The despair of those who believe in 'crypto banks'

 One Sunday evening in June, Lucas Holcomb hastily woke his pregnant wife: "Honey, we just lost $100,000."

olcomb, 34, an American, deposited all his savings into Celsius Network - a platform that allows users to deposit cryptocurrencies and earn interest like a traditional bank, but with interest rates up to 18-20% per year. Celsius is a big name in the cryptocurrency space, so he believes there won't be any big problems.

But Holcomb was wrong. Last month, when the cryptocurrency market was reeling, Celsius suddenly announced the freezing of all accounts on the platform. Users, including Holcomb, cannot withdraw or do anything with their funds. His savings were "locked up".

By the beginning of this month, Celsius filed for bankruptcy, which means billions of dollars of people who have put their trust in the "no date" platform. They also learned the lesson that is common when participating in the financial markets: high returns come with great risks. For the crypto sector, the risk is even higher, even being likened to a casino because of the lack of regulatory and legal oversight.

Before the crash, Celsius was one of the world's largest and most influential crypto lenders and borrowers. Like banks, these emerging platforms take deposits and give customers monthly interest, mostly in stablecoins like USDT or USDC. For example, Celsius supports users to deposit USDC with 7% interest rate and can withdraw at any time to convert into USD.

In the bankruptcy filing, Alex Mashinsky, the founder of Celsius, said the company owes users a total of $4.7 billion. He admitted the inability to return the money to those who had trusted the platform.

Holcomb expects to earn $7,000 per year from a $100,000 worth of stablecoins deposited in Celsius. But when he talked about the account being frozen, the wife exclaimed: "Are you joking?".

Holcomb stayed up all night, trying to withdraw money from Celsius but in vain. The next day, the 34-year-old turned to prayer. Then he had to accept the loss of money. "My family is not starving, but how can we be happy when we lose up to 100,000 USD," he pensively.

Jack Wang. Photo: WSJ
Jack Wang. Photo: WSJ

Jack Wang, 32, also lost more than half of his savings, but did not disclose the specific number, when entering the cryptocurrency market in 2018. At that time, he vowed never to touch the volatile currency. this again.

But then the pandemic hit and Wang couldn't leave the house. He was fired by the company, and his father and brother died one by one. At the end of 2020, when the price of cryptocurrencies skyrocketed, Wang decided to jump into the market again, but only investing in stablecoins. Stablecoins are digital currencies that are developed on the blockchain and have stable value by "imitating" the value of fiat currencies such as USD or Euro.

Wang transferred 250,000 USD and exchanged it to TerraUSD (UST) which is backed by Terraform Labs, then deposited into the Anchor Protocol platform to receive up to 20% interest. He also invested in an insurance fund related to the token.

In early May, when the lost UST was de-peg, i.e. it slipped from its peg to the dollar and then lost most of its value, Wang's money also evaporated. At that time, his entire $500,000 fortune was only a few dollars.

Although quite shocked, Wang tried to calm himself. He went to Reddit to share stories with other investors who even contemplated suicide because of losing all their assets. In early July, he booked a plane ticket to Carolina to rest and forget about the incident that had just happened.

Dave Jachelski, 33 years old, is also a victim of a "crypto bank". Referred to by a friend to the brokerage and lending company Voyager Digital, he also spent $6,600 on it to receive 10% interest. Not only that, he also called thousands of people to attend. For each referral, he receives at least 25 USD.

Voyager Digital is a company closely associated with Celsius. Therefore, when Celsius froze withdrawals, Voyager Digital was also affected quickly. But then CEO Stephen Ehrlich tried to reassure by stressing that "we are as safe as a bank". On July 1, Voyager blocked the withdrawal, then filed for bankruptcy.

To date, Voyager has yet to refund customers, but promises that users will get their investment back when "the adjustment and fraud prevention process is complete." Meanwhile, Jachelski hopes to get his money back, which is now worth about $4,000.

"I've never received a message from a traditional bank like 'Sorry, we don't allow you to withdraw'. But now I experience that feeling with a so-called 'crypto bank'. Sometimes, things come in unexpected ways," Jachelski said.

According to Brett Harrison, President of crypto exchange FTX, the crisis will continue to spread in the near future due to a wave of fear from investors because "no one wants to be the last victim".

“Overall, the crypto market is starting to face a large-scale credit crunch,” Lucas Outumuro, head of research at Into The Block, told Fortune. "Companies thrived when the market was up, but exposed the downside immediately and were knocked down when the hard times hit. That's a lesson to be learned, and indeed is.

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