What is Celsius?

[Brendan Burgess]

I am trying to get my head around the role of this company?

Did people lend them their Bitcoin and get 17% interest?

And they didn't think that was too good to be true?

What did Celsius do with the coins they borrowed?

Brendan

 

[Brendan Burgess]

I hadn't realised that it had caused other companies to freeze withdrawals as well

Celsius is hurting the broader crypto market​

Celsius’s decision is rippling throughout the ailing crypto market. On June 13, the crypto exchange Binance halted bitcoin withdrawals on the heels of the Celsius news, and the prices of Bitcoin and Ether fell 11% and 13% respectively in the past day amid an industry-wide sell-off.

 

[tecate]

Ground covered before. Celsius is a centralised lending platform in the crypto space. That this could happen has long since been flagged within crypto. If people decide that the risk is worthwhile, that's their own free choice. Caitlin Long has been out in front of this since a couple of years already - stating repeatedly that it was a car crash waiting to happen.

https://twitter.com/x/status/1519823126153994240

I hadn't realised that it had caused other companies to freeze withdrawals as well

Not caused in the way that you're thinking or the way that the FT puts it. Binance suspended bitcoin withdrawals for 3.5 hours due to a technical issue relative to the confirmation of lower cost transactions on the bitcoin network. During that 3.5 hours other networks ( Ethereum or Binance's BNB blockchain) could have been used to withdraw the equivalent value of Bitcoin held on the platform if needed.

 

[Duke of Marmalade]

What a load of nonsense she talks. Bitcoin is an 1.8% inflationary asset, she hasn’t a clue. The price of latte in bitcoin has increased 300% in 10 months and that’s about the only commodity that trades in bitcoin.

 

[tecate]

What a load of nonsense she talks. Bitcoin is an 1.8% inflationary asset, she hasn’t a clue. The price of latte in bitcoin has increased 300% in 10 months and that’s about the only commodity that trades in bitcoin.

Not going to bother - I've seen this nonsense from you before Duke. You know well that she's talking about the inbuilt monetary policy of Bitcoin that right now leaves it with an inflation rate of 1.8%.
You can have at it and go off and talk about something entirely different - with the cherry picked timeframes (I see that 10 months is the metric on this occasion :-D ) That's an entirely different conversation. As regards Long's statement, she's 100% accurate.

 

[DazedInPontoon]

Did people lend them their Bitcoin and get 17% interest?

And they didn't think that was too good to be true?

yup, and they've not been the only place offering rates that seemed too good to be true. Look at blockfi.com for example, from right on their homepage:
"Your crypto can earn up to 15% APY with a BlockFi Interest Account (BIA). Interest accrues daily and is paid monthly. "

What did Celsius do with the coins they borrowed?

Not sure, but at least some of them are loaning it out.

Good post by Tecate above and like him I gave stuff like this a wide berth - not your keys not your coins. Once again the bear market will cleanse the ecosystem.

Agree that the 1.8% must refer to the rate at which bitcoin circulating supply is increasing, it's actually been 1.77% over the past year to date if we want to be precise

 

[Brendan Burgess]

You know well that she's talking about the inbuilt monetary policy of Bitcoin that right now leaves it with an inflation rate of 1.8%.

tecate - that doesn't make any sense?

She, and you, seem to be confused about what inflation is. Or else, you are redefining it.

What Is Inflation?

Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.

www.investopedia.com

Inflation is the decline of purchasing power of a given currency over time

She seems to think it's the increase in the supply of a currency?

The purchasing power of Bitcoin has been very volatile.

You can buy less with Bitcoin today than you could have a year ago. But you can buy more with it than you could have 3 years ago.

So deflation followed by inflation.

Brendan

 

[Brendan Burgess]

Back to my original question.

What is Celsius?

I gather that people lend Celsius their Bitcoins and other cryptos.

What does Celsius do with them?

Brendan

 

[tecate]

@Brendan Burgess : It's entirely clear what Caitlin Long was referring to - as DiP outlined in his post, she was referring to the inflation rate relative to the circulatory supply of bitcoin - in that context exclusively. To talk about it in another context is a different discussion entirely - and one that has been had countless times. I know that you're not a fan of discussions being repeated or going off topic so I'm sure you'll welcome discussion along the lines of what she was actually referring to ( it being central to the whole Celsius debacle).

And if we actually consider what she said without looking for the slightest, remote, embittered manner to declare her as clueless, she makes a very relevant point as it applies to the argument that there's no need to go looking for a yield on top of Bitcoin.

What is Celsius?

I thought I had answered that. Celsius is a centralised lending platform in the cryptocurrency space.

What does Celsius do with them?

One of two things: It uses those deposits to finance collateralised loans. It also shuffles its way far out the risk curve into risky lending and staking protocols and money markets in DeFi (or crypto assets or derivatives that proved risky due to a lack of liquidity). It was one of seven account holders that are blamed for starting the run on the Terra stablecoin a couple of weeks back.
Many have expressed the view that the choices the entity made in terms of investing depositors' funds were amateur and that with the right team, this need not happen. However, this outcome was always going to be a possibility and if it wasn't Celsius, it would have been one of the others ( BlockFi, Abra, Nexo, etc.).
It's not a great outcome to have depositors burnt in this way but in no way would it be reasonable for them to claim that they were not aware of the risks. For anyone who has spent more than 2 minutes in the space, it has been flagged by all and sundry as a risk. In the short term, it's painful for them and for the space as a whole. In the longer term, it may serve to dampen down the casino aspect of DeFi. As for Bitcoin, exactly because of the rationale that Long sets out, it will only serve to strengthen it at the cost of some of these casino coins and protocols developed to provide unsustainable yields.

 

[ClubMan]

One of two things: It uses those deposits to finance collateralised loans. It also shuffles its way far out the risk curve into risky lending and staking protocols and money markets in DeFi (or crypto assets or derivatives that proved risky due to a lack of liquidity).

Can you, or anybody else, explain that in plain English please?

 

[tecate]

Can you, or anybody else, explain that in plain English please?

I'll give it a go. (And you did ask - so you can only blame yourself! ).

Collateralised loans: As well as offering yield on deposits, Celsius clients can avail of collateralised loans. Someone may have a holding of Bitcoin or Ethereum (or other digital asset). They may not want to sell it but at the same time, they may want to borrow another asset - lets say a USD stablecoin - for a time, on the back of that collateral.

DeFi: When I have referred to DeFi in this thread, I'm referring to the emergence of a whole host of decentralized money markets and protocols that have developed largely around Ethereum rather than Bitcoin.

Staking: On certain blockchains, coins are 'staked' as part of the governance model and security model for the blockchain. Through staking, a holder of a cryptocurrency commits their tokens to support the network and confirm/validate transactions. The tokenomics of the cryptocurrency have been designed so that they get a yield or reward for doing so.

So I referred to Celsius investing in a staking protocol. On the Ethereum blockchain, the network is in transition as it goes about implementing major fundamental changes to the network. There are two networks running in effect. ETH is being 'staked' on the new network - and once staked, it cannot be accessed until this project is completed. So if you have staked Ethereum, then it's not a liquid asset right now. To offer a solution to this, a derivative product called staked eth ( stETH ) was created. In principal, 1x stETH = 1 x ETH. This is (supposedly) liquid and can be traded freely. Following the collapse of the UST stablecoin last month, many actors in the space reassessed what they were invested in - with renewed focus on the importance of trading digital assets that are liquid and can be bought and sold with ease. Consequently, liquidity in the pools or markets where stETH is traded dried up and stETH depegged from ETH. Celsius is a holder - on the basis that it collects or benefits from the yield that is currently offered on staked Ethereum. However, it now finds that its an outsized holder of this derivative in a market where liquidity has dried up.


There is a complex web of other markets and protocols but lets stop with the example above - as they don't get any easier to explain. Also, the example I've given is pertinent to the Celsius debacle as it's the company's stETH position that is central to its current difficulties (although it has others).

If there's anything that's not clear from the explanation above, let me know and I'll try and clarify it.

Celsius may have been insolvent for a while already or it may simply have boxed itself into illiquid positions with the result that it currently can't meet redemptions.

 

[Duke of Marmalade]

There is no doubt whatsoever what Caitlin was talking about. She said “inflation is the increase on the number of bitcoins available”. @DazedInPontoon says she “must” mean this, no “must” about it, she said so.
But she called this “inflation“ and unbelievably compared it to the 8-9% inflation we are currently seeing in fiat. Brendan has given the link to the Investopedia definition of “inflation“, but sure we all knew that anyway. So does Caitlin but still she spouts cultist nonsense as we witness what Professor Roubini has termed the crypto death spiral.

 

[Brendan Burgess]

Can you, or anybody else, explain that in plain English please?

Hi Clubman

This is what I think it means.

Celsius takes deposits in cryptocurrencies - it pays 17% interest.

It lends these to some customers - I can't figure out how much it charges. I saw very low APRs somewhere.

It also invests those cryptos in risky projects.

Now it's not in a position to refund the deposits.

Brendan

 

[Brendan Burgess]

Agree with Duke

She described the increase in bitcoins as "inflation". Sorry, but people can't just redefine commonly used words.

That could be put down to a slip of the tongue, if she had not gone on to compare it with actual inflation.

But by comparing the increase in the supply of Bitcoin to actual inflation, she shows she has no idea what she is talking about in this aspect of her talk. The rest may or may not make sense, I don't know.

But if someone shows that they don't understand the basics, then it's hard to place any credibility in them when they are talking about issues which I don't really understand myself.

Brendan

 

[Duke of Marmalade]

The supply of Bitcoin has increased 300% since 2010. Caitlin would have us compare that to the say 20% inflation of the dollar over that period.
In fact the price of 2 pizzas has fallen from 10,000 BTC to .002 BTC in that period; massive, massive deflation.

 

[Rasputin]

Celsius seems to be securities lending for crypto, increasing liquidity and facilitating short selling. If anyone was prepared to give me 17% for using my assets when I don't need them, the risks associated with that would be worth understanding fully, and it wouldn't take much to go wrong with the market for you to be scratching around wondering how you can get your assets back. Securities lending never made it's way down to the average punter and only ever effecting institutionals, hedge funds, etc The lack of regulation in this space is shocking, and one (of many) reasons to avoid it like the plague.

 

[Duke of Marmalade]

Not going to bother diving into things like "staking protocols". But my instinct tells me that Defi is like everything else in crypto space, 99% about speculation.
Conventional finance (CoFi) is about matching those what have the dosh with those that can put it to good use, a million miles away from DeFi, I suspect.

 

[Brendan Burgess]

The lack of regulation in this space is shocking

There is a lack of regulation, but why is it shocking?

Regulating something speculative like Bitcoin or a lender which pays 17% interest, gives it a credibility it does not deserve.

Those who will, inevitably, lose all their money, will claim that the regulators were asleep at the wheel, and demand to have their losses reimbursed by the taxpayer.

The only regulation they should have is that they should be required to post a prominent warning "This is a highly speculative gamble and is not regulated. You are likely to lose all of your money."

Brendan

 

[tecate]

There is no doubt whatsoever what Caitlin was talking about.

Agree with Duke

But if someone shows that they don't understand the basics, then it's hard to place any credibility in them when they are talking about issues which I don't really understand myself.

You can both scream blue bloody murder - I'm not having any of it. It's as plain as day that her comments were in the specific context of the circulatory supply of bitcoin - and how Bitcoin's monetary policy in that respect is coded in to the digital currency. As regards people here claiming 'she hasn't a clue', she spent 10 years heading up a division at Credit Suisse and another 10 as MD of Morgan Stanley's pensions business. Here's ETF and mutual fund manager, Van Eck using exactly the same terminology. link

Celsius seems to be securities lending for crypto, increasing liquidity and facilitating short selling. If anyone was prepared to give me 17% for using my assets when I don't need them, the risks associated with that would be worth understanding fully, and it wouldn't take much to go wrong with the market for you to be scratching around wondering how you can get your assets back. Securities lending never made it's way down to the average punter and only ever effecting institutionals, hedge funds, etc The lack of regulation in this space is shocking, and one (of many) reasons to avoid it like the plague.

Which is why it had been flagged from day one.

Not going to bother diving into things like "staking protocols". But my instinct tells me that Defi is like everything else in crypto space, 99% about speculation.
Conventional finance (CoFi) is about matching those what have the dosh with those that can put it to good use, a million miles away from DeFi, I suspect.

I believe that those Ethereum-centric DeFi projects have been a wild experiment that I was quite happy to watch from the sidelines. I think its been riddled with hacks, scams and inadequately designed protocols. However, I also think that over the longer stretch, incredible innovation will emerge from it. I suspect its the reason why someone of Stanley Druckenmiller's stature tells John Collison that the blockchain space is the one to watch if you were starting out in the investing/finance game today. (Druckenmiller: "I will be surprised if blockchain isn't a real force in our economy 5-10 years from now". . . " challenging our financial companies and doing a lot of disruption").

Regulating something speculative like Bitcoin or a lender which pays 17% interest, gives it a credibility it does not deserve.

The rules baked in to Bitcoin are clear for all to see and beyond reproach. Bitcoin as a protocol is not in any way responsible for third party services built in its vicinity.

Those who will, inevitably, lose all their money, will claim that the regulators were asleep at the wheel, and demand to have their losses reimbursed by the taxpayer.

The only regulation they should have is that they should be required to post a prominent warning "This is a highly speculative gamble and is not regulated. You are likely to lose all of your money."

There may well be some that take that approach but that's neither here nor there as far as I'm concerned. Reason being is that this was flagged by all and sundry over a number of years at every turn.

 

[DazedInPontoon]

To add to what tecate wrote, there's another important point to note. No one will be diluting my bitcoin holding, or taking any of it to cover any losses related to Celsius. The issue is between Celsius and their customers.

Of course, I'll also acknowledge that if Celsius are liquidating large volumes of BTC it may be having an effect on the short term *price* either directly via them selling or indirectly through it causing bad sentiment through the market as a whole. It's hard to isolate the impact of Celsius given we were already in a bear market anyway, and the crazy week it has been in the markets in general due to the macro situation. But historically such events as Celsius have tended to matter little in the long run for bitcoin.

Off topic for this thread, but to me the far more interesting conversation to be had is about the macro picture - rising rates during a time of record government debt. June US inflation coming in at a new high of 8.6% despite the rate hike already, and people leaving stocks and bitcoin for a dollar that's losing that much to inflation. How long will people be happy to sit out in dollars? are we facing stagflation? will the government pressure the Fed to ease off as election time approaches?