What is Celsius Network? Asset freeze gives investors chills

Frozen accounts and a dwindling value for the CEL token – is Celsius Network the next Terra?

Thermometer in snow, showing minus temperatures                                 
CEL token goes cold. Will it rebound in 2022? – Photo: Shutterstock
                                

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The Celsius Network: Asset freeze

In a shock to customers, on 13 June the cryptocurrency lending platform Celsius Network announced a freeze on all assets held in its accounts.

In a blog post, the company stated: “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.”

According to Celsius Network, the move was necessary in order to “stabilise liquidity and operations while we take steps to preserve and protect assets”.

Since Celsius Network is not a licensed financial institution, customers are not privy to any insurance protections under the US Federal Deposit Insurance Corporation (FDIC), Securities Investor Protection Corporation (SIPC), or any other government or private institution. UK customers cannot take advantage of the Financial Services Compensation Scheme.

Freezing accounts is permitted under Celsius’s terms of use, on the caveat that “if your Celsius account has a balance when we close it, we will repay and return the remaining digital assets to you”.

At the time of writing, it is unclear when and if Celsius will unfreeze customer accounts. According to the popular YouTuber Coffeezilla, blockchain data shows that Celsius has received tens of millions in loans from numerous exchanges including FTX and Bitfiniex.

Celsius may have been in choppy financial waters for months. As reported in Currency.com, Celsius tried to sell an undisclosed number of securities in April 2022, a sale which failed to eventuate. Additionally, the company received a cease and desist order from the Texas State Securities board after failing to register its crypto offering with the US Securities Exchange Commission.

Its DeFi competitor Nexo announced on 13 June that an offer to purchase Celsius’s collateralised loan portfolio had been rejected.

As of 22 June 2022, Celsius has yet to communicate what its near-term plans might be. Currency.com has approached the company for a comment on the situation. 


In the meantime, you might be wondering, what is Celsius Network and the CEL token, and what is Celsius Network used for?

If so, then read on for our full Celsius Network review below.

What is Celsius Network (CEL)?

Earn high. Borrow low. Change the world. Get Celsius. Unbank yourself. These encompass Celsius’s mission statements. If the process of lending, borrowing and holding money on Celsius sounds like how a bank works, you would be… wrong. At least according to chief executive officer Alex Mashinsky.

Mashinsky’s apparent disdain for the traditional banking system is evident in the interviews he gives. In a November 2021 Web Summit interview, his antagonism towards the likes of Barclays and JPMorgan was on full display. “What if these people are not acting in our best interests?” Mashinsky pondered. “What if their interests are the exact opposite of ours?”

Mashinsky’s contention is that the banks’ high borrowing rates and paltry lending rates are unfair. Few would disagree. So Celsius Network was built with a promise to right the banks’ wrongs. Users were drawn to Celsius’s attractive interest rates of up to 9.32% APY on certain assets, while cited borrowing rates go as low as 0.1% APR.

In comparison, Barclays’ representative APR is 7.9% and goes as high as 26.9%. Customers took note of these healthy Celsius Network interest rates and as of 14 June, Celsius held close to $3.4bn in assets on its accounts. During the December 2021 bull run, that figure went as high as $24bn.

Celsius accepts a large range of cryptocurrencies as collateral. Borrowers can choose from a range of stablecoins: USDC, USDT, TUSD, MCDAI, GUSD, PAX and the US dollar. Mashinsky has gone on record to state that over $1bn in yield has been paid out to customers. Celsius Network does not charge fees for any of its services.

Screenshot of the supported cryptocurrencies on Celsius Network – Source: celsius.network
Most major tokens can be used as collateral on Celsius Network – Source: celsius.network


But, as stated above, things turned sour on 13 June, when Celsius was unable to honour its withdrawals, citing extreme market conditions.

Although market conditions are indeed extremely volatile right now, another viewpoint is worth taking into consideration: was Celsius writing cheques it couldn’t cash? Were the yields simply too large to be sustainable? Money needs to come from somewhere, and it is possible that the lending fees being generated were unable to support the bloated APYs.

Apart from the lending and borrowing options, Celsius also provides an in-app platform for buying and selling cryptocurrencies.

CEL Token utility

The CEL cryptocurrency works as a type of rewards system. Holders receive certain discounts depending on the amount being held. Up to 30% in bonuses can be earned for holders of more than 25,000 CEL coins, while loan interest discounts go as high as 25%.

List of rewards for holding CEL token
Rewards increase with your CEL balance – Source: celsius.network

CEL is used by institutional traders such as hedge funds as a token to pay fees and commissions. It is from these fees that rewards and reductions are paid.

The value of CEL is contingent on continued buying pressure from institutional investors, a fact which has harmed the token’s value in 2022.

CEL tokenomics

CEL was first released via an initial coin offering (ICO) during a 10% crowdsale in March 2018, while a further 40% was sold during a pre-sale phase. Team tokens comprising 19% and 27% were sent to the treasury. The remaining 4% was gifted to partners and advisers.

Pie chart of CEL token distribution – Source: celsius.network
Team tokens were subject to vesting periods – Source: celsius.network


So far in 2022, the CEL token has lost nearly 80% of its value, having opened the year at $4.37.

As of 22 June, the CEL token price was $0.949. Despite having a $1bn-plus market capitalisation going into 2022, that figure has fallen to just $227m. Circulating supply is just above 238 million, against a maximum supply of 695 million.

CEL token is available to buy on a range of major centralised exchanges, including FTX, Gate.io and Huobi Global. The Uniswap decentralised exchange is also a popular platform for buying and selling CEL.

What will happen next?

Celsius has “the aim of legally replacing Wall Street with blockchain”. That ambitious target may need to be put on ice for now, as the company struggles with its severe lack of liquidity.

Customers and investors await further news on how Mashinsky plans to steer Celsius out of its apparent spiral into bankruptcy, and stakeholders are advised to keep an eye on all social media channels and official blogs.

Currency.com will be sure to keep you updated on all things Celsius in the months ahead.

FAQs

On 13 June, Celsius froze all withdrawals and transfers on its platform, citing extreme market conditions. Celsius is not subject to financial regulations of compensation schemes, although the company does say that $750m is held in an insurance fund with GK8.

As with any unregulated cryptocurrency platform, your assets are at risk.

Celsius Network is based in New Jersey, in Lithuania and in the United Kingdom.

Be sure to read our comprehensive guide, which explains how Celsius Network’s core features work.

For a full rundown on how Celsius Network operates, make sure to check out our comprehensive guide.

Lenders on Celsius Network earn yields from APR generated by borrowers on the platform. Institutional investors also pay fees in the CEL cryptocurrency, theoretically sustaining the value of the token.

As of 22 June 2022, CEL was nearly 80% down from its 1 January trading price.

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
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