The offer is too good to pass up: deposit your cryptocurrency and get a high yield of 18 per cent.
It is the promise of Celsius Network, a pragmatic cryptocurrency bank with over one million customers, that has emerged as a leader in decentralized finance or Defy’s murky world. Last year, DeFi exploded into a $ 100 billion industry, attracting venture capital firms and regular investors with the prospect of lightning-fast profits. Celsius managed more than $ 20 billion in assets.
But on Sunday night, as cryptocurrency prices plummeted, Celsius became the latest crypto venture into crisis, announcing that it was freezing its withdrawals due to “extreme market conditions.”
The announcement melted the market as Celsius customers were wondering if they would be able to get their deposits back. According to industry price tracker CoinMarketCap, bitcoin has declined 15 percent in the last 24 hours, to nearly $ 23,000, its lowest value since December 2020. Ether, the second-most valuable cryptocurrency, is down nearly 16 percent.
Crash extends a terrible period for cryptocurrencies, illustrating the risks of these practical investments in graphic terms. Just a month ago, the explosion of the popular coin helped trigger a crypto meltdown that wiped out $ 300 billion in value across the market. Back-to-back crashes have sparked criticism that many complex crypto banking and lending schemes, known as Defy, are high-risk schemes floating on the brink of destruction.
“DeFi is the home of cards,” said Cory Clipston, chief executive of Swan Bitcoin, a financial services firm focused on Bitcoin. “This is speculation on a whim, and there are no real-world use cases for any of these materials.”
Defy erupted into the mainstream in 2021 as the prices of bitcoin and ether increased and crypto became a cultural phenomenon. Many consumers were attracted to the potential of astronomical profits from complex crypto lending schemes.
Celsius DeFi has emerged as one of the best-funded and most popular investment options for speculators. Founded in 2017 by entrepreneurs Alex Mashinsky and Daniel Leon, Celsius accepts deposits of Bitcoin, Ether and other cryptocurrencies and then invests them, generating returns for depositors.
Celsius says it has attracted 1.7 million customers. Last year, the company had more than $ 20 billion in assets, though that figure has sunk in recent months as the market crashes. In the fall, Celsius announced it had raised $ 750 million from investors, valued at more than $ 3 billion.
But the company had its share of problems. Critics have for months wondered how such a dramatic yield could be sustained without risking its depositor’s funds through risky investments. The company is under scrutiny by several state regulators, and its chief financial officer has been arrested in Israel as part of a Celsius-linked fraud investigation.
“Celsius, like the rest of the crypto market, has no regulatory oversight, no consumer protection, no net capital requirements,” said John Reid Stark, a former Securities and Exchange Commission official and industry vocal critic. “It’s not just the Wild West – it’s a global economic anarchy.”
But Mr Mashinski rejected the criticism. On regular live streams, he aggressively sold Celsius, talking about large yields. “It’s like going to the Olympics and getting 15 medals in 15 different fields,” he declared in December.
This weekend, a day before the company stopped withdrawing, he said Accused Critic for spreading misinformation about the company. “Do you know a person who has trouble withdrawing from Celsius?” He wrote on Twitter.
In the end, the decline in crypto prices appeared to put the company under greater pressure than it could withstand. Prices fell at the end of last week, after the report showed an increase in inflation in the United States, rattling the markets.
“Our ultimate objective is to stabilize liquidity and restore withdrawals,” the statement said. “There is a lot of work ahead as we consider different options. This process is time consuming and can be delayed.”
At the Celsius Consumer Reddit Forum, investors lamented the potential loss of their savings; One user has posted a link to a suicide hotline.
“Basically, it’s like a bank run,” said Campbell Harvey, a professor at Duke University and author of the book “DeFi and the Future of Finance.” “What I see is a risk management failure.”
Celsius is one of several DeFi start-ups that are under intense scrutiny as crypto prices fall.
The slowdown in May accelerated with the TerraUSD collapse known as StableCoin, with the US dollar fixed. The $ 1 peg of the coin was funded by a complex financial engineering link to a sister cryptocurrency called Luna. When Luna’s price fell in May, TerraUSD fell into tandem – a “death spiral” that destabilized the broader market.
TerraUSD became popular for the same reason as Celsius. It was marketed by an aggressive businessman, Do Kwan, who offered DeFi a service called Anchor Protocol, in which customers can deposit TerraUSD and receive 19.5 percent interest. Now TerraUSD is virtually worth nothing.
Hillary Allen, an American university finance specialist, said that the future of crypto investments – terra and Celsius crises – long hailed as part of a decentralized market – actually depends on the management choices of individual founders.
“As things go south, investors rely on tweets from founders like Terras do Kwan and Cashius’ Mashinsky,” Ms. Allen said, “But once the founders made the decision to shut down, they found themselves stuck in more worthless positions.”