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Celsius Network aims to take the risk out of risky crypto-lending biz

Nicholas Marinoff


Lending money is risky business. But lending money against chronically risky assets like cryptocurrencies takes it to another level.

There are companies, however, within the crypto industry that aim to minimize as much of that risk as possible, with dreams of taking crypto-backed loans mainstream.

One such company is the Celsius Network, which allows customers to borrow against their Bitcoin or other digital currency funds. In an interview with Decrypt, CEO Alex Mashinsky explained the lending process, saying that if you have Bitcoin, for example, Celsius can use that money to lend out either cash or stablecoin-based loans, so the value of whatever the company lends out remains consistent.

Previously, the company only provided these crypto-backed loans through stablecoins such as Tether (USDT), USD Coin, and the Gemini dollar (USDG). But today, the company announced support for four new fiat-pegged currencies through a partnership with stablecoin issuer TrustToken: the True Great Britain Pound (TGBP), the True Australian Dollar (TAUD), the True Canadian Dollar (TCAD), and the True Hong Kong Dollar (THKD).

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According to the company’s website, customers do not need to make a minimum deposit, claiming that users can “earn on $5 or $5,000,000.” They also do not need to hold their money for a set period and can cash out at their own convenience. Interest rates vary depending on the coin, and customers can increase their interest earnings depending on how long they hold their money with Celsius. 

Currently, Celsius has lent out more than $2.2 billion in coin loans and inked deals with roughly 100 institutional clients, according to Mashinsky. While he would not name names, Mashinsky did say that roughly 35 percent of those clients are hedge funds, while another 40 percent are corporate or family offices. The rest are exchanges and market makers, he said. 

To protect itself against default risks, Celsius doesn’t lend to exchange customers directly, but instead provides funds to the exchanges themselves, as exchanges only lend against collateral. Thus, a crypto exchange itself is responsible for managing leverage and returning Celsius’ funds—not the exchange’s customers.

“To date, we have not had any issues with such loans,” Mashinsky told Decrypt. “We have a very rigorous risk assessment protocol when deciding who to lend to and at what agreement.”

One step in that protocol involves tracking the balance sheets of the exchanges that Celsius is considering as clients. If profits look good, and things seem stable enough, the company has assurance that the exchange likely won’t default.

On the other hand, these are crypto exchanges that we’re talking about, after all—the same companies that regulatory bodies like the U.S. Securities and Exchange Commission have said over and over again are prone to massive risks, including price manipulation of assets such as Bitcoin.

The Hong Kong-based crypto exchange Bitfinex, for example, is currently embroiled in a lawsuit in New York, where the attorney general has launched an investigation against the exchange over allegations of fraud.

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Mashinsky, however, defended Bitfinex, which is one of the company’s clients. Despite the exchange’s troubles, he said, it’s still a legitimate business that implements appropriate security measures. The Celsius CEO says Bitfinex comes with no more risk than Coinbase or any other large trading platform across the globe. “There are hundreds of smaller exchanges and hedge funds that represent much-higher risk than Bitfinex,” he said. “We protect our community by not working with them.”

In the end, Celsius’s priorities rest in generating returns for its customers. The company claims that its users can earn as much as 10 percent interest on the coins they purchase through Celsius. It’s made possible, Mashinsky explained, by the fact that the company lends out from its community’s pool of assets, and shares roughly 80 percent of the value with investors, he claimed. Interest also jumps when volatility tends to be higher.

“It’s a HODLer’s dream,” Mashinsky said. “Using crypto to generate interest income, we can pay five to 10 times as much interest as other options provided by banks.”

That may be true—but is it also five to 10 times as risky? It’s a question that prospective clients will need to answer for themselves.