Since my introduction to cryptocurrencies in September 2016, I have learned many things; don’t follow the media, trading to gain USD is a losing battle, markets are more psychological than rational, and BE VERY LEERY OF SCAMS or people looking to take your hard earnings. I am always looking for a way to profit; however, I attempt to avoid less moral or honest projects in spite of the returns they may offer.

I have recently come across a project that struck me in such a way that I feel I need to share it with others. This project is Celsius Network (https://celsius.network).

Their goal is to offer banking on the blockchain and allow users to reap the benefits currently reserved for banks and larger investors.

What I find unique about this project is it actually aims at solving a problem! The problem is our current fiat/central bank system provides no benefit to the majority of their clients. As a middle class person, my bank offers a 1% annual savings for my savings account and 0% for my checking account. I’m limited on how many withdrawals I can make from my savings account per month. Meanwhile, with the fractional reserve system, the bank can loan out up to 90% of my funds and collect massive interest on my money. The bank makes the profit from my money! It is a one sided profit system where the wealthy get richer while everyone else remains status quo (See the current lending rates charged by banks below). As I carried a balance of $8000 in my savings over the prior year, I made $80 in interest, While the bank was able to lend out $7200 of my money and make $1296 in interest (assuming a middle of the road 18% interest rate).

Lender & APR

Affirm

10.00% – 30.00%

Alliant Credit Union

12.15% – 20.00% with AutoPay

American Express

6.98% – 19.97%

Avant

9.95% – 35.99%

Backed

2.90% – 15.99%

Best Egg

5.99% – 29.99%

BorrowersFirst

7.22% – 29.99%

Citibank

7.99% – 17.99% with discounts (rate may be higher)

Citizens Bank

5.99% – 18.99% with AutoPay

Discover Personal Loans

6.99% – 24.99%

E-LOAN

7.49% – 35.89%

Earnest

5.25% – 18.24%

FreedomPlus

4.99% – 29.99%

iLoan

17.60% – 35.99%

KeyBank

7.16% – 15.95% with AutoPay

LendingClub

6.16% – 35.89%

LendingPoint

15.49% – 34.99%

LightStream

3.34% – 16.99% with AutoPay (rates vary by loan purpose)

LoanDepot

6% – 22%

LoanStart

4.84% – 35.99%

Marcus

6.99% – 24.99%

Mariner Finance

24.00% – 36.00%

Mr. Amazing Loans

19.9% – 29.9%

Navy Federal Credit Union

7.39% – 18.00%

OneMain Financial

16.05% – 35.99%

Payoff

8.00% – 25.00%

Peerform

5.99% – 29.99%

PersonalLoans.com

5.99% – 35.99%

PNC Bank

5.99% – 25.44% with AutoPay

Prosper

6.95% – 35.99%

Regions Bank

7.74% – 17.74% with AutoPay

RocketLoans

5.983% – 29.990%

Santander Bank

6.99% – 16.99% with ePay

Self Lender

10.58% – 14.77%

SoFi

6.99% – 14.87% with AutoPay (variable rates also available)

TD Bank

8.99% – 15.99% with AutoPay

Upgrade

5.66% – 35.97%

Upstart

7.37% – 29.99%

Wells Fargo

6.99% – 23.99%

CELSIUS OPERATIONS

Celsius is attempting to bring each person into the banking system through the Celsius Network. I recently began using the app with a small position to see what it was about. Celsius Network allows for deposits of cryptocurrency (BTC, BCH, ETH, LTC, XRP and CEL) through their app. The currencies deposited earn a floating annual interest rate, based on demand, which is paid out on a weekly basis. Interest payments are calculated from Friday to Thursday and paid on the subsequent Monday. The payments are in the form of the crypto deposited. For example, if I deposited 1 BTC, which is currently earning 3.75% APR, my weekly payment would be (.0375 * 1)/52 = ~ .0072 BTC or $4.68 USD (assuming BTC = $6,500). As far as my understanding goes, Celsius is anticipating paying interest in the CEL token; however, that was put on hold due to SEC compliance issues. If the interest was paid in CEL, the CEL token may be considered a security. Interest rates on coins range between 3% to 4.5% as of today, 11/8/2018.

I noticed my deposits arrive quickly and immediately begin incurring interest. There is a new addition to the application, “CelPay”, that allows for payments even when the other person does not have a crypto wallet. When I started wrapping my head around this, I realized CelPay is the equivalent of PayPal!!! Funds can be sent to anyone via CelPay through a link created within the app. I tested this out by sending funds to myself. I was amazed at how easy it went. I chose the amount I wanted to send in USD, sent the link to my email address and then clicked on the link. The Celsius app opened up and noted the transaction had been claimed by someone. About 15 seconds later, I was credited the original amount sent. As long as someone uses the app, the user can purchases or transact and not even realize the transactions are completed on the blockchain via cryptocurrencies.

If all this was not enough, Celsius Network allows collateral based loan against your own cryptocurrencies. When I first read about SALT lending, I thought loans against my crypto, NEVER! Then April 15th, 2017 came around ant it was time to pay Uncle Sam his cut of my earnings. After I realized how much I owed in short term capital gains taxes, I had to sell a significant portion of my crypto holdings just to pay the taxes. What made me even angrier is knowing the sale of those cryptos are a taxable event for 2018! So I am being taxed on them twice if I want to be compliant with laws. This year I will be considering an asset backed crypto loan to myself as a means to retain the future value of my crypto assets. Don’t make my mistake. Instead plan ahead for your tax situation.

At this point, two big questions come to mind for me.

1. How is Celsius earning the interest?

2. Is my crypto secure?

Celsius takes the members deposits and loans them out. The interest earned from the loans are split 50/50 and returned to the depositors and Celsius Network. Apparently clients are already securing loans of substantial size. Per an email sent out by the Celsius team on November 6, 2018, “We closed a seven-figure loan last week and have no plans of slowing down.” It is noted, typically there is a risk associated with loans going south and collateral assets being lost by a defaulting loan. Per the whitepaper, this has been accounted for and the risk has been shifted to Celsius Network rather than the members who deposit their cryptos (See Lending Protection below).

Lending Protection

“Members who lend coins on the Celsius Network will be protected by the Celsius lending protection pool (funded by our fees). Any defaulted lending or coins lost will be insured through our protection pool and coin values will be restored immediately. The Celsius wallet will show our cash deposits every day which will also be audited by an outside accounting firm several times a year.”

At this point in time, I realize that I no longer have custody of the tokens, and as Andreas Antonopoulos once famously said, “Not your keys, not your Bitcoin.” Here is where the difficulty in understanding the risk came in. First, I transfer my assets to Celsius Network. Celsius Network utilizes Bitgo and exchanges to store their custodial assets. Then those assets are processed and lent out to others requesting loans. Your assets are not on the blockchain to be stolen. Instead, they are sold, transferred or lent to others in return for continuous interest profits for it’s members. Although this may scare people, this is exactly how a bank works. A portion is stored in the lending protection pool, but the rest is being put to work to earn more interest. Banks do not store massive amounts of cash in a vault waiting for their members to come in and make withdrawals. So the risk, as I can tell, comes in at 1. Can Celsius Network become a stable business that will not pull an exit scam? And 2. Bitgo’s ability to provide a secure custodial platform for business operations (I’ll leave that to you to do your own research on Bitgo and what exchanges/business currently use them for managing their private keys/accounts).

LOCATION OF CELSIUS NETWORK

When I looked into the location of Celsius Network, I found they are out of New York State. For anyone who is not aware, New York seems to be the most restrictive state within the U.S. when it comes to regulation. When I found this out, I understood why the project put the CEL token on hold for being a means for interest payments (did not want to make the token a security). Additionally, the initial ICO, which raised $50 million, was not open to U.S. retail investors. Instead it was open to U.S. accredited investors and other countries to be compliant with SEC and legal regulation.

Strengths

· Alex Mashinsky – Founder of Celsius Network – Prior entrepreneur experience in founding several companies. Alex has authored more than 50 patents covering such topics as advertising, streaming, and smart grids. Experience in handing billion dollars plus in assets. Alex is also one of the early developers of VoiP (Voice Over Internet Protocol), which paved the groundwork for a low cost telecommunications option.

· Full working product and platform (Early stages though)

· Use of 3rd party independent auditors and crypto custody storage solutions

· Asset Pool Protection plan already in place

Weaknesses

· Shallow network of users; however, downloads of app have broken 50,000 users per email notice from Celsius Network.

· Trust must be given to the Celsius Network

Competitors

· ETHLend

· Nexo

· SALT Lending

 

MY CONCLUSION

Although I cannot make an honest opinion about Celsius Network and their longevity in the blockchain banking industry, I am quite interested in this project. I get weekly emails and updates from Celsius Network. Alex, the CEO, appears to be transparent in his actions as well as the company. The profiles and faces of the core members for Celsius Network are known and verifiable. Means appear to be in place to protect the users of Celsius Network and the perks of depositing compared to other crypto lending platforms are significantly greater (Look for yourself and compare). I can say I would truly like to see Celsius succeed in blockchain banking and I will continue to be a member as long as they develop and continue their transparency. I am looking forward to their success in the industry. The main factor I in my opinion that will note this success is continual growth of the members. Although I cannot effectively measure the growth of Celsius at the moment, the app download can be measured via the App Store and Google Play. Both of these numbers can give a rough estimate of the growth in users (Google Play shows 10,000+ downloads on 11/8/2018).

Further explainer videos can be found on the Celsius Network homepage.

References

Alex Mashinsky, 2018, Everipedia, https://everipedia.org/wiki/lang_en/alex-mashinsky/

Celsius Network, https://celsius.network

Average Personal Loan Interest Rates by Lender, 2018, Valuepenguin, https://www.valuepenguin.com/personal-loans/average-personal-loan-interest-rates

Celsius Whitepaper, https://celsius.network/wp-content/uploads/2018/04/celsius_whitepaper-march21.pdf

Phil

If you have any questions on the project, please let me know. I would love to delve in deeper and find more out on this project.

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Responses

  1. CryptosDecrypted

    Very thorough overview of Celsius @pcourtnieri. It’s good that you explore the risks involved in some detail. I’ll check them out as this project does seem to have potential. To date, I like the setup of Nexo though I haven’t used any of the lend-services to date.

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    1. Phillip Post author

      Thanks… I figured to do a proper review, it would have to be tested out. I am thinking of doing a follow-up review to measure the growth and customer support in the next couple of weeks. Just a sneak peek, after chatting with their support team last night, I like them more and more.

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