The unexpected measure didn't just crash the native CEL token. It is fluctuating between $0.19 and $0.21 as of the writing of this article, according to Coinmarketcap. Regardless of the specific amount, this is a drop of well over 90 percent within two months. The 24-hour loss alone is over 50 percent. A year ago, the token was still trading for almost seven dollars, in April the CEL was three dollars.
Apparently, the Celsius Network got sucked into the Terra crash, which made the crypto world more sensitive to risks. As a result, Celsius has had to face questions about its reportedly high yields and reserves. The connections to the failed Terra stablecoin UST were also questioned.
Celsius faced with rapidly increasing withdrawals
As a result, the value of assets on the platform fell by half to $12 billion in May. As of December 2021, Celsius was still worth $24 billion. As the Financial Times reports, between March and 1999, a billion dollars flowed out of the system.
As recently as June 7, Celsius tried to inspire confidence with a scathing blog post titled “Damn the torpedoes”:
"Celsius has the reserves (and more than enough ETH) to meet the obligations imposed by our comprehensive liquidity risk management."
That actually sounded pretty definitive. Just five days later, the announcements from Celsius sound very different. On June 12th, an email to all customers began as follows:
“Due to extreme market conditions, we are announcing today that Celsius is pausing all withdrawals, swaps and inter-account transfers. We are taking this action today to put Celsius in a better position to meet its withdrawal obligations over the long term.”
Meanwhile, Celsius has also published the text as a blog post . In it, the crypto lender describes in flowery words a situation that can hardly be much more serious. Celsius has to close its doors to avoid losing all assets. That would be the super meltdown.
The company writes that the "ultimate goal of the company is the stabilization of liquidity and the fulfillment of withdrawal obligations". A clause in the general terms and conditions was activated to trigger the internal protective shield procedure.
Celsius does not predict how long the actually unacceptable state of affairs that Celsius is simply freezing the assets of its customers will last. Instead, the company prepares its 1.7 million customers for an extended dry spell. Celsius points out that "this process will take time and delays may occur."
Since the announcement of the stop of all activities, the company has gone underground in terms of communication. There is silence on social media. The same applies to the otherwise quite active Celsius boss Alex Mashinsky. He left it at retweeting his company's announcement.
German startup Nuri also affected
The German neobank Nuri (formerly Bitwala) is also affected by the freezing of all assets on Celsius. Because the customers of the “Bitcoin income account”, which Nuri offers as a representative of Solarisbank via Celsius, can no longer access their deposits either.
As the Handelsblatt reports, the model works in such a way that Nuri passes on the crypto assets of its customers to Celsius. Celsius, in turn, lends the Nuri investors' bitcoins to other investors for interest. Nuri customers should be able to earn up to three percent in this way.
It doesn't look like that at the moment. It is fair to say that Nuri aggressively advertised the Bitcoin account at Celsius, but ruthlessly informed his customers about the risks. The possible insolvency of Celsius and the possible total loss of all funds is not concealed either.
In the wake of the Celsius announcement, bitcoin continued to plummet on Monday and is now trading below $24,000.
It is still unclear how a tweet by Binance boss CZ should be classified. On Monday afternoon, he announced a withdrawal stop for Bitcoin on the world's largest crypto exchange, Binance.
An unsuccessful transaction clogs the lines, CZ announced on Twitter. Customers should have 30 minutes of patience. The problem will be solved quickly. Hours later, the problem is still not solved. The nervousness increases.
Celsius's business model has not been undisputed since the beginning. Basically, Celsius works like a conventional bank that accepts deposits and issues them in the form of loans. However, there are two very serious negative aspects.
On the one hand, Celsius lures with extremely high yields, which can reach interest equivalents of up to 30 percent - on paper. Critics see such promises as a Ponzi scheme at best and have always considered the company's failure to be only a matter of time.
The second and more significant negative aspect of the Celsius network is that while it works like a bank, it is not secured like a bank. While bank customers can rely on a (worldwide different) deposit insurance, with Celsius the total loss is always in the room.
Instead, Celsius relies on collateralizing its deposits with crypto assets. The network invests actively and suffers one or two setbacks in the process. The company is also active in the defi sector. However, when DeFi platform BadgerDAO was hacked in December, Celsius lost $54 million worth of cryptocurrencies. According to Celsius, customer assets should not have been affected. However, that doesn't seem plausible in a lender system like Celsius's.
Sheer size is positive and negative at the same time
On the one hand, the sheer size of the platform still seems to be enough for a good reputation. According to Bloomberg, Celsius was able to borrow a billion dollars from Tether, the dollar-pegged stablecoin. Even Canada's second-largest pension fund, the Caisse de Dépôt et Placement du Québec (CDPQ), invested in the company in a $400 million funding round.
On the other hand, the sheer size of the platform also makes you nervous. In the USA in particular, Celsius is faced with injunctions from the local supervisory authorities in several states. In New York, the attorney general's office is interested in the company. Celsius affirmed its willingness to cooperate.
The company's CFO, who has since been suspended, was arrested in Israel in November 2021 on suspicion of money laundering, fraud and sexual assault. Although these are personal allegations from a time before working for Celsius, such events do not exactly increase trust in the platform.
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