What is CeFi? A look into Celsius
Celsius is a leading platform that lets their users buy, borrow, and pay through any of their 30+ cryptocurrencies.
Celsius offers their users rewards for depositing their cryptocurrencies, users can also earn interest on the cryptocurrencies that they deposit into the Celsius Network.
Celsius offers attractive interest rates, low fees, and a reliable/user friendly platform that has enabled their users to grow their accounts.
Celsius was founded in 2017 by Alex Mashinsky and Daniel Leon, who created Celsius to provide a community-oriented alternative to traditional financial institutions.
Since their launch in 2017, Celsius has managed to grow at a weekly rate of 3.06% which is tremendous. Currently, Celsius has approximately 400,000 users and is managing over $9B in deposited assets.
As previously mentioned, Celsius is community-oriented, which can be observed through 90% of their deposits coming from their retail users (community). These users enjoy high interest-bearing savings account, and low interest lines of credit that simply cannot be matched by current (centralized) financial institutions.
Celsius Token and Utility:
Celsius is an ERC-20 token, meaning that it is built on top of Ethereum’s blockchain. The Celsius token provides the following benefits:
· Better Earning Rates: Celsius users are able to earn better interest rates and their yield is boosted, when they deposit Celsius tokens.
· Better Loan Rates: Celsius users are able to receive discounts when they pay back their loans using the Celsius token.
· Loyalty Tiers: Celsius offers their holders loyalty tier bonuses that reward them with even higher yield rates and decreased loan rates that correspond with their “tier rank”.
Launch and Token Distribution:
Celsius launched their toke in 2018 and raised $50M in the process. Initially, they sold 650M Celsius tokens for $0.30 (USD). The initial supply was split as follows:
· 19% to Founders/Project
· 50% to Investors
· 31% for Rewards/Airdrops
This token distribution is fantastic as the community owns a healthy majority of the supply. This will allow for Celsius to sustain their runs in the future, without large selling off.
Celsius is able to offer their users high yields for depositing their cryptocurrencies, this is especially true if the user deposits Celsius’ native token CEL.
Low Interest Loans:
Users can take out loans against their posted crypto collateral. This helps to decrease the interest rates that these DeFi platforms charge to borrowers. This is especially true when Celsius users choose to use Celsius token (CEL) to pay back their loans.
Celsius is able to provide reward to users just for depositing their cryptocurrencies due to their CeFi Financial Institutions. Celsius has verified/partnered with select Financial Institutions, these institutions take out loans from Celsius using the cryptos deposited (and held as collateral) by users in return for a reward for depositing.
If you continue reading this analysis, you will find out that Celsius has been hacked before in April of 2021. This raises some questions about their security, and how they will protect their users in the future. Their network breach was not all that serious, as no users reported losing money, however it still raises security concerns for the future.
These concerns are reasonable, however Celsius has taken measures to address these concerns. Celsius has started working with Fireblocks and PrimeTrust to secure the crypto assets and provide their users with insurance. So, if any Celsius user loses money in the future from a breach/hack, their losses will be insured and they will receive reimbursements.
One problem with Celsius is that they are a centralized network, and thus the wallets are centralized as well. This essentially just means that Celsius users di not own the private keys to their wallets. This makes Celsius act more like a Robinhood in the cryptocurrency space. This is because Celsius users do not actually own the cryptocurrencies that they are purchasing on their network due to the fact that they do not own their private keys.
Since the crypto space is inherently volatile it is quite common for Celsius users to receive a margin call. This means that users will have to put in additional collateral to meet the minimum coverage on your loan. In some scenarios Celsius may even liquidate some of your assets to cover the margin call. This is less of a problem and more of something that potential users should be aware of.
On April 15th, 2021, it was reported that Celsius experienced a data breach in which customers reported receiving messages from the hackers who were pretending to be Celsius.
Luckily, no money was reported to be stolen from Celsius’ users, however the hackers sent users links and asked for their seed phrases in attempt to log into their accounts/wallets.
This data breach could be considered both a good thing and a bad thing.
Firstly, the data breach is bad because it shows that crypto platforms like Celsius can be hacked. This is a bad look for Celsius and may have costed them existing customers and deterred future customers from using their platform.
Conversely, this data breach could be considered a good thing because no money was stolen from their customers due to their back-up safety protocols (like third party email distribution) which helped to minimize the threat of the breach. Additionally, this breach was not very serious, which is fantastic, and could have acted as a wake-up call for Celsius to fix their security to make sure that this does not happen again.
On August 6th, 2021, Celsius announced that they have partnered with Chainlink, and that they will be using Chainlink to secure the backend pricing of crypto assets. This is good news because Chainlink has decentralized feeds that have consistent pricing mechanisms. Celsius believes that Chainlink is the best option to do so due to Chainlink “successfully securing tens of billions of dollars through even the most extreme market volatility.” This partnership will help to make Celsius’ network more reliable and protected no matter the climate in the cryptocurrency space.