On Celsius, by Matt Levine

[Anonymous No.49606085]

Celsius
Last year Ryan Selkis, the founder of crypto research firm Messari, tweeted that “crypto is Occupy Wall Street but with money and solutions.” Bloomberg’s Joe Weisenthal replied to ask “what are the solutions,” and I jumped in to make some jokes. “At a high enough level,” I tweeted, “the problem was ‘banks stole my money’ and the solution is ‘hackers will steal your money instead.’”

Weirdly, I think about this exchange a lot. I agree with Selkis that some of the appeal of crypto comes from deep suspicion of the traditional banking system in the aftermath of the 2008 financial crisis. Banks were meant to be safe places where people could put their money, and it turned out that the banks were doing weird risky stuff with that money. The weird risky stuff incurred losses, and those losses were socialized — the government stepped in to bail out the banks — in ways that people found surprising and upsetting and unfair. One popular reaction to the crisis was to call for banks to take fewer risks with depositors’ money, to be safer and less leveraged and more transparent. Another popular reaction was to become suspicious of the banking system entirely, and crypto — a financial system that does not rely on banks and that is philosophically less levered than the traditional financial system — helped meet the demand for something else.

[Anonymous No.49606131]

>>49606085
But I also think that often the way crypto works in practice is to take the problems of the banking system and make them much worse. If you don’t like the financial system making leveraged speculative bets with your deposits, you might find yourself putting your money in some entirely unregulated crypto bank whose entire purpose is to make leveraged speculative bets with your money. Maybe that will work out great for you? I guess the good news is that if it works out poorly, the losses won’t be socialized in quite the same way they were in 2008. The Federal Reserve and the US government are not going to bail out some crypto lending project. You’ll just lose your money.

[Anonymous No.49606168]

>>49606131
Here is Alex Mashinsky, the founder of crypto banking thingy Celsius Networks LLC, quoted in a Bloomberg Businessweek article from this January:

Mashinsky told Bloomberg Businessweek that Celsius is able to pay such high yields because it passes along most of its earnings to its users. He said it’s the traditional financial system that’s ripping people off by taking their deposits, using them to make money, and then claiming it can only pay tiny interest rates. “Somebody is lying,” Mashinsky said. “Either the bank is lying or Celsius is lying.”

This schtick works:

In testimonials posted last year on Twitter as part of a contest in which customers shared their “Celsius Story,” many said they had entrusted Celsius with their life savings. One said he took out home equity and cashed in his work pension and his savings for his kids’ education to put the money into the company’s accounts. Another said it let him quit his job to move closer to his kid. One entry read: “I don’t trust the banking system, but I trust #Celsius.”

[Anonymous No.49606196]

this place too retarded to be posting matt levine bro

[Anonymous No.49606207]

>>49606085
Daily reminder that every single finance asset like stocks,bonds,debt,crypto,money etc are all purely parasitical in nature and serve no purpose nor have any inherent value. Finance and economics are pseudoscientific make believe garbage, capitalism is inherently unstable,unsustainable and exploitative and every single financier or crypto dudebro is a literal parasite. The irony of crypto bros larping as some revolutionary anti bankers is palpable. I sincerely hope every single one of you parasites burns in hell alongside your precious stock market and blockchain.

[Anonymous No.49606217]

>>49606168
As that article explains, the basic idea of Celsius is that you can deposit your cryptocurrencies with Celsius — essentially, lend them to Celsius — and it will pay you a pretty high interest rate, or an even higher interest rate if you’ll accept payment in its own CEL token. Or you can borrow cryptocurrencies from Celsius and pay it interest. Think about possible explanations for how Celsius could offer a higher interest rate on deposits than your local bank:

1. The bank is lying.
2. Celsius is lying.
3. Celsius is making riskier loans than your bank, which carry higher interest rates. Functionally, if Celsius is lending out cryptocurrencies, it is lending them to crypto speculators who want to make leveraged bets on those currencies. In particular, if it is lending out Bitcoins or other volatile cryptocurrencies, it is lending them to people who want to short those cryptocurrencies; if it is lending out stablecoins, it is lending them to people who want to get leveraged long volatile cryptocurrencies. Making leveraged speculative bets on volatile assets with limited trading histories is riskier than, you know, lending people money to buy houses, and so it carries a higher interest rate, which Celsius can pass on to its depositors. But it also means that those deposits are riskier: If Celsius doesn’t get paid back, you are in trouble.

[Anonymous No.49606236]

>>49606085
>Levine

[Anonymous No.49606271]

>>49606217
4. Much of banking regulation reduces the interest that banks can pass on to its depositors. If a bank has $100 of deposits and can lend out money at 5%, it can’t just lend out $100 at 5%, collect 0.1% for its trouble and pass on 4.9% to depositors. A bank has capital requirements, meaning that if it has $100 of loans it will need to have, say, $10 of equity capital that requires some economic return, reducing the amount that can be passed on to depositors. It has liquidity requirements, meaning that if it has $100 of deposits it can’t put them all into long-term loans; it has to keep some of the money in cash in case any depositors want their money back. It pays fees to the government for deposit insurance. Prudential regulators examine the bank and make sure its mix of business isn’t too risky, which makes it less lucrative.

>>49606196
I know, but if I can get 1-2 Anons reading someone who isn't trying to grift them...

[Anonymous No.49606319]

>>49606271
As we know from 2008, there are strong incentives, at a bank, (1) to fund as much of your business as possible with cheap deposits (that is: to be very levered), (2) to put as much money as possible into lucrative business rather than keeping it in the cash drawer, and (3) to choose risky lucrative businesses over safe boring businesses. But there are constraints on banks to stop them from going too far in that direction. One important set of constraints comes from regulation: Capital and liquidity and prudential regulation prevent banks from gambling too much with depositors’ money. Another important set of constraints comes from transparency and reputation: Banks have to produce audited financial statements explaining, in some detail, what they are doing with their money; if the stuff they are doing is too weird then they’ll have a hard time raising more money. Those constraints are imperfect! 2008 happened! People get mad at banks a lot! Still, the constraints exist.

[Anonymous No.49606362]

>>49606319
In crypto, oh, you know. Here’s an update on Celsius today:

Celsius Network Ltd., one of the biggest lenders in crypto and a key player in the world of decentralized finance, said late Sunday that it was pausing withdrawals, swaps and transfers following weeks of speculation over its ability to make good on the outsize returns it offered on certain of its products, including yields as high as 17%. The move effectively halted a platform with registered entities across the globe and billions of dollars worth of digital coins under management, accelerating a selloff in the broader market that was already in progress on concern over prospects for tightening monetary policy ahead of a Federal Reserve meeting this week. ...

A little over a day before Celsius announced its the halt, Chief Executive Officer Alex Mashinsky appeared to counter speculation about a freeze on withdrawals, tweeting, “Do you even know one person who has a problem withdrawing from Celsius?

[Anonymous No.49606379]

>>49606207
What alternative do you propose?

[Anonymous No.49606414]

>>49606362
Here is Celsius’s announcement from yesterday:

Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations. …

We are working with a singular focus: to protect and preserve assets to meet our obligations to customers. Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible. There is a lot of work ahead as we consider various options, this process will take time, and there may be delays.

[Anonymous No.49606457]

>>49606414
Here is Celsius’s awkward-with-six-days-of-hindsight Medium post from last Tuesday, titled “Damn the Torpoedoes, Full Speed Ahead”:

We at Celsius are online 24–7. We’re working around the clock to continue to serve our community. Celsius has one of the best risk management teams in the world. Our security team and infrastructure is second to none. We have made it through crypto downturns before (this is our fourth!). Celsius is prepared.

At this already challenging time, it’s unfortunate that vocal actors are spreading misinformation and confusion. …

Let us be clear: ...

Celsius continues to process withdrawals without delay. We have not had any issues meeting withdrawal requests. Celsius honors all withdrawals as quickly as possible and works hard to support customers if and when there are delays.

Celsius has the reserves (and more than enough ETH) to meet obligations, as dictated by our comprehensive liquidity risk management framework.

>>49606379
This is a newsletter bro

[Anonymous No.49606490]

>>49606457
See, I genuinely think that there are some people who would sneer at a bank saying “we have a fortress balance sheet and exceed out regulatory requirements for capital and liquidity, as you can tell from our quarterly financial statements”: “Sure,” these people would scoff, “we’ve heard that before.” And then they’ll read a Medium post from a crypto project that claims to have, but does not describe, a “comprehensive liquidity risk management framework” and put all their money in it.

Oh by the way, another important problem in 2008 was the interconnectedness of banks: One financial institution would run into trouble, and it would turn out that a bunch of other important institutions depended on it. In that vein, here is the Verge today:

Because of its size, Celsius touches a lot of other parts of cryptocurrency markets. For instance, Celsius Network borrowed $500 million from Tether, the dollar-pegged stablecoin. (The loan was originally $1 billion, Bloomberg reported.) The loan is collateralized in Bitcoin. “If Bitcoin drops, they give us a margin call [and then] we have to give them more Bitcoin,” Celsius CEO Alex Mashinsky told The Financial Times last year.

[Anonymous No.49606551]

>>49606085
I have like 6k in Celsius that I tried pulling out before they denied withdrawals.

lol im fucked

[Anonymous No.49606560]

>>49606319
The constraints exist so hedge funds can act as proxy for high risk trade and you can still believe they’re looking out for the little guy. Win win.

[Anonymous No.49606597]

>>49606490
Tether, like Celsius, is roughly speaking a crypto bank: It is a stablecoin project that takes people’s dollars and invests them in dollar-denominated assets. Unlike a regular bank, Tether has no capital requirements: Its assets (commercial paper, etc.) more or less exactly match its liabilities (stablecoins issued), and if the assets lose a bit of value then the loss will fall on its depositors.

[Anonymous No.49606624]

>>49606085
LYING JEW SHOCKER

[Anonymous No.49606702]

Celsius is functionally insolvent on their ETH position.

Only 27% of Celsius' ETH is liquid, the rest is either stETH or staked in ETH2, so inaccessible for at least 1 year.

Lost $70m in Stakehound and lost $50m in Badgerdao hack as well.

Not only is Celsius not making enough to cover interest, it has lost deposits in defi hacks and death spirals.

Celsius has borrowed close to $100m to repay its users' withdrawals so far.

If it is solvent, why would it need to borrow?

Borrowing also means that its positions now have a liquidation price

You are a lender, not a depositor, according to the terms and conditions of Celsius, users are loaning their coins to Celsius…

[Anonymous No.49606759]

>>49606597
Tether's latest reserves report, as of March 31, 2022, states that its “consolidated total assets amount to at least US$82B” while its “consolidated total liabilities amount to US$82.2B of which US$82.1B relates to digital tokens issued.” That represents equity capital of about $162.4 million on a balance sheet of $82 billion, or a capital ratio of about 0.20%. Banks have risk-weighted capital requirements of at least 8%. Banks also publish audited financial statements and have prudential requirements limiting what they can do with their money; Tether does not. If, say, one $500 million loan to Celsius — or one similar-sized margin loan to some other crypto firm during a crypto market meltdown — went bad, Tether’s entire capital would be vaporized and its stablecoin would be undercollateralized.

[Anonymous No.49606775]

>>49606379
Communism

[Anonymous No.49606809]

>>49606759
I fucked up those numbers, /biz/ sees the long numbers as Spam.
Apologies. Levine writes them all out to the last accurate dollar, I did not and fucked up the first.

[Anonymous No.49606914]

>>49606702
Be interesting if it brought down Tether with it like >>49606759 Levine suggests.

[Anonymous No.49607238]

>>49606131
>the losses won’t be socialized in quite the same way they were in 2008
This is the most important aspect of crypto which guarantees its success. Its a monetary system built on the aspect of 'survival of the fittest' where future crypto endeavours will learn from the mistakes of past crypto endeavours as those past crypto endeavours were severely and brutally punished for their transgressions.

Unlike the banking systems where bankers always know they will be bailed out at the end of the day as they are 'too big to fail' and learn from historical precedent that if they will ever get into trouble that is too much for themselves to handle, that the entire society will collectively bankroll their losses as they are the perfect subservient goys which have been cultivated to be the greatest of all cucks for the greatest of all people.