Celsius Faces a Revolt as a High-Yield Crypto Plummets

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Tensions are boiling over at the giant crypto lending platform Celsius Network. Some customers say they were unfairly wiped out in the recent crash and its chief executive says unknown malefactors are trying to bring down his company.

While it is little known outside crypto circles, Hoboken, N.J.-based Celsius Network LLC is one of the largest crypto-lending firms in the world, with more than $11 billion worth of assets, according to the company. It is part of a fast-growing ecosystem of firms that take cryptocurrency deposits and pay investors extremely high yields. Celsius also lets investors take out loans at low rates, with crypto as collateral.

The firms have lately come under pressure on two fronts. Regulators claim they operate outside the law. And the crash of

Bitcoin
and other cryptocurrencies has erased hundreds of billions of dollars in market value, in some cases leading panicked customers to withdraw their funds.

Celsius has issued its own token, called CEL, which some customers can use on the platform, but it has plummeted more than 60% in the past month. In a Twitter Spaces event on Tuesday evening, some users said Celsius liquidated their holdings as CEL dropped and questioned CEO Alex Mashinsky about what the company was doing to support investors.

It isn’t unusual for a broker to sell a client’s holdings if the investor has used their securities as collateral for loans and if the value of those holdings falls dramatically. In Celsius’s case, the platform asked some borrowers who had posted CEL tokens as collateral for loans for additional funds, selling the holdings if the investors failed to come up with additional money in time.

Investors complain that although Celsius has encouraged them to use the token, trading was illiquid as the price fell, worsening their losses, and that the company failed to support the currency.

Mashinsky said the broad crypto crash affected the token but also said without offering evidence that someone targeted the company. “This is not a coincidence. This is somebody who decided, ‘You know what? I’m going to take down all of Celsius,’” he said, later adding that he was too busy to investigate the trading activity himself.

He sparred with users who threatened to leave the company and said he had lost hundreds of millions of dollars in the collapse himself. He said the company would investigate complaints and reverse transactions if warranted.

“If you don’t think I’m sincere, if you don’t think that I’m working harder than all of you, seven days a week, then leave,” said Mashinsky, citing several products and features the company had rolled out this year. The firm says it had $11.8 billion worth of assets as of Tuesday, down from $16.9 billion on May 6.

“Market conditions over the past several weeks have brought uncertainty across the industry, and on a global basis, digital assets have not been spared,” a Celsius spokeswoman said in an email. “Celsius’ commitment to our community remains as strong as ever.” She didn’t comment on Mashinsky’s allegation that the company had been targeted.

The market crash is just the latest problem for crypto lending firms. In the past year, U.S. regulators have targeted Celsius and other such companies, arguing that they aren’t giving investors enough disclosures about what could cause them to lose their deposits.

In September, regulators in states including Texas and New Jersey brought actions against Celsius, accusing it of selling unregistered securities. Celsius is challenging those actions, but in April said it would limit U.S. investors’ access to its accounts.

In February, BlockFi, a Celsius competitor, agreed to pay $100 million to the Securities and Exchange Commission and states and to prevent new retail investors from accessing its products while it pursued registrations.

On Celsius, investors can earn yields of as much as 18.6%, depending on the token. On Wednesday, the company advertised yields of 7.1% on deposits of several “stablecoins,” whose value is pegged to a dollar, and of 6.5% on Bitcoin deposits.

Celsius and firms like it say they are able to pay so much by lending out customers’ tokens to other investors at even higher rates. Celsius officials have said it sometimes invests funds in “decentralized finance” protocols. Those channels often pay exorbitant interest, but some have blown up due to market forces or because they were exploited by hackers.

Celsius also has a Bitcoin mining subsidiary. It said on Monday that it filed confidentially with the SEC to take it public.

At Celsius, investors can choose to earn their yield in the form of the crypto they deposit, but the highest yields go to those willing to take interest in the form of CEL, the company’s own token. Celsius issued the token in 2018, raising $50 million to fund its early operations. Now, its customers get bonus yields for taking payments in CEL or can get a discount on loans by paying with CEL. U.S. customers are excluded from earning interest in CEL.

Investors who have taken those bonuses appear to have cause to regret it. In the past month, CEL’s value has fallen 62% to $0.78, according to CoinMarketCap.com. It is down 90% from its peak last June.

Write to Joe Light at joe.light@barrons.com