Celsius announced that it suspended all withdrawals on its platform from the early hours of Monday. The lending platform which is used by over 1.7 million people in the crypto space made the announcement following the recent bloodbath. Celsius’ decision to do so was understandably badly received by its user base who now find themselves unable to withdraw their funds and sparked speculation about how much cash it has.
According to an email sent to users, Celsius admitted that current market conditions played a significant role in its decision to freeze withdrawals. Interestingly, the platform had also suspended all trading activity, meaning the entire lending platform is currently on hold. Celsius users can do nothing but watch and hope that this freeze will be lifted soon.
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Celsius noted in his post that he was doing this for the benefit of the community. A clause in its terms of service had been activated for this to happen. “We are taking this necessary action for the benefit of our entire community to stabilize liquidity and operations while taking steps to preserve and protect assets,” Celsius said. “Additionally, customers will continue to earn rewards during the break, consistent with our commitment to our customers.”
The lending platform added that it was working on ways to restore withdrawals, exchanges and transfers for its users. However, there is no timeline in mind for how long it might take and whether Celsius will be able to reimburse its users.
The crypto community responds
Naturally, the crypto community did not respond positively to such news. At a time like this, when uncertainty reigns in the market, the inability to withdraw funds from a loan protocol destroys confidence in the market.
Users responded en masse to Celsius’ announcement tweet to express their displeasure, while some resorted to outright panic and begged the platform to open withdrawals.
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Speculation filling the space now is that Celsius does not have the cash to pay its users who lent them their crypto. Additionally, at the time the announcements were published, Celsius had moved $89 million in Bitcoin and over $61 million in Ethereum to the FTX exchange.
A Twitter user Noted that the company is going through a liquidity crisis. This is due to millions of dollars that have been lost due to various DeFi exploits. Furthermore, the network also offers high interest rates on assets and as the demand has increased, the need for liquidity which the lending protocol has not been able to keep up with has also increased. Some in space have even started calling Celsius the next Terra (LUNA).
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The implications of a liquidity crisis for a company like Celsius are enormous. Canada’s second largest pension fund, the CDPQ, had invested $400 million in the company in October 2021. A collapse of the company would jeopardize the pension plans of thousands of Canadians who have their funds with the pension fund.
Crypto firm Nexo is preparing to offer Celsius a buyout plan. But this plan will only cover part of the assets of the loan protocol. It is said that the redemption plan will only be available until June 20, a week from now.
At the time of writing, the price of the CEL token has fallen by more than 50% in the past 24 hours. This is a result of the Centigrade trust level dropping by more than 90% and users withdrawing their assets to avoid further losses.
Featured image from Forkast News, chart from TradingView.com
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