DeFi platform’s issues rock crypto market, underscores need for scrutiny

By George Prior

Investors of DeFi (decentralized finance) need to exercise “caution and scrutiny” amid growing concerns about the liquidity of this certain type of cryptocurrency service, warns the CEO of a global financial giant.

The warning from Nigel Green, the chief executive of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations, comes as the Celsius Network, a DeFi platform and one of the largest crypto lenders, announced on Sunday night that it was “pausing all withdrawals, Swap, and transfers between accounts” for its 1.7 million clients.

An email to all customers reads: “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.”

Celsius operates in much the same way as a bank, but rather than in fiat money it does so in cryptocurrency. It collects deposits and then loans them out.

The deVere CEO says: “The wider crypto ecosystem has been rocked again – not by ‘real’ cryptocurrencies like Bitcoin, but by DeFi.

“There are legitimate and serious concerns about networks’ high yields, links to failed dollar-pegged stablecoin Terra, and reserves.

“The unprecedented move by Celsius is effectively blocking clients from accessing their assets which will do little to quell fears from critics that some DeFi platforms could be Ponzi schemes.”

He continues: “I would urge people to exercise caution and scrutiny on crypto lending firms which offer clients lucrative double-digit yields on assets like Bitcoin and Ethereum.

“If it sounds too good to be true, it probably is.”

In its note to its customers, Celsius said its “ultimate objective is stabilizing liquidity.” It did not give a date for when customers might expect to be able to withdraw again, warning that “this process will take time, and there may be delays.”

The DeFi lending giant Celsius halting withdrawals has weighed on the broader crypto sector with Bitcoin, the world’s largest digital token plunging to the lowest in 18 months in Asia trading on Monday.

“The current issues facing Celsius will, inevitably, be used by crypto cynics to knock digital currencies, says Nigel Green.

“The cryptocurrency critics will jump on this situation, as they always do when there is a chance to attack.

“However, I would argue many of the traditionalists are the same people who would have probably rebuffed the internet back in the 1990s and e-commerce giants such as Amazon as mere hype in the 2000s.”

He concludes: “As ever, you need to ask questions about high yield promises of DeFi lenders.

“But this issue will not prevent savvy investors from directly and securely investing into mainstream cryptocurrencies, like Bitcoin.

“They will appreciate the intrinsic value of digital, borderless, global currencies, which have already changed the way the world handles money, does business, makes transactions and manages assets.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.