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Celsius Network: Review after CEL token went 3X

Updated: Nov 5

Since the collapse of DeFi yield farms, everyone is looking hard at where else can we earn sustainable APYs on our tokens. For some, Celsius Network seems like a good choice to park your funds and let it work for you.


But how attractive is it exactly?


Well, enough for its CEL token price to go 3X within a month!

Screenshot from TradingView

In this post, let's maybe try to learn why the bullishness on CEL token.



What is Celsius Network?

It is a centralized lending platform where users can:

  • Deposit their coins into Celsius' phone app wallet to earn compound interest (see here for details)

Screenshot from Celsius Network

  • Utilize their deposits as collateral to take loans at low interest (see here for details)

Screenshot from Celsius Network

In order to take a bigger loan, users can either:

  1. Deposit more coins

  2. Increase %LTV (Loan to Value) yet incur higher %APR (Annual Percentage Rate or interest)

For example, to borrow the minimum amount of $500 (recently reduced from $1000) at 25% LTV, user needs to have at least USD$2000 worth of coins on Celsius Network.


Applying some simple math:

$500 / $2000 = 25 / 100 = 25%


Let's say that I don't have $2000 worth of coins but I need to borrow that $500. In this case, I can increase LTV to 50% which would reduce the required collateral amount:

($500 / 50) x 100 = $1000


If these rates are STILL not good enough for you, this is where $CEL token comes in.


Tokenomics/What is $CEL token for?

Screenshot from Celsius Network

$CEL is a token created by Celsius Network that allows hodlers to benefit the following:

  1. Higher interest on your deposits if opt to earn in CEL tokens

  2. Borrow at lower interest (0.7%)

Rewards are then separated into different tiers and hodlers are allocated based on the amount of CEL tokens held against overall deposited value.

So, to qualify for the highest tier for e.g. $1000, hodlers need to deposit an additional >$200 worth of CEL tokens.



Is this ponzi/scam?

You might be thinking, wait we can earn interest as high as 15% on our deposits and borrow at low rates of 0.7%.. sure not? Bo balance leh. Well, you are both right and wrong.


What Celsius Network does is the same as any traditional banks would do, lending our money to the big boys for them to do their big boys stuff (margin trading etc). You can read more in their medium post here.


Celsius Network could have pocketed most of their revenue like any traditional banks. Instead, they chose to distribute up to 80% of their revenue to its users in the form of interest.


Had they depended on users to borrow at such low rates, Celsius Network would have collapsed a long time ago like a house of cards.


Why the bullishness on CEL token?

Data from Celsius Network

Here are some of the reasons for its bullishness:

  • Reduced token circulation

Majority of the CEL tokens are either locked up, held by CEL team/partners or stored inside Celsians' wallets. Whatever that's left in circulation are in the exchanges which makes up less than 2% of the total token supply (highlighted as black in the pie chart).


This means that for a whale to get some piece of the action, they would have to buy CEL tokens at a premium due to the lack of supply.

  • Tokenomics of CEL

Since CEL token is designed to incentivize hodling rather than trading, there will be less CEL tokens circulating as more new sign ups happen in the future. Thus, over time as CEL token supply reduces while demand increases, its price will naturally appreciate.


What are the risks associated with Celsius Network?


"Not your keys, not your crypto"

From what I found on the internet, Celsius phone app is the actually a frontend linked to wallets of custodial companies such as BitGo, Fireblocks, Prime Trust etc.


When tokens are deposited into Celsius, these companies have possessions of it. Essentially, you are trusting them with your funds and trust is a big word in the crypto space. Hence, there might be a risk of foul play for e.g. funds could be transferred to another wallet and become lost forever.


Though these custodians do claim to insure a portion of the funds in the event of theft and hacks, insurance details are unavailable unfortunately.


Hacks

Hacks have been rampant in crypto. In just recent months, centralized exchanges Bitmex and Kucoin suffered from hacks, losing millions worth of crypto. Although Celsius hasn't been a victim of such attacks yet, it is not entirely impossible for it to happen.


Other notable mentions

  • No deposit/withdrawal fees: When depositing, users have to pay for the gas to transfer into Celsius. As for withdrawal, Celsius pays for the gas to transfer your funds into your wallet.

  • No lock up period: In fact, deposit or withdrawal is almost instant

  • Interest is paid out every Monday: Celsius will take a snapshot on Friday to calculate the interest. So back when the price was in the $0.40 region, CEL price would usually go up before Friday because people are buying as many as they can before the snapshot to get qualify for higher interest and then dump it later. Read here for more details on interest calculation.

  • No interest earned on your collateral when you take a loan: This is the key difference when compared to DeFi lending platforms like Aave etc. I made the mistake of taking out a loan during the Halloween promo only to realize this later.

  • Borrowing on Celsius is easy, closing a loan takes awhile: Users can request for a loan on the Celsius app. A service staff will then contact you with instructions to send a portion of your bank statement for identity and home address verification. Closing a loan, however, can only be done via email to Celsius' service team. I only knew of this by actually searching high and low on the phone app haha. Before closing, make sure that you have sufficient stablecoins in Celsius. Then in the email, the following points need to be included:

  • How do you want to pay your loan interest

  • What's the reason for closing the loan Service staff would then reply, asking for your confirmation again before closing. From there, processing can take up to 7 days. Mine was closed within a day, probably due to low requests. Read here for more details on closing loans.

  • Be careful of liquidation when using volatile assets as collateral: When the asset price crashes, %LTV ratio will decrease and a warning will be sent out. User has to then top up the difference or face liquidation.


Closing thoughts

Why did CEL token go ballistic 2 months back? Hmm.. perhaps it was the loss of money via yield farming resulted in many participants losing faith in DeFi. After all, the version of yield farming we are familiar with, provide tokens with neither value nor utility. It was straight up "farm and dump" and it rapidly went downhill within days. As a result, people might better appreciate a "set and forget" approach to earning sustainable yields on CeFi platforms such as Celsius, aside from CEL's tokenomics. Well.. CEL token going 3X was definitely not within my expectation.


Anyway, I have been an user of Celsius Network for 4 months now, have about 10% of my funds parked there while anticipating a huge market selloff. So far, my experience has been alright. Rewards have been received every Monday without fail. Though, it could be better if Celsius Network is more transparent in certain areas.


To end this post, I shall shamelessly plug my referral code: 1933453ee1. For every new sign ups, both the new user and myself are rewarded USD$20 worth in bitcoin each. The only condition is that new users have to deposit at least USD$200 worth of tokens into Celsius for a minimum of 30 days. Nevertheless, please thoroughly read through Celsius Network's term of use, know what you're getting into before trusting your money with them.


Happy yielding!


Disclaimer: The information provided here is accurate at the point of writing. It is strictly my personal opinion and should not be regarded as investment advice. Please do your own due diligence.


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About Me

Engineer, 90s Baby, Newbie Investor, INTP, Sandwich Generation, Live to Work not Work to Live, Singaporean

KaChinging is about a young working adult venturing into the unfamiliar world of investing to alleviate the burdens of living expenses, reduce reliance on monthly salary and hopefully achieve financial independence.

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