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The Celsius Network, a decentralized finance (DeFi) platform and one of the largest crypto lenders, announced Sunday night that it was âpausing all withdrawals, Swap, and transfers between accounts.â It has 1.7 million customers.
The companyâs token, CEL, is trading at 23 cents as of this writing, according to CoinMarketCap. Thatâs a 92 percent decrease from April 8th, when CEL was worth $3. The token was worth nearly $7 a year ago.
There have been questions about Celsius Networksâ high yields, its connections to failed stablecoin Terra, and its reserves. The value of assets on its platform dropped by half to $12 billion in May, from $24 billion in December 2021. Between March and May, a billion dollars flowed out of the system, The Financial Times reported.
In a June 7th blog post entitled âDamn the torpedoes,â the company said, âCelsius has the reserves (and more than enough ETH) to meet obligations, as dictated by our comprehensive liquidity risk management framework.â
That was then. On June 12th, an email to all customers started off like this:
Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.
In theory, Celsius works in much the same way an ordinary bank does, except in cryptocurrency. It collects deposits and then loans them out. An advertisement on Celsiusâs site as of this writing offered an 18.63 annual percentage yield on crypto deposits. Unlike a bank, Celsius doesnât have FDIC government insurance that protects people in case of a bank failure.
Skeptics have repeatedly warned that Celsius Network is bound to fail. Some have even argued that Celsius is a Ponzi scheme.
Because of its size, Celsius touches a lot of other parts of cryptocurrency markets. For instance, Celsius Network borrowed $500 million from Tether, the dollar-pegged stablecoin. (The loan was originally $1 billion, Bloomberg reported.) The loan is collateralized in Bitcoin. âIf Bitcoin drops, they give us a margin call [and then] we have to give them more Bitcoin,â Celsius CEO Alex Mashinsky told The Financial Times last year.
Even investors who arenât directly involved in cryptocurrency have exposure to Celsius. Canadaâs second-largest pension fund, Caisse de DĂ©pĂŽt et Placement du QuĂ©bec (CDPQ), invested as part of a $400 million equity round for the company.
Regulators have expressed interest in Celsius Networkâs operations. On September 17th, 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 inquired of Celsius why it shouldnât be banned within a month. In October 2021, New York Attorney General Letitia James included the company as one of the platforms requested to provide information on its activities and products, and Celsius said it was working with regulators in the state.
Thereâs more. The CFO of Celsius was arrested in Israel in November for suspicion of money laundering, fraud, and sexual assault. (Those allegations were about his behavior at his previous job; he was suspended at Celsius after the arrest.) When the DeFi platform BadgerDAO was hacked in December, blockchain activity showed Celsius network lost $54 million worth of crypto. Celsius claimed client and user assets were not affected.
In its note to its customers, Celsius said that the companyâs âultimate objective is stabilizing liquidity.â It did not give a date for when customers might expect to be able to withdraw again, warning that âthis process will take time, and there may be delays.â