Celsius pulled half a billion dollars out of Anchor Protocol amid Terra chaos

Crypto lending business Celsius had at least half a billion dollars of funds parked in Anchor Protocol but appears to have pulled all of it out over a frantic 24 hour period earlier this week. 

Wallets controlled by Celsius sent at least 261,000 ETH ($535 million at current prices) to Anchor Protocol over the past five months, according to analysis conducted by The Block Research and Hoptrail, a blockchain data firm. The same analysis and comments from a person close to the situation suggest, however, that Celsius was able to withdraw the entirety of those funds. 

Celsius allows retail investors to earn interest on their crypto holdings, advertising interest rates of up to 17%. According to its website, the company serves 1.7 million customers. 

Terra’s Anchor Protocol has offered yields of up to 20% to depositors of TerraUSD (UST), the Terra-native algorithmic stablecoin. The Terra ecosystem was thrown into chaos earlier this week when UST de-pegged sharply from the price of one US dollar, putting Anchor Protocol under major pressure. The Terra blockchain was twice halted on May 12. 

Celsius's deposits began on December 19, with 146,000 ETH deposited through March 17. The pace then accelerated, with a further 115,000 ETH deposited between April 6 and May 3. 

But the company appears to have escaped before UST’s collapse. Early on May 11, with Terra’s tokens in freefall, the lender withdrew some 225,000 ETH (or $463 million) from Anchor Protocol, according to The Block Research’s analysis. 

While The Block Research was unable to determine whether the remaining funds were withdrawn, a person with direct knowledge of the situation said that there are no Celsius funds left outstanding with Anchor Protocol, implying that the remaining 36,000 ETH (or $74 million) was also withdrawn. 

Celsius itself put out the following tweet on May 11. 

As part of our responsibility to serve our community, @CelsiusNetwork implemented and abides by robust risk management frameworks to ensure the safety and security of assets on our platform.

All user funds are safe. We continue to be open for business as usual.

— Celsius (@CelsiusNetwork) May 11, 2022

“Celsius was relatively OK because they used Bonded ETH (bETH) as collateral to borrow UST, which was then lent to Anchor for yield. In the current situation, this turned out to be safer than buying UST from the market,” said The Block Research’s Igor Igamberdiev. He stressed that his analysis represented a lower estimate of Celsius’s deposits to and withdrawals from Anchor Protocol.

The process of depositing funds to Anchor Protocol was convoluted. Igamberdiev explained that it involved first staking ETH using Lido to receive Staked ETH (stETH); then sending stETH to Anchor vault on Ethereum in order to mint and send bETH (a token representation of stETH) to Wormhole, a crypto bridge; minting bETH on Terra using Wormhole; before finally depositing bETH to Anchor Protocol.

Igamberdiev added that the funds withdrawn from Anchor Protocol by Celsius in the form of Lido stETH were sent to Aave v2, another lending protocol. 

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