not net — over $1.5 billion from Tether. We do not yet know exactly what happened. But it is pretty evident a lot of Celsius’s crypto deposits went into Tether for no yield at all.

This is eerily reminiscent of the stETH debacle where Celsius’ ETH got stuck and they had no way, mechanically, to pay yield or process withdrawals. These BTC were trapped inside Tether, earning Celsius nothing, and they were loosing money every day they promised yield to their own clients.

We can see this in Celsius’ court filings too:

In the 4th quarter of 2021, covered above, they took in 11.5k BTC. In total they owed people just over 100k BTC at the end. We see borrowing from Tether escalate in the 3rd quarter of 2021. If they were unable to find a yield-earning use for 10k-20k BTC in the 3rd and 4th quarters of 2021 during that bull market it should have been obvious internally the business was already doomed.

Stablecoin Flows

Celsius is interesting in the way all financial services industry collapses are. And there are surely lessons to learn for regulators, traders, investors and the like. But that is not our real purpose here.

The real purpose is to understand the flows of funds within crypto better. Tether printed to Celsius against BTC collateral are not gonna get used to pump the price. Celsius is almost surely paying these out as loans to their customers. And those customers, per testimonials Celsius highlighted itself almost every week on the AMA, are just going to spend the money. Go to 13:00 in this video for an example.

There is unparalleled transparency in crypto, it’s just not being used properly. Celsius is a great example because the signals it reveals are not tradable now that Celsius is gone. But there is so much more signal out there.