Celsius Network, a decentralized finance (DeFi) platform and one of the largest crypto lenders, announced Sunday night that it is “pausing all withdrawals, swaps and transfers between accounts.” It has 1.7 million customers.
The company’s token CEL is trading at 23 cents as of this writing, according to CoinMarketCap. That’s a 92 percent drop from April 8, when CEL was worth $3. The token was worth around $7 a year ago.
There have been questions about Celsius Networks’ high returns, connections to failed stablecoin Terra, and reserves. The value of assets on its platform has halved from $24 billion in December 2021 to $12 billion in May. A billion dollars flowed through the system between March and May, The Financial Times reported.
In a June 7 blog post titled “Damn torpedoes,” the company said, “Celsius has reserves (and plenty of ETH) to meet obligations, as required by our comprehensive liquidity risk management framework.”
This is later. On June 12, an email to all customers began as follows:
Due to extreme market conditions, we are announcing today that Celsius is pausing all withdrawals, Swaps and transfers between accounts. We are taking this action today to put Celsius in a better position to meet its withdrawal obligations over time.
In theory, Celsius works like an ordinary bank does, except for cryptocurrency. He collects deposits and then lends them. At the time of this writing, an ad on Celsius’ site was offering an annual return of 18.63 percent on cryptocurrency deposits. Unlike a bank, Celsius does not have FDIC government insurance that protects people in the event of a bank failure.
Skeptics have repeatedly warned that the Celsius Network is doomed to fail. Some even claimed that Celsius is a Ponzi scheme.
Because of its size, Celsius touches many other parts of the cryptocurrency markets. For example, Celsius Network has borrowed $500 million from the dollar-pegged stablecoin Tether. (The loan was originally $1 billion, Bloomberg reports.) The loan is collateralized with Bitcoin. “If bitcoin goes down, they give us a margin call. [and then] We must give them more Bitcoin,” said Alex Mashinsky, CEO of Celsius. The Financial Times last year.
Even investors who are not directly involved in cryptocurrency are exposed to Celsius. Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second largest pension fund, has invested in the company as part of a $400 million equity round.
The regulators have expressed interest in Celsius Network’s operations. Only on September 17, 2021, New Jersey issued a cease and desist order to Celsius Network, Texas scheduled a stop-and-go hearing to determine if it should issue, and Alabama asked Celsius why it shouldn’t be banned. in a month. In October 2021, New York Attorney General Letitia James included the company as one of the platforms asked to provide information about its activities and products, and Celsius said it is working with regulators in the state.
There is more. Celsius’ CFO was arrested in Israel in November on suspicion of money laundering, fraud and sexual assault. (These allegations were related to his behavior at his previous job; he was suspended at Celsius following his arrest.) In December, when DeFi platform BadgerDAO was hacked, blockchain activity showed the Celsius network lost $54 million worth of crypto. centigrade requested client and user entities are not affected.
Celsius said in a note to clients that the company’s “ultimate goal is to stabilize liquidity.” He didn’t give a date for when customers can expect to withdraw, and warned that “this process will take time and there may be delays”.