Brazillian Crypto Lending Platform Halts Withdrawals and Fires Employees
- Crypto lending firms have suffered considerable losses in recent months, leading some to file for bankruptcy.
- Regulators are concerned about the high risks involved in the crypto lending industry.
The Brazilian cryptocurrency lending site, BlueBenx, reportedly halted withdrawals on its platform, preventing all 22,000 of its customers from accessing their cash. The company said this move was triggered by a hack that stole $32 million.
The business offered no further details on the alleged hack, but reports confirmed that the lending firm fired most of its staff. BlueBenx’s lawyer, Assuramaya Kuthumi, confirmed that the platform suffered a hack and had to pause withdrawals. However, several investors were reportedly doubtful of the claim due to a lack of clarity on the situation.
According to local sources, one of the investors said,
I think there’s a high probability of it being a scam because this whole hacker attack story seems like a lot of bullshit, something they invented.
The Brazillian crypto platform now joins the growing list of cryptocurrency firms falling short of their lofty yield return promises during this bear market. BlueBenx offered users who invested in cryptocurrencies through several internal earning streams up to 66% returns.
BlueBenx’s move to halt withdrawals is similar to other lenders that halted withdrawals following an alleged hack. However, many times, these halts are often a cover for their failure to fulfill their returns. Crypto investors are moving to test lower-risk crypto yields as safer tactics due to the rising risks associated with high-yield services.
What is Crypto Lending?
Crypto lending accounts look like bank savings accounts but instead use cryptocurrencies as payment instead of fiat currency. Investors open an account with a lending platform and deposit cryptocurrencies such as Bitcoin or stablecoins. However, some people use less popular, more unstable cryptocurrencies. Usually, interest is paid on the accounts in the same crypto deposited.
The crypto lending industry is still in its infancy compared to traditional banking. However, some significant players previously revealed considerable profits in their short operation period. Bankrupt lender Celsius reportedly had almost $11.8 billion worth of deposits on May 17. BlockFi Inc., another strong competitor, recorded over $10 billion in deposits in mid-June. Gemini Trust Co. declared that it had $3 billion in August 2021 after it began offering accounts in February that year.
Some companies that provide the accounts claim they can lend deposits from customers to other institutional investors at even higher interest rates. However, some of these firms occasionally borrow cryptocurrency to carry out their transactions. Unfortunately, the crypto lending industry involves many risks, and some lenders have run into trouble in recent months. The likes of Celsius and Voyager experienced massive declines and eventual collapse of their operations.
Investors and regulators are concerned about the risks involved in crypto lending and believe many users are unaware that a bank savings account holds lesser risks than its crypto counterpart. For example, users risk losing their savings if a company goes out of business, gets hacked, or loses their money because the crypto accounts aren’t FDIC insured.
Regulators from several US states have accused some crypto lending firms of offering unregistered securities. In addition, the failures of firms like Celsius and Voyager have increased calls for crypto regulation.