Not Your Keys Not Your Coin: Centralized Companies Use Your Assets To Take Bigger Risks

Just another day to remind you to always have your coins in a decentralized wallet. Or at least choose a cold storage wallet, this is something the Celsius users should be regretting right now. The crypto market has had quite a rough week, most especially a rough month, as they have been crypto price free fall for days now. During the last crypto bull run, lots of people must have bought and invested hugely on bitcoin, most importantly traded bitcoin to make profit. Aside Bitcoin, there are other cryptocurrencies that were traded.

We have lots of crypto companies, mostly centralized companies that serve as a bank for crypto and invest on other protocols. The Terra Luna crash exposed most of them, as they declared their losses due to Luna crash. The latest crypto fund company to reveal their loss is the 3AC(Three Arrows Capital). They lost half a billion dollars to Terra Luna crash. These are people that claim to provide crypto risk adjusted investments. So they take investments and invest into higher risk investment. The crypto market is down in price value and half a billion dollars worth of their investment is worth less than $700 in LUNA.

For all I know Celsius could also be in the same trouble but haven’t spoken about their real problem yet.

Let me explain how Celsius works, Celsius is like a crypto bank, but not regulated. Most of this crypto lending platforms are as centralized as the bank they are warning you against. They are un regulated and you should be more careful about them than the bank, they are just like the bank but operate with cryptocurrencies not fiat. Celsius is a lending platform that allows you deposit your money, then pays you interest daily or weekly for your deposited funds. You can also borrow money from them and pay interest but they will use your crypto as collateral.

They entice you to always want to leave your assets on their platform. You have the choice of choosing the flexible package, as the name implies, you can move your money anytime, but the interest rate is low. Then they have the locked package where you can lock your asset and earn higher interest.

When you deposit your money to these platforms, you don’t know what they do with this money. For all I know they invest your money on other platforms and leverage it to earn more, that’s how they earn to pay their users. So what they do is leverage users money, earn higher and pay users from the profit they make from other protocols. This increases the risk, so in a nutshell they use your crypto assets to take risks. The interest rate was nice so it sounds like a good investment. If you think about it, it’s worth taking the risk because you can leave your asset in your DEX wallet or cold wallet and not earn any extra yield. But is that 10 - 20% extra yield risk worth your total asset?

Except it’s a decentralized platform like a decentralize finance (DeFi) platform or something like Hive, in my opinion it’s not worth it. Celsius has 1% of the total bitcoin supply, you know what that means? We are currently in a bad market position, which I am sure other platforms like Celsius are experiencing. Now people want their money back so they are clicking that withdraw button as fast as possible, because I don’t think you can swap on Celsius.

With the increase rate in withdrawal request from Celsius users, I am not sure there was enough liquidity to dispense. So they halted withdrawals. So once again, this is another reminder to always choose Decentralized platforms over centralized platforms, not your keys not your coins. That is why I choose HBD savings, high APR and its decentralized.

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