>>> Celsius' move to halt crypto withdrawals catches Washington's eye
Yahoo Finance
by Jennifer Schonberger
June 14, 2022
Crypto lender Celsius Network’s decision to pause all withdrawals and transfers for customers as cryptocurrencies plunge is catching the attention of the administration and lawmakers.
The thinking within the Biden administration is that regulations that were proposed to regulate stablecoins by the President Working Group’s report could extend to the entire crypto space to avoid runs and platforms shutting down as in the case of Celsius.
“Recent events, Celsius and USTerra, only reinforce the need for a regulatory framework for digital assets. These events bolster the case for action and the need to mitigate the risks of these assets,” according to an administration official.
Celsius Network stopped all customers’ redemptions and transfers between accounts in the wake of “extreme market conditions” Sunday night as crypto assets plummeted in value, causing some to question the platform’s solvency. Celsius Network’s CEL token has plummeted more than 50%.
Digital currency is used for verified transactions while maintaining a digital record in a decentralized system using cryptography, rather than by a centralized authority.
Kavita Gupta, founder of early stage blockchain fund Delta BC Fund said Celsius is a classic example of lacking liquidity.
“It’s a liquidity issue,” Gupta told Yahoo Finance Live. People who invested in Celsius expecting 16% to 18% returns, Celsius was always vocal it was taking that money as a hedge fund to manage in other assets," Gupta said. "When there was a big withdrawal and everyone tried to get their [crypto] out it was like a classic banking problem. It’s just more people trying to take money out than they have liquidity for.”
The PWG report said stablecoin issuers should have adequate reserves to make sure they can make good on redemptions. The thinking is the same principle should extend to exchanges where there should be adequate reserves held by platforms so that when people want their money back they can get it easily and runs are avoided.
To help ensure against runs, the PWG’s proposals for stablecoins could extend to digital asset exchanges. Like with stablecoin issuers, customer assets should be separated from trading platforms; digital wallets held on exchanges should be subject to federal regulatory oversight; exchanges should be restricted from lending customers’ digital assets out; and they should also comply with liquidity and capital requirements.
The Securities & Exchange Commission did not immediately respond to Yahoo Finance for comment. SEC Chair Gensler has repeatedly encouraged exchanges to register with the agency, threatening enforcement action if not.
Meanwhile, Sen. Kirstin Gillibrand’s (D, NY) office said the senator’s bill jointly introduced with Sen. Cynthia Lummis (R, WY) to regulate crypto would help prevent the current upheaval in crypto markets by bringing crypto exchanges under the purview of the Commodities Futures Trading Commission.
That would require exchanges to hold significantly higher capital — $20 million of net adjusted capital — to back their trading activities. The bill would guarantee that if an exchange or lender suffered financial difficulty, customers would be assured they would get their assets back.
The bill also requires a 100% reserve, asset type, and detailed disclosure requirements for all stablecoin issuers to guarantee that stablecoin holders can redeem the stablecoin in exchange for the equivalent dollar value at any time.
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