Celsius Stops Withdrawals, Worsening Widespread Panic

 Celsius halts withdrawals
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The widespread panic in the crypto industry took another turn this week as top DeFi platform Celsius paused withdrawals, citing a need to "stabilize liquidity and operations".


Celsius previously rode on promises of high interest rates to attract customers. However, it was forced to activate protective measures following the ongoing recession which triggered a liquidity crisis at the crypto staking and lending platform.


In a Medium post addressed to community members, the company defended its unpopular move as a "necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets."


"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," read the statement, which has been the subject of hot debate on social media.


Analysts across the board suggested that the bear market is poised to claim its next victim. Celsius is just the latest high profile crypto platform to run into troubled waters since the current dip began. Its apparent impending collapse will no doubt fuel crypto skeptics in their beliefs that the entire industry runs an unsustainable model.


“The tide has gone out in crypto, and we’re seeing that many of these businesses and platforms rested on shaky and unsustainable foundations,” said Lee Reiners, a former Federal Reserve official while speaking to the New York Times. Most crypto businesses operate without official supervision and cook up all kinds of fantastical offers to entice users. Exceptions are the major centralized exchanges, and growing ones like Kyrrex that take the initiative to meet regulatory approval.


Before its current troubles, Celsius operated like a traditional bank, but for cryptocurrencies. It accepted deposits, mostly in bitcoin and Ethereum, from crypto holders and offered APRs of up to 18%. The company claimed it had 1.7m unique wallets/users and managed total assets of close to $12 billion.


In 2018, the company launched CEL, its own native token, to raise money for expansion. The digital asset fell almost 100% after Monday's shock announcement but surged back to trade around $0.6 on Wednesday,


But this seems like a brief respite for Celsius, in particular, and the crypto market in general. The platform's freeze of customer money had sent prices tumbling industrywide. Bitcoin fell to 52-week lows and most major altcoins weren't spared from the massive selling pressure.


Some small good news: The people at Celsius seem determined to fight to the bitter end instead of taking the easy way out and declaring bankruptcy. The Wall Street Journal reported on Tuesday that the crypto lender has hired a legal team to advise on how best to resolve its liquidity issues.


How this plays out remains anyone's guess. But this is surely another negative incident in a year full of them for crypto. In May, the algorithmic stablecoin TerraUSD (UST) lost its peg to the dollar, unleashing a vicious chain of transactions that wiped away $60 billion of investors' funds.


While Celsius fights for its life, and with the fall of the Terra Network as a cautionary tale, many people have grown pessimistic about crypto as reality sets in. For other crypto platforms, especially DeFi, there is fear of being caught in the crossfire. Some CEOs of leading platforms are wary of a backlash from users who start withdrawing their funds, either converting them into stabecoins or removing them from the crypto market entirely.


"Their potential insolvency matters to all crypto investors because they were a major player who had assets deployed on multiple DeFi protocols on different blockchains. If it is forced into full-on liquidation, then the withdrawal of those assets may begin a chain reaction of falling prices and forced liquidations for other DeFi users," Omar Malekan, an adjunct professor, explained while speaking to Forbes.


But there is also a lesson to learn and a potential way forward. The sobering incidents with Terra and Celsius have shown the dangers of offering unrealistic benefits to attract customers. Be it a centralized exchange or a DeFi platform, modest interest rates that don't put too much pressure on liquidity in times of downtrend is the way forward.


Any platform that doesn't heed the warning is likely to learn the hard way.

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