If you have cash stowed away in a deposit account in Ireland you will be lucky if you are getting interest at a rate of 0.01% APY. Money held in a deposit account is constantly losing buying power due to rapid rises in inflation. Crypto platforms like Celsius who offer high yield when you deposit crypto (even stablecoins) have caught the eye of people that are worried about inflation eroding their buying power.
But are these yields on offer which can range from anywhere to 2 -18% too good to be true? In this blog post, we will give you a background on how this all works and take a look at what the potential risks are for customers.
What is Celsius?
NOTE ON 13/6/2022 CELSIUS PAUSED ALL CUSTOMER WITHDRAWALS
Celsius is basically an unregulated bank for cryptocurrencies. It works peer to peer, allowing Customers can lend and borrow crypto with ease (borrowing currently not available to Irish customers). The primary goal of Celsius is to help people unbank themselves and not have to rely on the traditional financial system. Celsius has a growing user base of 1.6m and customers deposited close to $19bn in assets on the platform.
Customers who deposit crypto to Celsius will receive weekly rewards (every Monday), you can choose to receive rewards in the same cryptocurrency that you have deposited or to receive the rewards in CEL tokens. Typically you will receive a higher APY if you choose to receive the rewards in CEL tokens.
For example, if you were to deposit Terra Luna (LUNA) on Celsius, you will earn a yield of 6.05% if you choose to earn additional LUNA and 7.94% if you decide to earn rewards in CEL tokens.
SIGN UP BONUS: you can earn $50 free Bitcoin when you sign up to Celsius here. Your reward will be released once you have transferred $400 or more on the Celsius Network (Alternatively you can use the referral code 139821314e).
|Deposit and earn||Earn yields of up to 18% on assets|
|Borrow||Borrow against collateral on your account|
|Swap||Swap one crypto for another|
|CelPay||Send crypto to other Celsius users|
|Buy Crypto||Buy crypto directly on the Celsius App|
What is currently available to Irish customers
Irish customers are currently limited with the features they can use on the Celsius Network.
- You can lend your crypto and earn high yields and you can also buy crypto directly on Celsius via bank transfer or credit card.
2. You unfortunately are unable to use the Swap feature on the app currently. This feature is currently in beta and hopefully will be available to all users soon. Irish customers also do not have access to the borrow feature.
Supported Coins (Updated 25/2/2022)
Here is a list of the supported cryptocurrencies on Celsius and their corresponding maximum yields. (Note these yields are not fixed and are constantly updated by Celsius).
|Multi Collateral DAI||6.02%|
|Basic Attention Token||1.31%|
|Synthetix Network Token||18.63%|
How Can Celsius Afford to Pay Such High Yields?
To date, the Celsius Network has paid out over $862M in rewards since it was launched in 2018.
Celsius earn money by lending customers’ deposits to institutional traders, exchanges, and hedge funds at average rates of up to 9%. According to Celsius, their business model allows them to return 80% of this interest earned from lending back to the community. Whereas banks would be keeping the profits to distribute to shareholders.
Celsius was accused of practices of “endlessly rehypothecating assets” in mid-2021 when their custodial service provider Prime Trust cut ties. Rehypothecation is the re-use of collateral pledged on one loan to finance additional loans. As more and more assets are reused it becomes unclear who owns the assets and who is entitled to the collateral if there is a default by one of the borrowers. Celsius vehemently denied the allegation and it is unclear to this day what the truth of the matter is.
What are the Fees?
On a positive note, there are virtually zero fees when using the Celsius Network – check out the table summary below:
|Early Termination Fees||None|
|Spread on Swaps (Beta)||No Spread|
|Buying Crypto||Credit Card (2.99%) , Bank Transfer (0.5%)|
Is Celsius SAFE?
Let first consider how Celsius protects your assets. You should be aware that once you deposit your crypto assets onto the Celsius platform you will no longer have custody of that crypto like when you have it on your own wallet.
Celsius is completely unregulated meaning that your deposits are not going to be protected unlike when you have a deposit with a bank in Ireland you’re protected under deposit guarantee schemes.
To counteract this, Celsius is developing a self-insurance plan for customers. At the the time of writing, this is still not available although it was first mentioned by Celsius 12 months ago. If it goes ahead it will mean that customers can sacrifice a small portion of their yield to have their deposits protected.
There are also counterparty risks when Celsius is choosing which institutions to lend to, poor management of this could lead to defaults. Celsius does conduct a financial analysis and risk profile for each counterparty they lend to – based on these they will decide on how conservative a position they should take. For higher-risk counterparties they may require them to overcollateralise their loans.
Another risk is the loss of crypto assets that are held in custody by Celsius due to hacks. Celsius was recently in the news due to losing $120m in Bitcoin in the BadgerDao hack. This was not a direct hack on Celsius, but a loss of Celsius customer deposits that were being used to try and generate income to pay rewards. These losses were covered by Celsius and no customers were affected but we don’t know if Celsius will always cover the hacks like this in the future.
Celsius has been facing growing pressure in the United States, facing cease and desist orders in states such as Kentucky, Texas, Alabama and New Jersey.
Kentucky Department of Financial Institutions said Celsius offered customers unregistered securities in violation of state law and didn’t sufficiently disclose to customers what the firm did with their deposits, calling the accounts “an unregulated market that represents an unprecedented risk to consumers.”CoinDesk
While there currently hasn’t been any action in Europe, regulation is likely to come down hard on the like of Celsius in the coming years.
Whether Celsius is a good choice for you or not will depend on your own personal circumstances. You will need to weigh the benefits of being able to earn high yields on your crypto assets to offset inflation and losing buying power, versus risks of Celsius being unregulated.
It is a shame that the self insurance plan is still not available to customers, when this is an option it will make it far less of a risk to entrust your assets with Celsius.