Digital asset lender Celsius ‘pauses’ withdrawals and swaps for indefinite period

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Troubled “cryptocurrency bank” Celsius Network today added more kindling to the industry’s 2022 bonfire, “pausing” all withdrawals and asset swaps on its network. The market responded by dumping Celsius’ CEL asset, causing it to fall from US$0.36 to $0.14 in one hour.

The announcement follows reports over the past few days that Celsius had been borrowing millions of dollars worth of USD stablecoins (USDC and USDT) to cover withdrawals. There had also been a series of large ETH transfers from Celsius to the FTX exchange in the same period, totaling about 104,000 ETH. 

https://twitter.com/MikeBurgersburg/status/1533133666884395009

Update: Celsius has transferred about 104,000 ETH to FTX in the past three days, including about 50,000 ETH today, 12,000 ETH yesterday, and 42,000 ETH the day before yesterday. In addition, Celsius also transferred about 9,500 WBTC to FTX today.https://t.co/RaiJTJIVm9 https://t.co/1RQaa9fT3u

— Wu Blockchain (@WuBlockchain) June 13, 2022

In a blog post the company called “a very important message for our community,” Celsius said it would stop all withdrawals, swaps and transfers between accounts. 

“We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” it added.

The digital asset market, in general, has been a sea of red lately. Still, when a company announces it currently isn’t in an excellent position to honor withdrawal obligations, it’s bearish news for that company’s customers in particular. 

Although Celsius added that its objective is to restore regular activity on its network “as quickly as possible,” it gave no further indication of when that would be. 

The news even prompted a rare moment of unity as two of Bitcoin’s most prominent social media adversaries agreed that Celsius’ announcement was a bad sign:

Time to withdraw from Celsius, fam! https://t.co/kCzZnHOhD1

— Kurt Wuckert Jr | GorillaPool.com (@kurtwuckertjr) June 4, 2022

Shitcoin Gox

— Peter McCormack 🏴‍☠️ (@PeterMcCormack) June 13, 2022

Celsius Network, one of the hundreds of blockchain-based “DeFi” networks that have appeared in recent years, allows customers to borrow and lend against their digital assets, as well as exchange them on a trading platform. Loans are usually paid out in a selection of USD stablecoins.

The company’s website promises (like most other DeFi services) a new economy, based on ethics and honesty, that serves individuals large banks have abandoned. 

“Our goal is to disrupt the financial industry, one happy user at a time, and introduce financial freedom through crypto,” its about us page reads.

Celsius has had a rocky time over the past year, with reports (later confirmed) that CFO Yaron Shalem had been arrested for fraud in Israel last November. Rod Bolger later replaced Shalem. The month previous, Celsius had raised US$750 million in Series B funding and received a valuation of $3.5 billion.

The company also has ties to Tether and iFinex’s network, reportedly receiving around a billion dollars in USDT loans at the time of Shalem’s arrest. The company offers attractively high-interest rates to users, around 12% (and even 17%), with interest paid weekly. The rates had raised eyebrows in the industry, with some calling Celsius “a Ponzi scam.”

Celsius CEO Alex Mashinsky responded to criticisms on Twitter by calling them “baseless accusations,” saying the company was still earning income from its borrowing and lending activities. 

For all its promises of a new economy and better lives for users, the DeFi and blockchain financial industries often adopt some of the legacy finance industry’s worst traits — lending more money than companies hold and borrowing excessively to cover losses. Time will tell if Celsius still has enough wealthy friends to stay in business. But as usual, when bad times hit (as they certainly are doing now), it’s customers who usually get left without access to their funds.

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Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.