Celsius Network, a platform for decentralized finance (DeFi) and one of the largest crypto lenders, announced on Sunday night that it was “pausing all withdrawals, swaps and transfers between accounts”. It has 1.7 million customers.
The company’s token, CEL, is trading at 23 cents at the time of writing, according to CoinMarketCap. That’s down 92 percent from April 8, when CEL was worth $ 3. The token cost nearly $ 7 a year ago.
There were questions about Celsius Networks’ high profitability, its links to failed Terra stable coins and its reserves. The value of its platform assets fell by half to $ 12 billion in May from $ 24 billion in December 2021. Between March and May, $ 1 billion leaked from the system, The Financial Times reported.
In a June 7 blog post titled “Damn Torpedoes,” the company said, “Celsius has the reserves (and more than enough ETH) to meet its commitments, as required by our overall liquidity risk management framework.”
That was then. On June 12, the email to all customers started like this:
Due to extreme market conditions, today we announce 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 comply with its withdrawal obligations over time.
Skeptics have been wary of the promised high Celsius return for years
In theory, Celsius works in much the same way as an ordinary bank, except for cryptocurrency. He collects deposits and then borrows them. Advertising on the Celsius website at the time of writing offers an 18.63 percent annual return on crypto deposits. Unlike a bank, Celsius does not have a government FDIC insurance that protects people in the event of a bank failure.
Skeptics have repeatedly warned that the Celsius Network is likely to fail. Some even claim 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 stable coin pegged to the dollar. (The loan was originally $ 1 billion, Bloomberg reported.) The loan is secured in bitcoin. “If bitcoin falls, they give us a margin call [and then] we need to give them more bitcoins, “Celsius CEO Alex Maszynski told The Financial Times last year.
Even investors who are not directly involved in cryptocurrency are exposed to Celsius. Canada’s second-largest pension fund, the Caisse de Dépôt et Placement du Québec (CDPQ), is investing as part of a $ 400 million stake in the company.
Celsius lost millions in the BadgerDAO hack
Regulators have expressed interest in the activities of the Celsius Network. It was not until September 17, 2021, that New Jersey issued a Celsius Network termination and waiver order, Texas scheduled a hearing to determine whether to issue a suspension and waiver, and Alabama asked Celsius why it should not be banned within a month. In October 2021, New York Attorney General Leticia James included the company as one of the platforms requested to provide information about its activities and products, and Celsius said it was working with state regulators.
There is more. Celsius’s chief financial officer was arrested in Israel in November on suspicion of money laundering, fraud and sexual assault. (These allegations related to his behavior at his previous job; he was removed by Celsius after his arrest.) When the BadgerDAO DeFi platform was hacked in December, blockchain activity revealed that Celsius’ network had lost $ 54 million in crypto. Celsius said customer and consumer assets were not affected.
In a note to its customers, Celsius said that “the ultimate goal of the company is to stabilize liquidity.” He did not specify a date when customers could expect to be able to withdraw again, warning that “this process will take time and may be delayed”.
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