Over the past few years, several companies have attempted to act as the cryptocurrency equivalent of a bank, promising lucrative returns to customers who deposited their bitcoin or other digital assets. In a span of less than 12 months, nearly all of the biggest of those companies have failed spectacularly.
Over the past few years, several companies have attempted to act as the cryptocurrency equivalent of a bank, promising lucrative returns to customers who deposited their bitcoin or other digital assets.
Further, government regulators started clamping down on crypto lending companies' ability to advertise their services, saying that their products should have been regulated by securities regulators. The biggest drawback to crypto lending is the lack of safeguards. There is no deposit insurance, government stopgap, or even a privately run entity to protect depositors if their crypto bank were to fail. This was fine when crypto prices were moving higher because the collateral banks were accepting in exchange for the loans was increasing in value.
The first two crypto lending firms to collapse were Celsius and Voyager Digital. The companies had been exposed to both falling crypto prices as well as risky loans made to crypto hedge funds like Three Arrows Capital, which was forced to liquidate and go out of business in June.
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