A month after the collapse of the UST and Luna coins, the crypto sphere is in the grip of another big shock.
A month after the dramatic collapse of sister tokens UST or TerraUSD and Luna, the crypto space is in the grip of another scandal.
The crypto lender Celsius Network has just made an announcement that will no doubt cause further panic among investors.
The firm, founded in 2017 by Alex Mashinsky, S. Daniel Leon and Nuke Goldstein, will freeze withdrawals of funds from its customers and does not say exactly when this measure will end.
“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts,” the company said in a memo published in Medium. “We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.”
‘Meet Our Obligations’
Celsius doesn’t say what prompted him to take such an extreme step.
The firm tries however to reassure investors: “Celsius has valuable assets and we are working diligently to meet our obligations.”
The announcement caused the downfall of CEL, the native token of the Celsius ecosystem. Indeed, the price of CEL was down 58% to $0.171895 at the time of this writing according to data firm CoinGecko.
CEL had hit an all-time high of $8.05 on June 4, 2021.
What Does Celsius Do?
Before we continue, let’s take a break to explain what Celsius Network is. Celsius is a cryptocurrency lending platform. The company allows anyone to borrow cryptocurrency and earn interest for lenders.
“Earn high. Borrow low. Change the world,” the firm says on its website. One of its catch phrases is “Borrow like a Billionaire.”
Celsius, through its CEL token, promises “financial rewards” as much as 30% extra returns weekly. But some options are not available to U.S. based users.
When it raised $400 million last October from investors led by WestCap and Canadian Caisse de dépôt du Québec (CDPQ), Celsius Network saw its valuation soar to $3 billion. The company wants to be an intermediary between traditional finance and the sphere of cryptocurrencies.
Returning now to its decision to freeze withdrawals, Celsius Network explains that:
“We understand that this news is difficult, but we believe that our decision to pause withdrawals, Swap, and transfers between accounts is the most responsible action we can take to protect our community.”
The firm promises to restore withdrawals but does not provide any timetable.
“We are working with a singular focus: to protect and preserve assets to meet our obligations to customers,” Celsius Network said. “Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible. There is a lot of work ahead as we consider various options, this process will take time, and there may be delays.”
Celsius Has Rocky Relationships with Some States
The announcements from Celsius comes a month after the disaster UST and Luna, two tokens of the Terra ecosystem.
UST, or TerraUSD, a so-called stablecoin, lost its dollar peg when millions of investors all wanted to redeem their tokens at the same time.
A stablecoin is a digital currency whose value is pegged to a stable reserve asset, like the U.S. dollar, the euro or gold. Stablecoins are supposed to be backed by assets in dollars or euros whose fair value must be at least equivalent to the number of coins in circulation.
The debacle of UST and Luna, which are sister tokens belonging to the Terra ecosystem, caused more than $55 billion in losses for investors.
Suffice to say that Celsius will not help restore confidence.
In addition, the firm has been in the sights of the authorities for some time now. The New Jersey Bureau of Securities had ordered the platform to stop offering and selling interest-earning cryptocurrency products.
Last year, the Texas State Securities Board accused Celsius Network for not offering securities licensed at the state or federal level.
Celsius’s rivals are BlockFi, Aave, Compound and Maple.
In February, the Securities and Exchange Commission announced a $100 million agreement with BlockFi to settle an investigation into one of its star products. BlockFi agreed to register its savings-account product, BIA, as a security, which raises the question of its competitiveness against traditional banks.