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Crypto lender Celsius freezes all withdrawals

Illustration of a glitching digital coin with binary code on it.
Illustration: Gabriella Turrisi/Axios

Crypto lender Celsius announced Sunday night that it was pausing all "withdrawals, Swap, and transfers between accounts," citing extreme market conditions.

Why it matters: It's a harsh reminder that with many new crypto service providers, there's no assurance that assets will remain safe even as they use familiar terms like "lender."

How it works: Celsius lends out consumer deposits to others in order to make a return, offering annual percentage yields of up to 18.63% on crypto assets that users hold with the firm.

  • The company claims to have 1.7 million users and was managing $11.8 billion in assets as of May 17, according to its website.
  • While consumers would not be able to withdraw or swap their crypto to another exchange, Celsius said they would continue to earn a yield on any assets they held with the company.
  • "We are taking this 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," Celsius said in a statement.

Notably: As it takes deposits in crypto, Celsius lacks FDIC or SPIC insurance — fanning concerns that should the company become insolvent, customers may not be able to recover their funds.

  • "In the event that Celsius becomes bankrupt, enters liquidation, or is otherwise unable to repay its obligations ... you may not have any legal remedies or rights in connection with Celsius' obligations to you other than your rights as a creditor of Celsius under any applicable law," the company states in its terms of use.

Flashback: Just last week, in a blog post entitled "Damn the Torpedos, Full Speed Ahead," the company said it "continues to process withdrawals without delay" and that it "has the reserves (and more than enough ETH) to meet obligations."

Between the lines: Celsius — along with the rest of the crypto lending industry — was already under watch by the SEC, and this event is likely to draw more scrutiny.

  • Earlier this year, Celsius competitor BlockFi reached a settlement with the SEC and stopped offering its crypto interest accounts to new users.
  • In April, Celsius followed suit by rolling back its high-yield interest product to non-accredited users.

Yes, and: This is bad news for Laurence Tosi's WestCap and Canada's second-largest pension fund, Caisse de dépôt et placement du Québec, as the duo led a $400 million Series B round valuing Celsius at $3.25 billion in October.

The big picture: Celsius' troubles and the crypto selloff are having ripple effects throughout the broader markets.

  • The firm's associated token CEL was down about 50% on the day, according to CoinMarketCap.
  • Meanwhile, shares in publicly traded firms like Coinbase and MicroStrategy were down at the market's opening.

Of note: Celsius isn't the only crypto company pausing withdrawals today. Binance CEO Changpeng Zhao announced on Twitter that his exchange was placing a "temporary pause" on bitcoin withdrawals due to a "stuck transaction causing a backlog."

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