Since last month we are seeing many exchanges and platforms locking the user's nest eggs into their system. They are limiting the feature of withdrawal by giving them the excuse of the chain issues or some privacy issues or bugs.
Almost every company or exchange or the high yield system which locks the users in the withdrawal limit eventually closes the shop or punishes the customers somehow.
So what makes such a system not so trustable? What are the signs of such systems being bad?
Cycler System
Such companies buy the crypto tokens in bulk; they offer you some returns for your investment. You put in the tokens and get their collateral token interest in return.
Here you add the money into a cycler. Someone else withdraws once the money comes into the system. Then another one joins and adds the funds that previous folks in the system get paid. This works as long as people continue to get funds into the cycler.
This also keeps going as long as you add funds into the system. The system suddenly starts falling when you try to take the funds out during the market downtime.
Minimal Withdrawal
Most systems like Celsius, Nexo, and others usually have minimal withdrawal to limit you from withdrawing. In reality, crypto has no minimum or maximum unless you are on-chain like Ethereum, where fees eat your money.
When the sites limit you with a specific amount, remember they are limiting you based on the amount in their system. Also, they do not want to be subject to transaction fees, so they set the minimum withdrawal value.
This also means that during the market downtime, they find the low transaction fees and a lot of lower values on the expense side. However, they want to keep people accumulating the funds instead of selling while draining them.
No Swap
If you check various decentralized or related swap sites out there, you may notice that they limit the system's sell and swap features. Instead, they only allow you to buy in the times of the market down.
This means that now that the market is down, I cannot swap some of the coins like Bitcoin cash, etc. Where may you be thinking, despite the low price for the coins, why they do not like us to swap the coins on the swap bridges? Because they would let the market collapse later if this is what they do now.
So from the point of control of the consumer funds, they are trying to lock all of your funds, and they do not want you out of the system. You have to understand they gain by locking you into the system for their collateral token.
What do you think?
I feel that many high-yield companies and the exchanges locking people in withdrawal and selling the collateral token are manipulating the crypto too. In the long term, it may not be a good thing for the system.
What do you think? Do you see this from your observation?