A month ago, it set up a “corralito” for its customers to protect themselves from extreme market conditions. He did not survive and is now declared bankrupt.
The Celsius platform, one of the largest digital currency lenders and a major player in the world of decentralized finance, has accepted this Chapter 11 of the United States Bankruptcy Codewhich allows companies in financial difficulty to recover under the protection of the law.
With this mechanism, Celsius will remain in control of its operations, albeit under the supervision of the court.
“This is the best decision for our community and our business,” Alex Mashinsky, CEO and co-founder of the company, said in a statement.
Celsius filed an appeal in court continue to pay employees but for now it does not intend to allow its clients to withdraw funds. Account with $ 167 million in cash, “providing enough liquidity to support specific operations during the restructuring process.”
From now on Celsius will be working with new directors. They are David Barse and Alan Carr, both experts in investment firms.
The platform was hit by the cryptocurrency market crisis.
“The cryptocurrency market started the year in turmoil Federal Reserve Rate Hike, High Inflation, and Lower Interest Rates markets, “says Alice Liu, senior partner at WisdomTree, referring to the collapse of the industry. Photo: GETTY IMAGES Bitcoin is down 50% since the beginning of the year.
Last month it decided to block the accounts of its 1.7 million users, a decision dubbed “corralito” by cryptocurrency experts, referring to the restriction of cash withdrawals from banks in Argentina in 2000.
Since then, Celsius has been banning its customers Withdraw, transfer or even convert cash into cash earned with cryptocurrencies.
This has plunged the price of Bitcoin and Ethereum, the two largest virtual currencies by market value, continuing a worrying downward trend.
Furthermore, Binance, the largest cryptocurrency exchange in the world, was also hit and had to. Pause bitcoin withdrawals for a few hours.
Bitcoin cumulatively drops by more than 50% in 2022 while Ethereum has lost 69% of its value.
And that, experts say, it dragged other currencies into a domino effect and caused problems for multiple platforms. Photo: GETTY IMAGES Ethereum is the second largest cryptocurrency by market value.
Celsius, who has offices in the US, UK and Lithuania, said the lockdown was “for the good” of the whole “community” at the time. stabilize liquidity and operations while we take steps to preserve and protect assets. ”
In one year, the value of the CEL went from $ 7 to around $ 0.20.
the system Celsius as a lending platformrewards its customers with high interest rates for holding cryptocurrencies on its network.
That is, someone with bitcoin could “store” the currency on this platform and in return. be rewarded.
If someone decides to invest the currency in staking, which is the English name for this practice, they undertake not to carry out any transactions with it.
In general, the more days you leave a Crypto when staking, the juicier the reward.
The reason a cryptocurrency is rewarded while it is in storage is because the blockchain powers it. Photo: PHOTO BY GETTY
no legal protection
It is a similar system to Savings accounts with traditional banks However, it doesn’t have the same level of legal protection.
According to its website, Celsius offers over 7% interest on stablecoins like USDC and Tether; 7.25% for Polygon, 6% for Ethereum and 6.25% for Bitcoin.
These are percentages of that income No bank in the world can offer this at the moment, given market conditions and low interest rates. Photo: GETTY IMAGESTether is considered a “stablecoin” due to its parity with the dollar.
“To be too good to be true”
What happened prompted Gary Gensler, president of the SEC, the main financial regulator in the United States warn against promised returns of cryptocurrency lending platforms and products that seem “too good to be true”.
“How can you offer (such a high return rate) in today’s market without revealing a lot of information?” He said in a public forum.
In March, and not for the first time, the three European financial regulators warned and highlighted the real risks of cryptocurrencies for consumers not suitable for most retail customers as an investment or as a means of payment or exchange. Photo: GETTY IMAGES Cryptocurrencies are “mined” on servers.
However, “the cryptocurrency fever seems far from over. It is estimated that around 10% of the adult population in Europe and 16% in the US have some kind of cryptocurrency investment, ”says Sam Theodore, senior consultant at Scope Group, in a market commentary.
“Unfortunately, there is no estimate of how many of these investors understand how it works and the risks to which they are exposedI added.
For Paul Donovan, chief economist at UBS, the Collapse of the cryptocurrency market it is not important for the real economy.
The “cryptocurrency” market implodes (again). It matters? No Cryptocurrencies are a bet, not an investment. Economies can benefit when labor and resources are shifted from cryptocurrencies to economically useful sectors, “the economist said.