Shock on June 12: Celsius freezes billions, $1.2B hole

Cryptocurrency lending platform Celsius Network sent shockwaves through the financial world on June 12, 2022. Abruptly, the platform halted all customer withdrawals, swaps, and transfers, effectively locking billions of dollars belonging to 1.7 million users globally. Just a month later, on July 13, the Hoboken, New Jersey-based company filed for Chapter 11 bankruptcy, revealing a $1.2 billion hole in its balance sheet. The sudden collapse stood in stark contrast to the revolutionary future founder Alex Mashinsky had promised, triggering a crisis that exposed the enormous risks lurking behind the facade of high returns in the unregulated part of the crypto world.

Mashinsky's bait: High rates and risky stETH model

Celsius Network, established in 2017 by the charismatic Israeli-American entrepreneur Alex Mashinsky, had rapidly gained popularity by offering unprecedentedly high interest rates – up to 19 percent – on crypto deposits. Mashinsky's promises of "financial freedom" and a break from traditional banks fostered a dedicated community, attracting over $12 billion in assets at its peak. However, beneath its successful surface, Celsius operated with a business model based on risky investments and loans, including significant holdings of illiquid derivatives like stETH, a staking token linked to Ethereum.

2022 Warnings: Pressure, stETH collapse, CEL plunge

The first warning signs appeared in the spring of 2022. In April, Celsius restricted access for certain US investors, a sign of growing regulatory pressure. Simultaneously, the company came under pressure as the value of stETH dropped significantly during the broader downturn in the crypto market, creating a severe liquidity problem. Celsius's own token, CEL, plummeted by 60 percent between May 7 and 13, sending further tremors through the system and amplifying concerns about the platform's solvency.

Panic spreads: Celsius halts, Bitcoin dives, accusations

Panic truly erupted at 01:42 EST on June 12, when Celsius announced via Twitter a total freeze on customer activities. The decision sent shockwaves through the market, and the price of Bitcoin fell below $20,000 for the first time since 2020. Internally, Celsius scrambled desperately to unwind its loss-making stETH positions, while accusations of mismanagement and market manipulation began to surface, including from Jason Stone, CEO of a former Celsius partner, KeyFi.

Bankruptcy abyss: $4.7 billion debt, Mashinsky accused

The bankruptcy filing on July 13, 2022, laid bare the full extent of the disaster. Beyond the gaping $1.2 billion hole in its accounts, it became clear that Celsius owed $4.7 billion to its users, who were now merely unsecured creditors with little prospect of recovering their funds. Alex Mashinsky resigned as CEO on September 27, but later court documents revealed he had personally withdrawn millions from the system and allegedly made $48 million by inflating the value of the CEL token before the collapse. This raised serious questions about potential fraud and corruption at the top of the company.

Human costs: Lost savings, crisis, data leak

The human cost of Celsius's downfall was enormous. Thousands of ordinary people lost their savings, investments for children's education, and pension funds. Court documents described the existential crisis many customers faced, with some individual investors losing up to $40 million, and reports of customers contemplating suicide as a result of their losses. The situation was exacerbated when a database tool inadvertently leaked the names and losses of all affected customers – a serious data breach – despite Celsius's attempts to keep this information confidential.

Aftermath: Restructuring to Mashinsky's trial legacy

Following a lengthy 18-month bankruptcy process, a court approved a restructuring plan in November 2023. The plan transformed the remnants of Celsius into Ionic Digital, a new bitcoin mining company operated by Hut 8. In February 2024, creditors received partial compensation totaling approximately $2.5 billion in crypto and fiat currency. Celsius's mobile and web apps – central parts of their internet-based platform – were permanently shut down on February 29, 2024, marking the final end for the platform.

While customers try to move on, Alex Mashinsky awaits trial on charges including securities fraud, a form of financial crime. This scandal remains a brutal reminder of the dangers of centralized crypto platforms operating without the investor protection and regulatory oversight found in traditional financial institutions. The case underscores the consequences when promises of high returns conceal unsustainable risks and potential fraud.

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