DeFi lending giant Celsius halts withdrawals

The Celsius Network, a decentralized finance (DeFi) platform and one of the largest crypto lenders, announced late Sunday that it was “suspending all withdrawals, trades and transfers between accounts.” It has 1.7 million customers.

The company’s token, CEL, is trading at 23 cents at the time of this writing, according to CoinMarketCap. That’s a 92% decrease from April 8, when CEL was worth $3. The token was worth nearly $7 a year ago.

There have been questions about Celsius Networks’ high returns, its links to the failed stablecoin Terra, and its reserves. The value of assets on its platform halved to $12 billion in May from $24 billion in December 2021. Between March and May, $1 billion exited the system, The Financial Times reported.

In a June 7 blog post titled “Damn the torpedoes,” the company said, “Celsius has the reserves (and more than enough ETH) to meet the obligations, as dictated by our comprehensive risk management framework. liquidity.”

That was then. On June 12, an email to all customers started like this:

Due to extreme market conditions, today we are announcing that Celsius is suspending all withdrawals, trades and transfers between accounts. We are taking this step today to put Celsius in a better position to meet its withdrawal obligations over time.

In theory, Celsius works much the same as a regular bank, except in cryptocurrency. It collects deposits and then lends them. An advertisement on the Celsius site at the time of writing offered an 18.63 percent annual return on crypto deposits. Unlike a bank, Celsius does not have government FDIC insurance that protects people in the event of a bank failure.

Skeptics have repeatedly warned that Celsius Network is doomed. Some have even argued that Celsius is a Ponzi scheme.

Due to its size, Celsius touches many other parts of the cryptocurrency markets. For example, Celsius Network borrowed $500 million from Tether, the dollar-pegged stablecoin. (The loan was originally for $1 billion, Bloomberg reported.) The loan is collateralized in Bitcoin. “If Bitcoin goes down, they give us a margin call [and then] we need to give them more bitcoin,” Celsius CEO Alex Mashinsky said. The Financial Times Last year.

Even investors who are not directly involved in cryptocurrency are exposed to Celsius. Canada’s second-largest pension fund, Caisse de depot et placement du Quebec (CDPQ), has invested in a $400 million funding round for the company.

Regulators have expressed interest in Celsius Network’s operations. On September 17, 2021 alone, New Jersey issued a cease and desist order to Celsius Network, Texas scheduled a hearing to determine whether to issue a cease and desist, and Alabama has asked Celsius why it shouldn’t be banned. within one month. In October 2021, New York Attorney General Letitia James included the company as one of the platforms invited to provide information about its business and products, and Celsius said it was working with regulators. State.

There is more. Celsius’ chief financial officer was arrested in Israel in November on suspicion of money laundering, fraud and sexual assault. (These allegations related to his behavior in his previous job; he was suspended from Celsius after the arrest.) When the DeFi platform BadgerDAO was hacked in December, blockchain activity showed that the Celsius network had lost $54 million worth of crypto. Celsius claimed customer and user assets have not been affected.

In its note to clients, Celsius said “the company’s ultimate goal is to stabilize liquidity.” He did not give a date when customers could expect to be able to opt out again, warning that “this process will take time and there may be delays”.

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