Everyone in crypto has been talking about Celsius Network‘s insolvency over the last week. It is yet another in a list of spectacular collapses that have occurred since crypto’s price started to crash earlier this year. But what does it mean for crypto? Where do services similar to Celsius go from here?
What is Celsius Network?
Firstly, it’s important to understand exactly what they do. Celsius Network is essentially a centralised entity that manages decentralised assets.
Users could deposit their crypto with Celsius and earn a return on it, with the company itself making money in a few different ways. Unlike a truly decentralised project, Celsius is not governed by smart contracts. Instead, a team of people manages it. This allowed Celsius to invest deposited funds in many different ways.
The most fundamental part of the Celsius protocol was the money earned through lending. Celsius could pay interest to its depositors based on the higher rate of interest received from lenders. This is a sustainable model and is seen in legacy finance across the world. In fact, it is the most important function of most modern banks.
The problem arose when Celsius started collateral from the users to invest in other areas of the crypto market. It staked in Ethereum 2.0 and other protocols to earn interest.
This is not too dissimilar to how investment banks work. When the crypto market crashed and Celsius simultaneously saw much of its invested funds hacked from various protocols though, Celsius found itself without any liquidity and unable to pay out collateral to its users.
The issue with Celsius was that it was granted the same level of trust by the market as a legacy bank. However, because it managed crypto-assets, it was not subject to the same regulation. This allowed it to operate in what could undoubtedly be called an irresponsible fashion, which is what led to its demise.
Is this the end for CeDeFi?
There’s no denying that the downfall of Celsius has severely impacted consumer faith in this model. The fall of Celsius, alongside a precarious crypto market, and overall negative sentiment in the macro economy means that CeDeFi will likely have further trouble ahead.
However, that does not necessarily mean the end of the model altogether. After all, this model does exist in various capacities in the traditional financial world.
As the US inches towards laying out a healthy regulatory framework for managing crypto assets, this model may again become very popular. A well-managed project can offer greater returns to its investors than traditional DeFi models.
Let’s have a look at three of the projects that could serve as alternatives to Celsius in the market.
Founded in 2017, Blockfi wants to build a project that can offer attractive rates while simultaneously being one of the most trusted financial service providers on the market. Although it offers returns of up to 15% on some crypto assets, returns on major cryptocurrencies like Bitcoin and Ethereum stand at a much more sustainable 3%.
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Blockfi has no minimum deposit requirement and also allows users to choose what currency their interest payments are paid in. This provides a great way to diversify a crypto portfolio. On top of that, US residents can use the BlockFi rewards credit card to earn Bitcoin whenever they make a payment.
YouHodler is another crypto loan service, this one starting out in 2017. Operating out of Switzerland, YouHodler is designed to appeal to crypto newcomers. It even provides a detailed guide to allow individuals to exchange funds easily. All in all, YouHodler provides one of the most user-friendly experiences in the crypto space.
Made famous by Matt Damon’s Super Bowl half-time ad, crypto.com allows individuals to buy, sell, trade, and spend over 100 different cryptocurrencies. Crypto.com can offer up to 12% APY on certain assets stored on the system.
Like BlockFi, it offers a credit card to make crypto payments easily. Crypto.com also features a non-custodial wallet which would protect investors from many of the issues encountered by Celsius.
As we’ve said, it’s currently not a great time for the CeDeFi model. However, things have bounced back from worse in the crypto world. When MtGox was hacked, it was proclaimed as the end of centralised exchanges in crypto. Over the last few years, they have grown bigger than ever.
What comes next will be a defining period for for crypto. As the macro economy recovers, and a healthy regulatory framework begins to be laid, the best projects in crypto will likely see their patience rewarded.
With low trading fees and returns on deposited funds, Ccntralised projects like BlockFi and the others are likely to continue to provide a vital service to the crypto market.
We hope this has been helpful! Check our blog for more features and the latest news in crypto and blockchain.
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