Celsius, a crypto lending platform, announced on Monday that it was halting all withdrawals, adding to the market’s already-stressed situation.
As of May, Celsius was one of the major players in the fledgling crypto lending market, with about $12 billion in assets under management and more than $8 billion in loans to clients.
The firm is effectively the crypto version of a bank, offering customers higher-than-average interest rates on their accounts while avoiding the rigorous insurance requirements that regular lenders face.
Questions about Celsius’ solvency have been raised as a result of the move. Since October, when it managed $26 billion in customer funds, the firm’s assets have more than halved in value.
In the same timeframe, the Cel token has lost 97% of its value. Celsius is the largest holder of Cel, a cryptocurrency that urges customers to buy to gain incentives and lower lending rates.
On Monday, the company informed clients in a memo, “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swaps, and transfers between accounts.”
Bitcoin and other crypto tokens have taken a hit as a result of the extreme bear run of cryptos and digital assets in the financial industry. According to Coin Metrics data, the world’s largest digital asset fell 15% to $23,325, reaching lows not seen since December 2020. Ether has lost 17% to $1,225, while Celsius’ Cel cryptocurrency has dropped more than 38%.
This comes in the wake of the $60 billion implosion of Terra USD, the much-hyped stablecoin. Regulators’ concerns about cryptocurrency offering investors exceptionally large returns have grown as a result of the collapse.
Anchor, a crypto loan service, once guaranteed members up to 20% interest on their terraUSD holdings, a coin that was originally supposed to be worth $1 always.
Crypto lending is still largely unregulated. According to US market regulators, many of the assets should be regarded as securities with tight restrictions to safeguard investors.
The Securities and Exchange Commission and 32 states fined BlockFi, a competitor to Celsius, $100 million in February for breaching securities laws. Four US states sent cease-and-desist letters to Celsius.
Another cryptocurrency lender in the coin market, Nexo, said it sent Celsius a letter on Sunday offering to buy its collateralized loan portfolio, but the latter declined.
Nexo’s CEO, Antoni Trenchev, told media outlet CNBC “As a sign of goodwill and in an attempt to support the digital asset ecosystem in these difficult times, yesterday we reached out to the Celsius team to offer our support, but our help was refused.”
Concerns about a broader market contagion from cryptocurrencies have been raised as a result of Celsius’s problems. On numerous major exchanges, Tether, the world’s largest stablecoin, stayed below its $1 peg Monday as investors abandoned the token. Celsius took out a $500 million loan in tether tokens and put up bitcoin as security.
Tether, which made an equity investment in Celsius, stated that its involvement in the stablecoin’s reserves would have no negative consequences.
In a statement released on Monday, the company said, “Tether lending activity with Celsius (as with any other borrower) has always been overcollateralized and has no impact on our reserves”