Celsius said they decided to restrict cryptocurrency withdrawals to benefit the community and protect crypto assets. If all investors withdrew their funds simultaneously, the company could not pay them.
Lending platform Celsius Network, which offers investments and loans with cryptocurrencies, recently paused withdrawals indefinitely. The company said they decided to do it to benefit the community by stabilizing liquidity and operations. They also stated that they are taking steps to preserve and protect crypto assets.
The lack of a concrete explanation leads to the possibility of connecting the dots to reach provisional conclusions. Some days ago, Celsius had around 445 thousand STETH tokens, being one of the largest holders of that crypto asset. The company has exchanged Ether (ETH) deposited by its customers for STETH.
That synthetic token maintains parity with ETH, the native cryptocurrency of the Ethereum network. The Lido staking pool issues it to help those who invest with them have liquidity and withdraw from Ethereum 2.0 staking whenever they want.
The primary beneficiaries of the performance of Ethereum 2.0 staking will be STETH holders. According to CoinMarketCap, the parity of STETH with ETH is far from 1:1. The synthetic token, which maintains its price through an algorithmic mechanism, fell below the price it should have.
STETH is trading at around USD 1,157 and has accumulated a 34.4 loss over the last week. Meanwhile, ETH is worth USD 1,214 and has lost 24.0% in the same period, according to CoinGecko.
If Celsius Network investors decided to withdraw their funds simultaneously, the company would not be able to pay. That may have led them to suspend withdrawals indefinitely, which breaks the promise they made on their website.
Celsius Is Also a large Holder of Tokenized Bitcoin
Besides putting much of its funds into STETH, Celsius is also a large holder of wrapped Bitcoin (WBTC). They use that Bitcoin wrapped in a token from the Ethereum network to invest on the MakerDAO platform.
The company used 17,919 WBTC leveraged on MakerDAO to borrow 278,000 DAI. That is the highest single debt position on the latter lending platform.
If the price of BTC fell below USD 22,534.79, Celsius could liquidate those WBTC units. In other words, the company would lose that money, and its customers might not withdraw their funds.
What Users Can Do If the Company Does Not Pay
Celsius established that users would not be able to exercise ownership rights over the crypto assets they deposit on the platform. In other words, those funds belong to the company.
In addition, its terms and conditions indicate that it could liquidate WBTC if it goes bankrupt or cannot pay its obligations. It is impossible to recover the eligible digital assets used in the Earn service or as collateral in servicing loans. Customers may not have any recourse or legal right other than their right as a creditor of the platform under applicable laws.
Liquidity problems like those experienced by Celsius cause concern among cryptocurrency investors for fear of losing their money. The situation worsens when the company says it cannot respond to those customers deciding to withdraw their funds.
By Alexander Salazar
