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Crypto lender Celsius suspends withdrawals, locking up billions in user funds amid ‘extreme market conditions’

June 13, 2022, 7:20 AM UTC

One of the world’s leading crypto lending platforms, Celsius, has paused all transactions and withdrawals across its network, locking away roughly $12 billion in user assets as cryptocurrencies suffered a broad crash over the weekend.

“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,” Celsius said Sunday, in a statement on its website.

The ban came as leading cryptocurrencies Bitcoin and Ether dropped 14% and 25%, respectively, since Friday, and $167 billion evaporated from the entire industry’s market cap. Celsius’s own coin, CEL, plummeted 20% in value on Friday and dropped 67% over the weekend to roughly $0.20.

The Florida-based company is one of the biggest lenders in the crypto space, claiming to service roughly 1.7 million customers. Celsius is valued at $3.25 billion as of November, following a $750 million funding round led by Canada’s second largest pension fund, Caisse de dépôt et placement du Québec.

Celsius uses capital deposited on its platform to fund its own investments and to cover loans it makes to other users. In exchange, Celsius pays users up to 30% interest, paying out weekly. But the recent meltdown in the market has diminished the potential returns Celsius can earn on its investments, jeopardizing the liquidity of its business model.

According to the Financial Times, the value of assets deposited on Celsius’s platform declined 50% between December and May, plummeting to $12 billion from $24 billion. 

Analysts suspect last month’s collapse of Do Kwan’s Terra blockchain—where the network’s stablecoin, UST, unpegged from the U.S. dollar and precipitated a $60 billion crash in its sister cryptocurrency, Luna—has throttled investor confidence in the broader market. 

Celsius founder Alex Mashinsky had recently taken to Twitter to allay fears that the Luna wipeout was a risk for the crypto lender’s business, telling users that Celsius has “minimal exposure” to Luna and UST, and dismissing contrary claims as “rumors” spread by rival services.

Mashinsky also countered claims that Celsius had a liquidity problem one day before the platform announced its suspension in services, again dismissing the concerns on Twitter as “FUD,” or fear, uncertainty, and doubt—a term crypto traders often use to belittle criticism. But Celsius’s liquidity issues are just the latest in a string of troubles stinging the company. 

Last November, the group’s chief financial officer Yaron Shalem was arrested in Israel in connection to a case of suspected crypto fraud at Shalem’s previous employer, where Shalem also served as CFO. Celsius replaced Shalem in February. Shalem’s lawyers told the Financial Times the former CFO “acted in accordance with the law and strongly and utterly rejects any attempt to associate him with any act of fraud.”

Then in April, Celsius restricted investment’s in its high-interest Earn product to institutional investors only in the U.S., following “discussions” with the securities regulators, and updated its risk disclosures to note that its high-yield products faced “regulatory risk.”

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