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Custodian Prime Trust gave cryptocurrency lending platform Celsius Network 30 days to exit its platform, citing red flags, people familiar with the matter said.
Prime Trust has confirmed that it has terminated the contract with Celsius and that after the notice period will disable API access to its custodial platform, but will not state the reason.
We have terminated our partnership with Celsius Network for various business reasons. The relationship lasted just over 12 months. We won’t comment beyond that, other than wishing Celsius good luck in its endeavors, Prime Trust said in a statement.
Celsius works similarly to a bank in that it takes cryptocurrency deposits from one set of customers and lends cryptos and dollars to another. Borrowers pledge other crypto assets as collateral. As of March 2020, the lender has used Nevada-based Prime Trust to store the assets of a portion of its customers.
A person familiar with the situation, who declined to be identified due to the sensitivity of the matter, said Prime Trusts ‘risk management team was concerned about Celsius’ strategy of endlessly remortgage assets.
Re-mortgage is a practice whereby banks and brokers use, for their own purposes, assets that have been deposited as collateral by their customers. Reusing collateral from a loan transaction to fund additional loans creates a type of financial derivative that is somewhat obscure and potentially dangerous if abused.
A spokesperson for Celsius vigorously denied the re-mortgage claims.
Since Celsius began offering its services to New York residents, it has never remortgageed their crypto assets, the spokesperson said via email. Unfortunately, the level of service provided to our New York users through our partnership with Prime Trust was not at the level Celsius users are used to, and therefore we plan to provide an alternative solution for our users in the State of New York.
In its Terms of Service, Celsius declares that it may lend, sell, pledge, mortgage, assign, invest, use, mix or otherwise dispose of eligible digital assets and assets to counterparties or hold the eligible digital assets with counterparties, and we will use our best commercial and operational efforts to avoid losses.
The terms of service also state that Prime Trust holds assets for Celsius clients in Texas and Washington State, not just New York. The Celsius spokesperson did not respond to requests for clarification.
Celsius’ other main custodial service provider is Fireblocks, the lender said when announcing the partnership with Prime Trust last year.
The lender has been using Fireblocks’ services since 2019, according to an October 2020 case study on the custodians website.
Prime Trust and Celsius are both customers of Fireblocks, Fireblocks CEO Michael Shaulov said Thursday through a spokesperson. As a non-custodial technology provider, we do not dictate or interfere with our customers’ activities.
Separately, Celsius said on Wednesday it was moving its operations out of the UK, citing regulatory uncertainty, and was considering moving to the US.
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