Celsius Network, a decentralized finance (DeFi) platform and one of the largest crypto lenders, announced late Sunday that it was “pausing 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 writing, according to CoinMarketCap. That’s a 92 percent decrease from April 8, when the CEL was worth $3. The token was worth almost $7 a year ago. There have been questions about Celsius Networks’ high returns, its connections to the failed Terra stablecoin, 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 left 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 obligations, as dictated by our comprehensive liquidity risk management framework. ”. 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 will be pausing all withdrawals, exchanges, and transfers between accounts. We are taking this action today to put Celsius in a better position to meet its retirement obligations over time.
Skeptics have been wary of the high yields promised by Celsius for years. In theory, Celsius works the same way a regular bank does, except in cryptocurrencies. It collects deposits and then lends them. An advertisement on the Celsius site as of this writing offered an annual percentage yield of 18.63 on crypto deposits. Unlike a bank, Celsius does not carry FDIC government insurance to protect people in the event of a bank failure. Skeptics have repeatedly warned that the Celsius Network is destined to fail. 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 guaranteed in Bitcoin. “If Bitcoin goes down, they give us a margin call [and then] we have to give them more Bitcoin,” Celsius CEO Alex Mashinsky told The Financial Times last year. Even investors who are not directly involved in cryptocurrencies are exposed to Celsius. Canada’s second largest pension fund, Caisse de Dépôt et Placement du Québec (CDPQ), invested as part of a $400 million equity round for the company. Celsius lost millions in the BadgerDAO attack Regulators have expressed interest in the operations of the Celsius Network. On September 17, 2021 alone, New Jersey issued a cease and desist order to Celsius Network, Texas scheduled a hearing to determine if it should issue a cease and desist, and Alabama asked Celsius why it shouldn’t be banned. within a month. In October 2021, New York Attorney General Letitia James listed 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 CFO was arrested in Israel in November on suspicion of money laundering, fraud and sexual assault. (Those allegations concerned his behavior at his previous job; he was suspended from Celsius after the arrest.) When the BadgerDAO DeFi platform was hacked in December, blockchain activity showed that the Celsius network lost $54 million in cryptocurrency. Celsius claimed customer and user assets were not affected. In his note to clients, Celsius said the company’s “ultimate goal is to stabilize liquidity.” He did not give a date on when customers could expect to be able to check out again, warning that “this process will take time and there may be delays.”