On Sunday, crypto lending and trading platform Celsius said it was “pausing all withdrawals, Swap, and transfers between accounts” — blocking people from taking their money out.

What happens next could decide the fate of ~$12B in customer funds…

Fall from grace: Celsius is a prominent crypto platform with over 1.7M users, according to their website. They were last valued at $3.25B in October after a major funding round with investors like Canada’s second-largest pension fund, CDPQ. But it’s only been downhill since…

• Assets held on Celsius declined by nearly 50%, from $24B to $12B since late December 2021. Its tokenCEL
  lost 90% of its value.
• Now, ~$12B in customer assets are locked, and it’s uncertain what will happen with their money.

How did this happen? Celsius takes its customer’s deposits and invests the funds to help users earn yield — as much as 18.63% currently advertised. With the crypto market’s crash, Celsius may not have enough funds to meet customer withdrawals.

• According to famous crypto veteran Cobie, Celsius “put too much of customer funds into illiquid/locked places.”
• Reports show that Celsius had exposure to Terra Luna’s collapse, but it’s uncertain how much risk Celsius took with their customer’s funds.

Per Cobie, “maybe they can wait it out and pay users back… But if they lost everything then gg I guess”.

Not your tokens: Last month, a filing by Coinbase suggested that if they were to go bankrupt, customers could lose their assets on Coinbase’s platform. You’ll see similar line items  in Celsius’ terms of use:

• “In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable.”

“Not your keys, not your tokens” is a popular saying in crypto. The phrase suggests you only own your crypto tokens if you keep them in a crypto wallet that you control.

If you hold crypto in a wallet controlled by a third-party (i.e., Celsius or Coinbase), they have the power to keep them.