Last week, leading retail crypto lending platform Celsius Network announced that it would freeze both withdrawals and transfer transactions to stabilize its liquidity at a time when conditions in the cryptocurrency market have teetered towards the extreme.
Celsius’ issues regarding the liquidity of its assets have plagued not only the company, but virtually all of the major players in the crypto sector, resulting in an overall loss of $400 billion in value.
Along with other industry players, Celsius has seen an increase in redemptions since the crypto TerraUSD crashed in May this year.
Several market watchers noticed that the lending platform’s fall from grace may have been due to the mishandling of several complex investments in the wholesale digital assets market. Indeed, industry analysts have compared this to a conventional bank run.
Celsius works by gathering crypto deposits from customers in a manner similar to a traditional banking service. Then, the deposits are invested into different investment options within the wholesale cryptocurrency market. These options include what is referred to as decentralized finance (DeFi) which involves sites using blockchain technology as a way of offering several digital financial services such as loans and insurance. But this is where Celsius’ similarity with conventional banking ends.
Celsius promised its customers returns as high as 18.6% a year, prompting individual investors to put their assets into the company and similar lending platforms in the hope of earning large profits. However, the company appears to have messed up its investments in the wholesale crypto market. According to industry analysts and publicly available information, the company failed to meet redemptions from customers who wanted out because of the ongoing market slump.
The Latest in a String of Mishaps
But this digital bank run is just one of several issues that have plagued Celsius since the end of last year.
Last December, thanks to hackers, Celsius lost the $54 million worth of Bitcoin it invested in DeFi platform BadgerDao.
The company is reeling from the TerraUSD crash. It invested in the Anchor Protocol, promising up to 20% returns per deposit in Terra USD. Celsius CEO Alex Mashinsky said his company’s exposure to the fallen crypto was small compared to its assets.