For the past week, Celsius CEO Alex Mashinsky has insisted there were no problems with his crypto lending platform, even as many users complained about being unable to withdraw funds and others called the business unsustainable.
For days, customers had been tweeting about problems they had logging into their accounts or with being able to withdraw their funds. On Sunday, the company officially halted all withdrawals without giving a timeline for when customers would be able to get access to their deposits again.
Celsius is a crypto alternative to the traditional bank. Users can deposit cryptocurrency with the platform, which it then loans to others while providing its customers a yield of up to 18%. The interest dwarfs the average 0.09% rate that traditional banks offer for U.S. savings accounts.
As of Monday evening Celsius still advertised up to 18% returns on its website.
Despite questions about Celsius, as late as Saturday, Mashinsky was attacking his critics on Twitter. When venture capitalist Mike Dudas tweeted that retail traders may lose the money they put into Celsius, Mashinsky told him to stop spreading “FUD,” short for fear, uncertainty, and doubt.
“Mike do you know even one person who has a problem withdrawing from Celsius,” Mashinsky said.
Mashinsky has long been a critic of traditional banks and their low interest rates. In its marketing, Celsius has called on people to instead “unbank” themselves and deposit their money with Celsius.
But without the protection of deposit insurance, and without the option of getting liquidity from a central bank, Celsius’ investors can’t be 100% sure that they’ll get their money back. That means any trust it had built up with its customers is shattered, Columbia Business School professor Omid Malekan told Fortune.
“The second they turn on user withdrawals again, every single user is going to withdraw every single penny,” he said.
Because of this lost trust, Celsius should move to get the maximum return for the cryptocurrency that it still holds to pay off its depositors as much as possible, Malekan said. Still, he said regulators are unlikely to step in because the risk of Celsius’ problems spreading to the broader financial world is low.
“I think it would be a tough sell for the government to be like we’re gonna spend taxpayer money to bail out this weird crypto project,” he said.
Celsius’ halting of withdrawals comes a month after another crypto project, stablecoin TerraUSD crashed aftea widespread crypto bank run made it lose its one-to-one peg to the U.S. dollar. The bank run also took down the stablecoin’s sister cryptocurrency, Luna.