Key Takeaways:
- Crypto lending firm Celsius paused all withdrawals, swaps and transfer of funds on its platform
- Its native currency, CEL dipped 70% within an hour before extending its.losses.
YEREVAN (CoinChapter.com) — Celsius (CEL), a high-yield crypto lending firm, paused withdrawals on its platform to fight “extreme market conditions.” Its native token, CEL, tanked nearly 70% after the move.
According to an announcement on Monday, users will also be unable to swap funds or transfer them between accounts.
“Acting in the interest of our community is our top priority…We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets,”
the company announced.
However, according to the circular, customers will continue to collect rewards during the pause period.
Celsius Network pays up to 8% interest on Bitcoin (BTC), 7% on Ether (ETH), and 11% on Tether. It also offers 18% Synthetix (SNX). Investors get the higher rates if they accept yields in the platform’s native token, the CEL.
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Celsius (CEL) has been under constant scrutiny
While Celsius (CEL) paused withdrawals today, the fact that the platform pays high yields has been a red flag for investors for quite some time.
The platform has yet to offer convincing clarification on what it does with the principal amount collected from investors.
The source of the high yield it distributes to clients is also unclear.
Financial regulators have also expressed concerns about the platform. As a result, the U.S. Securities and Exchange Commission (SEC) is investigating to see if Celsius has been selling unregistered securities against federal rules.
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Security regulators in four U.S. states have also noticed Celsius Network’s activities. As a result, Alabama, Kentucky, New Jersey, and Texas authorities clarified in 2021 that they want the platform to cease offering unregistered securities to investors.
CEL tanked 70% after Celsius paused withdrawals
Immediately after Celsius paused withdrawals, CEL, its native token, tanked. According to data on CoinMarketCap, the CEL token shed nearly 70% within the first hour alone.
As CoinChapter earlier reported, the price of CEL had also taken a hit last week. Investors are growing highly skeptical of similar platforms after Terra (LUNA) and its stablecoin TerraUSD (UST) crashed.
According to some investors, Celsius’s protocol also contributed to the obliteration of Terra.
After opening the day at $0.3505, CEL fell to as low as $0.1554 before making weak attempts to recover. CEL exchanged hands at $0.1879 per token at the time of writing.
As some investors pointed out, the platform faced a liquidity crisis even before Celsius paused withdrawals. The continuous losses caused by hacks had already caused a mismatch between the liquid liabilities and liquid assets.
Celsius can decide not to return your funds
For investors in Celsius, the fact that Celsius paused withdrawals is only half of their worries. They could lose all of their funds without an option to claim damages.
The Terms and Conditions of the network have secured the company from future obligations.
“In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable,”
clause 13 of the T&C clarifies.
Coincidently, just a day earlier, Celsius CEO Alex Mashinsky had accused an investor of spreading FUD against the company.
When Mike Dudas pointed out how Celsius was going down Terra LUNA’s path, Mashinsky challenged him to point out an investor who could not withdraw his funds. Yet, just hours later, Celsius came out with the announcement.
Meanwhile, crypto lending firm Celsius will have a tough time recovering from this. Its reputation stands damaged.
