Crypto Lending World Sways Under Risk And Turmoil
Muhammad Irfan Published July 01, 2022 | 09:50 AM
New York, July 1 (UrduPoint / Pakistan Point News - 1st Jul, 2022 ) :Starting with the lofty goal of competing with traditional banks, cryptocurrency lending giants and their clients now face financial ruin due to their appetite for risk and a paucity of regulatory guardrails.
Celsius Network, which suspended withdrawals in mid-June, had advertised a seemingly difficult-to-reconcile mix of interest rates, charging just 0.1 percent for loans, but paying more than 18 percent on deposits.
Weeks later, savings accounts, that amounted to $11.8 billion in mid-May, remained frozen.
"Celsius is going bankrupt one way or another," said Omid Malekan, a professor at Columbia University. "Even if they recoup 98 cents on the Dollar for their depositors, no one would ever want to use it." Since then, other operators have faced a similar fate, from CoinFlex to Babel Finance, which also tried their hand at lending and had to freeze withdrawals, while Voyager Digital had to limit them.
These platforms allowed clients to deposit cryptocurrencies, and either receive interest or borrow digital money by using their savings as collateral.
"It's a real shame things got to this point," said one Celsius user contacted on the Reddit platform, who claimed to have over $350,000 tied up on with the lender.
"Clearly Celsius should have planned for this kind of scenario," the user added, speaking on condition of anonymity.
The devastating sequence started with the sharp decline of cryptocurrencies, including bitcoin which lost nearly 60 percent of its value in the past six months.
The plummeting value -- which dropped as global inflation accelerated and Russia-Ukraine conflict rattled the world economy -- led to a chain reaction and forced borrowers to provide new financial guarantees or immediately repay loans.
Some borrowers, such as the Singaporean investment firm Three Arrows Capital which is now in liquidation, could not provide the creditors enough cash to cover withdrawals and froze client accounts.
"The majority of these companies had provided uncollateralized or undercollateralized loans," said Antoni Trenchev, co-founder of Nexo, another crypto platform that he said avoided trouble by following a stricter lending policy and "prudent risk management."Unlike banks, these lenders were not required to hold cash in reserve against bad loans.
Recent Stories
Currency Rate In Pakistan - Dollar, Euro, Pound, Riyal Rates On 20 April 2024
Today Gold Rate in Pakistan 20 April 2024
Tennis: ATP Barcelona Open results - 1st update
Swiatek's perfect 10 in Stuttgart as Vondrousova stuns Sabalenka
Arandu's roads closed due to flooding
Oil tanker catches fire in Islamabad’s Blue Area
Pakistan committed to ensure safety of foreign nationals: FO
Tennis: WTA Stuttgart results - 1st update
Four passengers injured as train hit an empty vehicle
Over- speeding bus crushed to death two bike riders
Turkey's Freedom Flotilla ready to set sail for Gaza
French teen dies from heart failure after knife attack near school
More Stories From Miscellaneous
-
Transforming education sector: from job hunters to job creators
23 hours ago -
Amjad Bobby remembered on 19th death anniversary for timeless contributions to music
5 days ago -
Legendary actor Nadeem’s 26 films released on Eid-ul-Fitr days in 50 years
6 days ago -
Besant Hall Cultural Centre to celebrate evening with Sanam Marvi on 26 April
6 days ago -
Radio Bahawalpur presents program “Eidi Shidi”
9 days ago -
Radio Bahawalpur to broadcast Eid programs
11 days ago
-
DC, DPO Haripur inspect bus terminals to review fares compliance
13 days ago -
Second phase of refugees’ repatriation to start after Eidul Fitr vacations
13 days ago -
Reaping bounties as Ramazan culminates
13 days ago -
Digital transformation – a boon or bane
13 days ago -
Plants’ business: Another casualty of climate change
15 days ago -
Eid shoppers prioritize children’s joy over personal comforts
15 days ago