What makes you say that? They are shutting down in a responsible and orderly fashion, so I'm willing to take it at face value that they just aren't profitable anymore.
That's likely also the case, but I would at the very least expect a crypto exchange company to keep all their reserves in crypto, which has now completely plummeted in value. Localbitcoins are a bit different than the typical exchange so their exposure is likely less, but if you look at Binance or Robinhood they're all gambling with their backing money like a drunk at the horse races.
Yield farming client funds?
Nah they had very little of that actually available. They were not operating like a big crypto exchange.