The below is a free, full excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
The purpose of this issue will be twofold:
The first will be an in-depth look at the Celsius platform, and breakdown the design of the business/ecosystem to understand what went wrong.
The second is to detail the events that have transpired over the recent weeks with Celsius “yield generation” strategies, and update subscribers on the state of the market, with potentially big ramifications on the horizon.
Namcios, detailing Celsius’s core business operations.
Celsius: Design And Assumptions
This section takes a deep look at the inner workings of the project itself, as per its white paper, including some red flags in its design and backboning assumptions that could’ve served as a warning to investors – and can hopefully be applied to other projects to prevent similar losses in the future.
“As more people join the Celsius ecosystem, the more everyone benefits,” per the white paper.
Celsius announced they were halting all withdrawals, transfers, and asset swaps on the platform. The platform, which offers users yield on their crypto assets, as well as the ability to borrow against, had been the subject of much scrutiny in recent weeks/months over their apparent yield-generation strategies.
Throughout 2021, there were multiple arbitrage strategies that offered traders “risk-free return.” These strategies were the GBTC arbitrage, and the futures market contango. These strategies, which took advantage of pricing dynamics between spot market bitcoin and select derivatives (in this case the Grayscale Bitcoin Trust and bitcoin futures contracts) allowed for market neutral arbitrage, and for many individuals, funds and companies to capitalize on the massive “yield.”
Published statement on Celsius blog post.
You can check the status of the vault here with live updates to liquidation levels.
This was true for Terra’s UST project and is also true for Celsius. Terra and the Luna Guard Foundation have repeatedly said things along the lines of “generate enough demand” for the survival of UST, while Celsius’ white paper repeatedly makes the case that the more people join, the better it is for everyone. Notably, in the case of Celsius, the case that a lending and borrowing platform needs its own token is a hard one to make. (Hodl Hodl, for instance, allows truly peer-to-peer bitcoin-backed loans without the usage of a token – it only leverages an escrow system.)
made the case that users could always withdraw funds from his platform, though on Sunday announced nobody was able to withdraw funds. The platform cited this decision had users’ best interests in mind, but that is hardly the case.
Lastly, and this one is getting old – hold your own keys. If you don’t have full control over your bitcoin, meaning you can’t transact with whoever you want, whenever you want, you don’t own your bitcoin – someone else does. Depositing bitcoin into Celsius for some “risk-free” yields seemed like a good idea, until it wasn’t. If in doubt, always custody your own coins. Withdraw your bitcoin from exchanges and walk yourself through a self-custody solution that only you know the key to. Moreover, be extra careful when keeping a significant amount of your net worth in credit of a newly-founded company such as Celsius (CEL token). They can go under – just like Terra. As always, do you own research.