Celsius Network Is It Safe? And Other FAQs
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Q: Is Celsius a bank?
A: NO, Celsius is not a bank. However, you can store either crypto or fiat currency (i.e. US dollars) in Celsius to earn interest rates >10%. So in that way, Celsius acts similar functionally to a bank with superior returns.
Q: But if I put $10,000 in my Celsius account it’s basically like a savings account with a 10%+ interest rate right? Is there a catch? A hidden fee?
A: Nope. You’re 100% right. A lot of people actually use Celsius this way as a bank. It’s kinda crazy lol.
Q: How can Celsius give me 10% when my bank gives me 0.1%? This sounds like a scam.
A: Celsius takes your crypto and loans it out to entities that need it who cannot get loans from conventional banks like JP Morgan (try getting a mortgage and asking them how much they value your bitcoin). Because of this, Celsius can charge 12%+ interest rate depending on what coins they loan out. They make loans to institutions and retail investors.
In addition, Celsius also uses your coins to generate yield in a variety of other ways as well. For example, Celsius is active in the DeFi market. Celsius mines bitcoin themselves. Etc. Celsius then gives 80% of the revenue to depositors on a weekly basis while keeping 20% to themselves.
Q: Is this sustainable?
A: 10%? Probably not. Celsius changes their rates up to a weekly basis (for 2 weeks this year US Dollar stablecoins had 12.5% interest before dropping back to 10.5%) based on how much yield they can generate for you. This ensures that the Celsius business model is sustainable. But it’ll probably be high for several years, and due to its mechanics, much higher than traditional banks forever.
Q: Is Celsius profitable?
A: Yes, their business model is to give 80% of profit to depositors while retaining 20% for themselves. Because of this, Celsius adjusts interest rates for depositors as frequently as on a weekly basis.
Q: What if I want to withdraw though? Does Celsius have withdrawal fees?
Q: Why do other companies have withdrawal fees but Celsius doesn’t?
A: Celsius eats the cost of the withdrawal fees. That’s called customer service!
Q: Is there a limit on how often you can withdraw at Celsius?
A: Not currently (vs. BlockFi/Nexo with 1 free withdrawal/month limit)
Q: How big is Celsius?
A: Celsius has the 2nd largest asset manager by AUM (assets under management) in the crypto space after GrayScale. – https://twitter.com/ginisalexander/status/1322480219022893057
Q: Does Celsius mine Bitcoin?
A: Yes. Celsius has more hashpower from its mining operations than Riot, which is a publicly traded company valued at around $5 billion right now
Q: How long has Celsius been around?
A: Since 2017 – https://support.celsius.network/hc/en-us/articles/360001716638-How-old-are-you-
Q: What’s the difference between Celsius and Coinbase?
A: Coinbase is an exchange. You can exchange coins (i.e. Bitcoin to Ethereum) and have more advanced functionality around crypto transactions. Celsius is a crypto wallet, so mainly meant for you storing your crypto in your Celsius account for long periods of time, earning yield, and taking out loans against your crypto as collateral.
Q: What’s the difference between Celsius and BlockFi?
A: They’re competitors. Nexo and YieldApp are also similar. Celsius is (what we think) the most profitable, the most community-driven, and the most transparent of the three companies. Also note that Gemini is an exchange but has its own yield program (Gemini Earn) though its yield rates aren’t nearly as good as these specialized companies.
Q: How many users does Celsius have?
A: As of March 10, they said they have over 485,000+ users worldwide – https://www.prnewswire.com/news-releases/celsius-confirms-over-10b-in-digital-assets-301244864.html
Q: How is their AUM so large if they have so few users?
A: The average deposit size of Celsius is large (Alex recently said in December it’s well north of $10,000). Celsius wants a lot of small depositors to join, but it’s hard considering gas fees in crypto right now.
Q: How does tax reporting work on Celsius?
A: They generate a tax form that you can download every year
Q: How healthy is Celsius? Can it survive a security breach?
A: Stats for Celsius as of Feb 12, 2021
- 8.75b AUM (excluded California due to no lending licence); now updated on app & website
- 400k signups total, 18k last week
- 327m gross transfers
- 88m net deposits
- 1m paid in promocodes last week
- 5.8m paid in interest last week
Q: Celsius isn’t FDIC insured. Why risk it?
A: (1) FDIC insurance isn’t even big enough to cover the megabanks in the US from failing.
(2) Celsius has $2 billion in reserves to a $10 billion AUM as of Feb 2021, while the Fed reserve requirement ratio for banks dropped to 0% during COVID-19.
(3) several countries don’t even have a FDIC insurance mechanism.
Q: Has Celsius been audited?
A: Yes, it was audited on Dec 2020 through Chainanalysis – https://chainbulletin.com/audit-confirms-celsius-has-3-3b-in-assets/
Q: Does Celsius have insurance?
A: Celsius has insurance for its stored crypto, like most of its competitors. Problem is most of the coins on Celsius are loaned out at any given time, and no company has insurance on those coins right now. However, that’s mitigated by the fact that borrowers overcollateralize on Celsius. ALSO, YES Celsius IS coming out with opt-in insurance later in 2021.
Q: Does Celsius loan more than 10% of its coins to any single entity, presenting a potential risk if a single counter party goes under?
A: No. In a March 16 interview, the CFO of Celsius said that no entity represents 10% of Celsius’ counterparties for loaned coins, and they even have risk management controls on how much yield they generate from any one bucket of activity
Q: Can I trust the Celsius team? What’s their backgrounds?
A: Celsius puts security as a top priority–you can see this with app UI and withdrawal process that sacrifices convenience in order to mitigate user mistakes/hacks (users are often the weakest link and Celsius designs around this); a big, dedicated security team of Israeli cybersecurity professionals with an “unlimited budget”; and the fact that Celsius has NEVER BEEN HACKED, unlike Ledger, Blockfi , Nexus Mutual, Binance…the list goes on; and the use of Multiparty Computation (MPC) for securing funds internally, which is the cutting edge of enterprise-grade encryption and security. The fact that BlockFi got hacked on a SIM Swap is kinda shameful tbh. That’s pretty much the 2nd thing everyone warns you about in crypto–don’t use SMS based 2FA!!! (Note SMS based 2FA is not an option on the Celsius app).
Q: Is there like a technical architecture slide that shows the Celsius security stack?
A: Yes! https://docs.google.com/viewerng/viewer?url=https://celsius.network/wp-content/themes/celsius-theme/images/Celsius+Network+Security+Brief+BTTF.com.pdf
Q: Does Celsius loan out coins to short sellers?
A: In March 5th AMA, Alex said that Celsius doesn’t lend coins to directional traders (i.e. shorts) because that’s where loss of funds occur, they mainly loan out coins to market makers and arbitrage firms
Q: What is CEL?
A: CEL is a “cryptocurrency” created by Celsius which sole purpose is to enable users to generate higher yield on their total portfolio if a certain % of their holdings are in the CEL token. For example, if I have a $10,000 account, and $3000 of that is in CEL token (with the rest in bitcoin), then my interest rate on Bitcoin would go up from 4% to 6%. This motivates users of Celsius to buy/hold the CEL token.
Q: Is CEL the same thing as Celsius?
A: No. Celsius Network is the name of the company where you can deposit your crypto to earn interest. CEL is the name of a cryptocurrency token created by Celsius to assist with some of its mechanics.
Q: Why does the CEL token exist?
A: The Celsius project was started to help provide financial freedom in the form of yield to crypto holders.
The CEL token was created to fund the initial company and give holders an opportunity at increased appreciation of the token.
This was done in lieu of using venture capitalists where the benefits would go to the token holders instead of the VCs
In addition, the private equity funding was also completed without VC’s to the same end.
The appreciation on the CEL token helps fund the company’s capital improvements which provides more utility to the community.
Q: Can I buy CEL if I’m in the US?
A: No, Celsius considers CEL a security and only allows accredited investors to buy it. HOWEVER, you can buy most of the major cryptocurrencies (i.e. Bitcoin, Ethereum, Litecoin, etc.) on Celsius. The SEC hasn’t officially ruled CEL a security, but Celsius is being cautious and following the law. If you make income >$200k or have a net worth >$1 million, you can buy CEL directly from the company by emailing them at firstname.lastname@example.org
Q: Why can’t I buy CEL on exchanges? That’s sorta sketchy.
A: Alex has stated that Celsius doesn’t want to pay the exchange fees to list on Coinbase and other exchanges. With that said, you can buy CEL on the BitFinex and Bittrex exchanges.
Q: How can I buy CEL if I’m in the US then if I’m not rich?
A: You can use Uniswap, Loopring, or have an existing CEL user transfer CEL to your wallet.
Q: Are all the CEL tokens distributed? Do they still need to be mined?
A: Yes, they’re all distributed already.
Q: How much CEL does Celsius own?
A: Celsius holds about 270m tokens of the 695m. You can see the comprehensive breakdown here https://celsius.network/cel-token-explained/
Q: Will Celsius end up like XRP?
A: Celsius has already been treating the CEL token like a security to prevent an XRP situation, it’s why you can only buy it if you prove accreditation. And additionally, when more people join Celsius and gain CEL rewards, the CEL token becomes more decentralized as those tokens become distributed among this widening userbase. Eventually CEL becomes decentralized. It’s similar to what the new SEC chairman Gary Gensler said about Ethereum. “Used to be a security, but now it’s not.”