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The offer seemed too good to pass up: deposit your cryptocurrency and receive a return of up to 18 percent.

That was the promise of Celsius Network, an experimental cryptocurrency bank with more than a million customers that has emerged as a leader in the murky world of decentralized finance, or DeFi. Last year, DeFi became a $100 billion industry, attracting both venture capital firms and regular investors with the prospect of lightning-fast profits. Celsius was managing more than $20 billion in assets.

But on Sunday night, as crypto prices plunged, Celsius became the latest crypto firm to fall into crisis, announcing it would freeze withdrawals “due to extreme market conditions.”

The announcement caused the market to crash as Celsius customers wondered if they would be able to get their deposits back. Bitcoin is down 15 percent in the last 24 hours, falling to around $23,000, its lowest value since December 2020, according to CoinMarketCap, an industry price tracker. Ether, the second most valuable cryptocurrency, is down 16 percent.

The crash extends a dire period for cryptocurrencies, illustrating in graphic terms the risks of these experimental investments. Just a month ago, the implosion of a popular currency helped trigger a crypto crash that wiped out $300 billion in value from the entire market. Back-to-back crashes have fueled criticism that many of the complex crypto banking and lending projects known as DeFi are high-stakes schemes teetering on the brink of ruin.

“DeFi is a house of cards,” said Cory Klippsten, CEO of Swan Bitcoin, a Bitcoin-focused financial services firm. “It’s speculation on speculation, and there’s no real-world use case for any of this.”

DeFi exploded into the mainstream in 2021, when Bitcoin and Ether prices surged and cryptocurrencies became a cultural phenomenon. Many clients were attracted by the astronomical profit potential of complex crypto lending projects.

Celsius has become one of the most well-funded and popular investment options for DeFi speculators. Founded in 2017 by entrepreneurs Alex Mashinsky and Daniel Leon, Celsius accepts deposits of Bitcoin, Ether, and other cryptocurrencies and then invests them, generating returns that are returned to depositors.

Celsius says it has attracted 1.7 million customers. Last year, the company had more than $20 billion in assets, though that number has plunged in recent months as the market has slumped. In the fall, Celsius announced that it had raised $750 million from investors, giving it a valuation of more than $3 billion.

But the company also encountered its share of problems. For months, critics have wondered how it could sustain such dramatic returns without jeopardizing its depositors’ funds through risky investments. The company has come under scrutiny from various state regulators, and its chief financial officer was arrested in Israel as part of a fraud investigation unrelated to Celsius.

“For Celsius, like the rest of the cryptocurrency market, there is no regulatory oversight, no consumer protection, no net capital requirements,” said John Reed Stark, a former Securities and Exchange Commission official and vocal industry critic. “It’s not just the Wild West, it’s global financial anarchy.”

But Mashinsky rejected the criticism. On regular live streams, he aggressively marketed Celsius, talking about the huge returns. “It’s like going to the Olympics and getting 15 medals in 15 different fields,” he said in December.

As recently as this weekend, just one day before the company stopped withdrawals, he accused a critic of spreading misinformation about the company. “Do you know a single person who has trouble withdrawing from Celsius?” he wrote on Twitter.

In the end, a drop in cryptocurrency prices seemed to put the company under more pressure than it could bear. Prices fell late last week after a report showed rising inflation in the United States, rattling markets.

With Bitcoin and Ether prices already falling, Celsius announced on Sunday that it would freeze withdrawals. The company declined to comment. But it said in the statement on its website that it had activated a clause in its terms of use that allowed it to take that step.

“Our ultimate goal is to stabilize liquidity and restore withdrawals,” the statement said. “There is a lot of work ahead as we consider various options, this process will take time and there may be delays.”

In a Reddit forum for Celsius clients, investors lamented the potential loss of their savings; one user posted a link to a suicide hotline.

“This is basically like a bank run,” said Campbell Harvey, a Duke University professor and author of the book “DeFi and the Future of Finance.” “What I am seeing is what appears to be a risk management failure.”

Celsius is one of several DeFi startups coming under intense scrutiny as cryptocurrency prices fall.

The crash in May was accelerated by the collapse of TerraUSD, one of the so-called stablecoins with a fixed price pegged to the US dollar. The coin’s $1 peg was based on complex financial engineering that tied it to a sister cryptocurrency called Luna. When Luna’s price crashed in May, TerraUSD fell in tandem, a “death spiral” that destabilized the broader market.

TerraUSD became popular for the same reason as Celsius. It was marketed by an aggressive entrepreneur, Do Kwon, who offered a DeFi service called Anchor Protocol, in which customers could deposit TerraUSD and receive interest of up to 19.5 percent. Now TerraUSD is worth practically nothing.

Hilary Allen, a finance expert at American University, said the Terra and Celsius crises showed that the fate of cryptocurrency investments, long hailed as part of a decentralized market, actually hinges on the management choices of investors. individual founders.

“Investors relied on comforting tweets from founders like Terra’s Do Kwon and Celsius’s Mashinsky as things headed south,” Allen said, “but then found themselves stuck in increasingly unhelpful positions once the founders took the plunge.” decision to close.

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