The encyclopedia · Trading & Investing · Financial decision · 2022
Celsius promised 18% yields on crypto deposits — and it was a $12B house of cards
Celsius offered 18% yields on crypto deposits by lending to risky borrowers. When the market fell in 2022, Celsius froze withdrawals and filed for bankruptcy.
Celsius Network · 2022-07
What happened
Celsius Network, founded by Alex Mashinsky, was a crypto lending platform that offered customers yields of up to 18% on their crypto deposits. The platform attracted over $12 billion in deposits by promising returns far above traditional savings rates.
Celsius generated these yields by lending customer deposits to risky borrowers, including Three Arrows Capital, and by making speculative investments in its own token (CEL). The platform's risk management was inadequate, and its disclosures to customers about how their funds were used were misleading.
When the crypto market collapsed in mid-2022 (triggered by the Terra/LUNA crash and the 3AC default), Celsius could not meet withdrawal requests. On June 12, 2022, Celsius froze all withdrawals. The company filed for Chapter 11 bankruptcy in July 2022. Mashinsky was arrested and charged with fraud. The case illustrated how a crypto lending platform that promises unsustainable yields is not a bank — it is a bet that the market never falls.
Why it happened
- Celsius promised 18% yields by lending customer deposits to risky borrowers and speculating on its own token.
- Risk management was inadequate; disclosures to customers were misleading.
- The crypto market collapse (Terra, 3AC) made Celsius insolvent.
- Celsius froze withdrawals and filed for bankruptcy; Mashinsky was charged with fraud.
The lesson
A platform promising 18% yields is not a bank — it's a bet the market never falls. Celsius's yields were funded by risky lending. When the market fell, the yields became losses.
Aftermath
Celsius filed for bankruptcy. Mashinsky was arrested and charged with fraud. The case prompted regulatory scrutiny of crypto lending platforms and influenced the SEC's approach to crypto securities regulation.
Sources
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