Wednesday, March 29, 2023
HomeBitcoinCrypto lender Celsius freezes all withdrawals while markets crash

Crypto lender Celsius freezes all withdrawals while markets crash

Celsius announced the freezing of the assets of its 1.7 million users. In other words, people who deposited their coins – whether they are in bitcoin, ether, or in any other cryptocurrency – have lost all access to them, they cannot withdraw their coins, exchange them, pay for other loans, or sell them.

Celsius Twitter Announcement

Celsius was one of the major players in digital yield products, offering users the ability to lend out their tokens as collateral for other crypto projects. The yields traders received for lending their tokens were as high as 17 percent.

Celsius says the actions are intended to protect users, the “community” and that the activity itself will benefit them in the future. But many argue that no actual benefit is received by the users with action taken.

Not your keys, not your crypto

The announcement signifies that the firm is not able to meet its obligations due to a liquidity crisis. Due to the terms of use signed by users, Celsius has the right to initiate such a freeze. The users have no legal protection, the loans given to Celsius are unsecured and they’ve agreed to transfer their coins in return for the return Celsius promised, relinquishing their rights.

The price of Celsius’ native token, CEL, crashed by 70% in the hours after the announcement, trading at over 40% lower by the next day. Its collapse came amid a massive selloff, which saw Bitcoin’s market capitalisation plunge to levels not seen since 2020, while crypto’s total market cap plummeted to less than a trillion dollars, or around one-third shy of its all-time high of $3 trillion. Stocks of crypto-focused companies were also sold on Monday. On Wall Street, MicroStrategy, the tech company with heavy bitcoin exposure, lost a quarter of its value, while Nasdaq-listed crypto exchange Coinbase lost 16 percent.

stETH Depegging

Celsius’ troubles appear to be caused by Lido’s Staked Ether (stETH), a token pegged to Ethereum’s ETH. stETH represents ETH locked on the Ethereum 2.0 beacon chain, a parallel chain to the main Ethereum blockchain which will eventually merge with the Ethereum mainnet in an event known as the Merge, switching the network from a proof of work consensus to a proof of stake consensus.

ETH is often borrowed using stETH on DeFi platforms as collateral. Recently, the peg between stETH and ETH was lost, putting those positions at risk. Due to uncertainty over the Merge date, stETH has been under considerable pressure.

Suspected Celsius Wallet Address.

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