Summary: Alex starts with some updates, including the big news of the week– Celsius’ integration with the BITFRONT exchange as a part of their partnership with LINE. BITFRONT is a US-based crypto exchange and subsidiary of LINE, a global company based in Japan with 164 million monthly users worldwide. LINE is a cross-platform mobile messenger app very similar to WhatsApp, with a large user base in Japan, Taiwan, Thailand, and Indonesia. Celsius’ partnership with LINE will ultimately bring interest income on crypto to more than 100 million potential new users.
Alex also revealed that while the second exchange integration would be announced in mid-September, Celsius would also be integrating with a third exchange in October. Additionally, PAX Gold (PAXG) should be live in the app within a week or so with the same interest rates as Tether Gold– and there will be no restrictions on PAXG, meaning that US and Canadian users will be able to earn on it as well. Alex also stated that Celsius is working on a way to make XRP’s Spark airdrop work for coins stored in the app, and that borrowing against the recently-added staking coins would be enabled ASAP– this was just an oversight on Celsius’ part to not enable this feature.
Furthermore, Alex also discussed the high rates that Celsius is currently offering on stablecoins (11.55% in-kind, 15.89% in-CEL). He said that these rates are driven by the high yield they are generating right now due to such high borrowing demand– Celsius had to pay these rates out because this is how much they are earning. While they likely won’t last forever, Alex did say he could see the rates going even higher in the short term. And finally, Alex touched on the topic of rehypothecation. Celsius’ CFO explains here how Celsius uses rehypothecation to earn yield on your crypto, and it’s important to note that Celsius does not (and cannot) lend out your coins to more than one person– this is one huge benefit of the blockchain!
And if you’d like to earn interest on your crypto, gold, and stablecoins with Celsius, scroll to the end for instructions on how to get $20 in BTC when you sign up.
- Chainlink price oracles are live. Celsius is now using Chainlink oracles live for pricing in the app– and you can earn more than 6% on LINK in your Celsius wallet.
- Fed up with the fed. The United States Federal Reserve has printed more new money in 6 months than it has in 100 years– and is now focused on preventing the bubble from bursting instead of keeping unemployment or inflation low. This all started with $600 billion flooding into the repo market back in fall of 2019.
- As always, go with noncorrelated assets. This is not financial advice– but gold, Bitcoin, and Ethereum– these are assets that are not correlated to the US Dollar, whereas many equities will likely suffer from a fiat debasement that could occur in the future. And you’re still early to the crypto game– there’s 7 billion people in this world, and so few are involved in crypto.
- The original liquidity mining. Celsius was the first company to offer earning interest on your cryptocurrency– earning Bitcoin on your Bitcoin. Celsius also was the first to allow you to earn interest on your assets in another asset (CEL token)– a similar mechanism to how DeFi governance tokens such as YFI and YAM are now distributed. Celsius also remains profitable (unlike many competitors, who are burning investor cash), all while acting in the best interest of their users.
- Almost $22 million in equity raised. The extra week of the equity round through BnkToTheFuture just closed– and the next equity round in the future will likely be at a much higher valuation.
- BITFRONT integration is live. BITFRONT is a US crypto exchange and subsidiary of LINE, a global company based in Japan with 164 million monthly users worldwide. LINE is a cross-platform mobile messenger app very similar to WhatsApp, with a large user base in Japan, Taiwan, Thailand, and Indonesia. Furthermore, LINE recently launched a digital crypto wallet and blockchain development platform. This is a soft rollout, with the official full rollout coming in a few weeks with additional assets. Importantly, Celsius’ contract includes all subsidiaries of LINE as well– not just BITFRONT (LINE has another exchange and wallet subsidiaries in addition to BITFRONT).
- Two more exchange integrations coming. Celsius’ second integration is coming mid-September– this was originally supposed to arrive in August, but was delayed on the exchange’s end. Furthermore, a third exchange integration will be coming in October. More users means more deposits, more money Celsius can lend out, and better returns– and importantly, more CEL tokens that Celsius has to buy back from the open market.
- A special welcome to all 1,022 new Celsius equity holders. BnkToTheFuture was not ready for how many people applied– over 2,500. We kept increasing the investing cap and even reopened the equity round for this past week because so many people were interested in investing and messaged us about still wanting to buy Celsius equity– and we wanted to allow as many people as possible in! And this money is still sitting in the bank– we are not subsidizing our rates with it.
- Amazing new rates. US users can now earn 6.2% in-kind on BTC, and stablecoin rates have hit an all-time high– above 15% APY!!
Alex: We have two types of borrowers– and most of our deployed assets (over $1 billion) are loaned out to hedge funds who want to borrow cryptocurrencies and give us collateral. For these institutions, we do our due diligence– we check their balance sheet and make sure that they are a profitable entity– and then based on this, we decide how much we will lend to them. And we don’t have any of our coins concentrated with one institution– they are very evenly spread out, so that reduces our risk as well.
The other half of the business is our retail lending– this is lending out dollars and stablecoins to our users who deposit crypto as collateral. These loans are fully overcollateralized with at least twice the amount of crypto assets– and if the value of your collateral goes down, we may require additional collateral. Importantly, we have never had to liquidate collateral from an institution, and have never had a retail loan default– we’ve had very few retail loan liquidations and have always been able to recover funds in these cases.
Alex: Revenue is around $5 million to $8 million each month– and this is enough to pay our employees and pay interest to our users with a little left over. Also, Celsius is a UK company, and we will be filing our audit for the 2019–2020 year in the next 60 days or so– and that will be public information. You can see the 2018–2019 audit here.
Alex: Yes, the actual exchange is BITFRONT, but our partnership is with LINE, and we plan to do many more things with them. LINE just merged with Yahoo Japan through Softbank, one of the best investment firms in the world. If you go on our website– you can see all of our partners– including previous API integrations such as Voyager, Bitwala, and Monarch– so this is not our first API integration. This is something we are experienced with, and want to enable all of our partners to provide Celsius’ services to their customers at the same rates.
Alex: Right now, we’re earning anywhere between 16–20% on our loans, and sometimes more. So it really just depends on how much we have in reserves for withdrawals. But this is why we’re able to pay out 11% or 15%– based on how much we make, that’s how much we need to pay out– and we’re still buying 100% of our CEL for interest payments from the open market!
Alex: We are not promising that these rates will last forever. There is currently huge demand for stablecoins to help farm yield on DeFi protocols. Celsius is the biggest lender to exchanges in the crypto space– so if you are borrowing crypto from an exchange, or from Genesis, there’s a good chance that’s coming from Celsius.
But we can’t be profitable and subsidize the rates at the same time– BlockFi, for instance– they are subsidizing their rates and burning cash to do so– which is clearly unsustainable. Celsius earns all of the money we pay out to our users, does it consistently, and our rates keep going up because our yield keeps going up. And Celsius’ rates can serve as a kind of leading indicator in the crypto markets– because this means that institutions are willing to pay more to borrow crypto to leverage their position.
Also, it’s worth noting that the size of our lending pool can greatly affect volatility of the rates. For instance– our Chainlink rates doubled this past week, because the pool is relatively small, and a few big orders for loans came in. However, with coins like BTC and ETH, our pool is very large, so it takes much larger swings in loan demand to affect the rate as much.
Q: What is Celsius doing to mitigate the risk of smart contract bugs in the DeFi platforms they use?
Alex: The best way we mitigate risk is by using old, battle-tested contracts. The YAM protocol is a great example of a young, unaudited smart contract that had bugs in it– and Celsius would never put our users’ funds in a contract such as this. We only work with companies like Aave, Compound, and Maker– and we’ve audited their smart contracts ourselves as well– but they’ve all stood the test of time. And I don’t think we have more than 2% in any of these smart contracts.
Alex: If you are lending to short sellers then you are suppressing the price of Bitcoin. Some of the institutions we lend to do engage in directional trading– meaning they will go long or short as they see fit– but most of them focus on arbitrage, market-making, and other activities that don’t push the direction of Bitcoin strongly in one way or the other. And we actually prefer not to lend to short sellers– they’re a very high-risk borrower, because if they’re wrong, then they can quickly lose large amounts of capital.
We only deal with the highest-quality institutions– some of them have billion-dollar balance sheets– and they didn’t get to be that successful by taking huge risks. And because of this, we’ve never had any institutions default on a loan, get liquidated, or even not pay us back the interest on a loan.
Q: I’ve been reading about Celsius rehypothecating assets. Is Celsius lending out the same coins multiple times?
Alex: Rehypothecation is a fairly simple concept that Celsius uses to generate yield on assets like BTC and ETH. On Wall Street, this can get complicated, because assets have been rehypothecated many, many times– so it’s tough to know who owns what. But this cannot happen on the blockchain! When we do a loan on the blockchain, we actually transfer control of the keys to a wallet to our institutional borrowers– and it’s impossible for us to do this and still keep control of the coins to lend them out again. And this is why many financial institutions are talking about moving to the blockchain to help avoid the double-spend problem they have today. There are huge issues with the repo markets– with banks lending to each other and no one knowing who owns what– but this is not a problem with crypto.
Alex: We’re working on it– I understand that a lot of people want it, so we’ll make it happen.
Alex: We are not a custodian– we offer corporate accounts, and if you’re an institution or a hedge fund and want to earn interest with Celsius, you’re welcome to apply and we’ll onboard you. We have hundreds of such users already, and partner with many custodians worldwide– but we are not a custodian. If your charter does not allow you to lend to non-accredited financial institutions– then Celsius has plenty of partners who you can work with. For example, Bitwala in Germany is partnered with Solarisbank– and you can work with them to get the exact same rates as if you worked directly with Celsius. We love you either way!
Q: There is a major banking issue in the medical marijuana industry– is Celsius able to help with this problem and partner with companies in the field?
Alex: This is a federal law issue– companies are having issues depositing into their bank even though their services are legal in the states in which they operate– but sadly this is not something Celsius can help with.
Alex: Yes! That is a mistake on our part– we just realized that borrowing against these coins was not enabled, and that was an oversight on our part. You can borrow against all coins in the Celsius wallet– and this should be enabled within the next day or so.
Q: Can you please explain how the team token distribution at $1.50 and $3.00 will work? Will there be a lockup?
Alex: Yeah, that’s a great question. So imagine you go to work someplace like Coinbase, and they tell you– “We put $37.5 million and another $75 million in a pool that you can get if you do well only after you do good.” When the CEL token hits $1.50 for 10 days, the first half unlocks, and when CEL token hits $3.00 for 30 days, the other half unlocks. How big of a motivator is that to do good and do well?!
So that’s one of the reasons why we have so many people applying for job openings at Celsius– there’s literally a pile of gold sitting and waiting for you, and all you have to do is what we already do every day. And we come to work every day and try to earn more for our customers– which ends up earning more for us as well! So the model is just a much better model. We have an 86% HODL ratio– 86% of our users who are earning in CEL are holding on to those interest payments every week! So this is telling me that we are going to get to these milestones sooner rather than later. And yes, we do expect our employees to sell some of their CEL token at these levels– but we will also have massively expanded our user base by that point, and expect to be buying CEL token back from the market at a much higher rate as well– so we don’t expect to see huge dips in the price of CEL when we hit these levels.
Alex: Yeah, it’s a great question. Fractional reserve lending is the legal right that banks have to essentially print money out of thin air– they can loan out at least 10 times more than they have in actual deposits. Rehypothecation is very different– all this means is that when you receive something as collateral, then you can lend it back out. If we get $100 of Bitcoin, we cannot lend out more than $100– you can’t lend out Bitcoin to more than one person– that’s the magic of the blockchain. So with rehypothecation we can only do this once– but with fractional reserve, they can lend up to 10x more than actual deposits held.
Q: What roadblocks have regulators placed to prevent US users from earning interest on Tether Gold? Will these ever be removed?
Alex: Yeah, so we are also adding PAX Gold to the wallet any day– I don’t think there are any restrictions on PAX Gold. I don’t know the details for what is restricted and why for Tether Gold– we follow the recommendations from the coin or token issuer– they simply tell us what jurisdictions they can operate in and we follow along. Even though Tether invested in us, I would like to have 5–10 different gold tokens in the wallet– just like we have with stablecoins– so you can earn interest on whichever one is your favorite.
Q: Would Celsius consider offering an Acorns-like service– linking a bank card and then rounding up everyday purchases into crypto?
Alex: I love the Acorns idea, but I hate the idea of spending money. All credit card issuers and banks focus on one thing– how to get you to spend more than you make. Celsius doesn’t make any money when you spend money– we want for you to save! Our focus is not to find more ways to get you to spend money by saving a small amount each time– we want you to only spend from what you earn in interest, so we can help you be truly financially independent. The banks hate Celsius– because we are destroying their business of stealing from you every day.
Q: Can you elaborate on how Celsius lends to institutions at high rates? Why don’t they just borrow from banks?
Alex: There is a huge gap in the price of borrowing in the crypto sphere vs on main street– companies like Apple pay 2% in interest to borrow– which is crazy! In crypto, the hedge funds and everyone else has to pay market rates– which used to be 6–7%, but are now abnormally high. I can tell you for sure that these rates will not last, but a lot of money is pumping into crypto right now. I’m really hoping that none of these projects blow up and people lose lots of money on them– because not only will it turn thousands of people off of crypto, but it will also bring intense scrutiny from regulators to the crypto community.
All I’m saying is that what Celsius does is sustainable. Even if the rates spike– we have to give you more! Last week, we had to raise our interest rates because of how much we are making lending. We may even have to raise them again, because these rates are so crazy.
Alex: We do several things– first, we issue loans– you can take loans against your CEL in the app. We also use it for market-making– when you go on Uniswap for example, CEL token is being used to generate yield against ETH or USDC. And like I’ve said before– when we make more money and have excess, we use that to buy CEL. Sometimes if we don’t have enough, we use some CEL from the treasury, like we have done in the past– and sometime we buy some CEL from the market and put it in the treasury.
So we act similarly to how the US Federal Reserve is supposed to! In the CEL community, we are trying to perform the function of a central bank– if you want to learn more about it, look into Austrian economics instead of the modern monetary theory.
Alex: We’re not sure how best to do this– but we are currently working on it. It’s a little lower priority, so it won’t be coming soon, but these loans will be available at some point in the future.
Alex: Yes– so we will have more users and more assets to lend out– and we currently need more assets. We want to be able to fulfill all of the loan orders from our institutional clients, and to do so we need more coins. Partnering with companies like LINE helps us to do this. The more loans we deploy, the more we make, and the more income we have to buy CEL token.
Q: Why do institutions borrow stablecoins at such high rates when they can buy them without the volatility risk?
Alex: So it’s not that they’re borrowing stablecoins– 80% of the borrow is in BTC, ETH, LTC, etc. The people who are borrowing stablecoin are retail borrowers who deposit crypto as collateral and then borrow stablecoins or dollars against it. Institutions don’t normally borrow stablecoins, because like you said, they can just go buy them.
Q: Are there any plans to incentivize or empower community-developed apps that work in conjunction with Celsius?
Alex: Digifox is a great example of this– it was a community member who wanted to plug in Celsius’ API into the app they were building. Similarly, Monarch provides many services Celsius doesn’t offer, as does Bitwala. We’re not trying to solve all of the problems– we’re trying to be the best at interest income, and want to enable as many partners as possible to offer interest income to their users.
Alex: Right now the round is closed, and we will hopefully reopen it later– but this will be at a higher valuation.
Want to unbank yourself with Celsius (and get a free $20)?
- Install the Celsius wallet (https://celsius.network/get-the-app/)
- Use a referral code during registration (148895d2c9)
- Deposit $200 of crypto or stablecoins
You will earn $20 in BTC once you hold your deposit for 30 days