Last weekend cyptocurrency-based financial institution Celsius Network paused withdrawals and swaps for users on their platform.
This decision came at a time when cryptocurrencies like Bitcoin and Ethereum continued trending downward from their yearly highs, matching the downward financial trends of the legacy institutions these currencies and networks are attempting to replace.
A new blog post written by the Celsius Network team to their community outlines their justification for preventing users from accessing their funds.
Acting in the interest of our community is our top priority. In service of that commitment and to adhere to our risk management framework, we have activated a clause in our Terms of Use that will allow for this process to take place. Celsius has valuable assets and we are working diligently to meet our obligations.
We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets. Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers.
The clause mentioned in the above statement is most likely from section 4A of their Terms of Use, which states that they may restrict services “due to applicable laws, regulations, and business considerations at [Celsius Network’s] full discretion.”
Interestingly, archived versions of this webpage show that this clause was not found in their terms of use as early as January 2022.
It would be more honest for the project to claim they “added” the clause instead of merely “activating” it. Here’s another clause that was “activated” recently and wasn’t previously contained in the Celsius Network’s terms:
Celsius may modify the Terms at any time and in its sole discretion by posting the revised Terms on the Celsius website. You shall be bound by such modifications effective immediately upon posting. It is your responsibility to review these Terms prior to each use of the Services.
Whether or not this is actually legally binding is up for debate, but it seems to be the justification for these actions.
The fact that Celsius Network paused withdrawals at all is troubling. It demonstrates that users have just as much power over their finances when using their services than when using traditional financial institutions.
Co-founder and CEO Alex Machinsky has said that “Banks are not your friends,” and that his project is supposed to replace that system by acting in users’ best interest. But when Celsius Network paused withdrawals and essentially held users’ money hostage to prevent a run on their network, they did a stellar job imitating the legacy institutions they’re claiming to disrupt.
Sadly, this story will add even more fuel to the fire for crypto skeptics and haters. By pulling a move straight out of the Ponzi handbook, this is more confirmation that web3 is full of hollow promises and outright grifters.
Perhaps this entire saga could have been avoided if Celsius Network used a decentralized model like popular DeFi projects AAVE and Maker instead of the CeFi model popularized by projects like BlockFi.
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