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The biggest crypto lending company is a ponzi scheme
- gentleman11 5y agoWe keep expecting crypto to die but then again, we still have antivirus software that is spyware (avast), a scammy vpn industry, and a thriving anti vax movement. No matter how absurd it is, it might stick around for a long time now
- ur-whale 5y ago> We keep expecting crypto to die Is that the royal "we", or do you mean to include other people that may or may not share your opinion?
- amalcon 5y agoProbably he means to include other people who do share his opinions, and not those who don't? "We" doesn't mean "everyone", or even "everyone who reads this"; it means "some contextual set of people of which I am a member".
- avrionov 5y agoThis all true, but avast and the vpn industry are 2 orders of magnitude smaller than the crypto.
- astoor 5y agoAnd anti-virus and VPN industry problems don't pose a systemic risk to the Western economy (I say Western because China etc. have cracked down on cryptocurrency schemes).
- jacquesm 5y agoNeither does crypto.
- marginalia_nu 5y agoCrypto sure has a vested intrerest in making it seem that way: https://www.investopedia.com/news/are-cryptos-high-trading-volumes-scam/ https://www.investopedia.com/news/are-cryptos-high-trading-v...
- gentleman11 5y ago> But there's a problem here: Some cryptocurrency exchanges have been faking their volume numbers in order to raise the visibility of their businesses and bring in more customers. That's easy to do in the less-than-transparent world of global crypto trading. > Now, an effort is underway to force the exchanges to report real numbers. I can’t believe this isn’t fraud of some sort already
- bhouston 5y agoIt is fraud, it is called wash trading: https://en.wikipedia.org/wiki/Wash_trade https://en.wikipedia.org/wiki/Wash_trade
- WFHRenaissance 5y agoI'm not a huge fan of the the current cryptocurrency scene, but I think it will remain very useful as a medium of exchange and store of value in unstable parts of the globe for years to come.
- criddell 5y agoIt will remain a very useful medium of exchange? Are you saying that today it is a very useful medium of exchange? Are you using it that way?
- abacadaba 5y agohttps://news.ycombinator.com/item?id=29496915 https://news.ycombinator.com/item?id=29496915
- exdsq 5y agoIt's better than trading pre-paid phone credit plans!
- netcan 5y agoHave you ever paid for a sandwich with pre-paid phone credit? In places where it's used, it's surprisingly usable.
- exdsq 5y agoYes! But, you do get some bonuses with cryptocurrencies. Access to credit, ability to build an account history, etc. At the very least cryptocurrencies are a superset to M-Pesa etc. Plus some other geo-political perks like not being centralised around Chinese technologies (M-Pesa might not be, but its competitors are & underlying mobile tech is predominately Chinese).
- agleason 5y agoIf I need to move money between countries, it certainly is by far the easiest. Traveling in India trying to get my friend money has been an awful headache. With cryptocurrency, it's quite simple
- UnpossibleJim 5y agoI look at it like the lottery or casinos. I'm not a gambler exceptthe occasionalpoker game with friends, and I abhor casinos, but they make billions(?) Of dollars. Everyone has got Crypto figured out! They've read all the reports, and keep up with the graphs and this time! This time! The funny thing is, I clicked on a few articles about NFT's and the metaverse because I was interested in the programming behind it and now my morning feed is filled with articles about "How to invest in crypto!", "We can tell you how to beat th crypto market!", "Check out these super looking graphs of crypto prices!".
- astoor 5y agoI sometimes liken cryptocurrency coins and tokens to casino chips. They have no intrinsic value, but they do serve a purpose for some people, and drive a multi-billion industry. There are even some people who collect casino chips (exonumismatists). This analogy also suggests that they might not ever completely go away.
- nraf 5y agoYou could say (almost) the same thing about fiat money though...
- astoor 5y agoFiat can be used pretty widely, whereas casino tokens can only be used in casinos and cryptocurrency can only be used within the cryptocurrency ecosystem (noting that casinos and the cryptocurrency ecosystem both need fiat on and off ramps to function).
- skeeter2020 5y agoexcept the business model for casinos and lotteries is pretty simple: straight-forward mariginal odds that favour the house and maximize throughput. This is not the case with crypto.
- ceejayoz 5y ago
- vadansky 5y agoThat's the takeaway from "Betting on Zero". I kept watching to see the moment when the Ponzi scheme falls apart and Bill Ackman comes out vindicated, and it never came. It really is the case that "The market can stay irrational longer then you can stay solvent". There might be an escape velocity of irrationality where a Ponzi schemes can become legitimate.
- lostmsu 5y agoThe funny thing is that you assume crypto enthusiasts are the irrational ones.
- deleted 5y ago[deleted]
- Ensorceled 5y agoThey are spending $$$ for pictures of anthropomorphic monkies and pizzas that are small variants of similar pictures; that's pretty irrational.
- lostmsu 5y agoThat is no different from expensive picture collectors. That's a minority of participants.
- Ensorceled 5y agoExpensive picture collectors may also be irrational ...
- lostmsu 5y agoThe point is not that they are rational, but that you can't deem the whole crypto market irrational (what the parent does) just because it has NFTs, because then you'd have to deem the regular market irrational too because it has picture collectors. Both markets have some degree of irrationality, and the parent did not show that cryptos have more of it to justify preference of the regular market over crypto.
- PhileinSophia 5y ago[dead]
- claaams 5y agoIm naive, can you explain the scammy VPN industry to me?
- gentleman11 5y agoWell, the biggest example is when Facebook made a vpn to protect privacy but used it to data mine all your internet activity. There are a dozen or two dozen other companies doing this on a smaller scale https://techcrunch.com/2019/01/29/facebook-project-atlas/?guccounter=1 https://techcrunch.com/2019/01/29/facebook-project-atlas/?gu... https://techcrunch.com/2019/02/21/facebook-removes-onavo/ https://techcrunch.com/2019/02/21/facebook-removes-onavo/ https://www.pcmag.com/news/7-vpn-services-found-recording-user-logs-despite-no-log-pledge https://www.pcmag.com/news/7-vpn-services-found-recording-us...
- tata71 5y agoYes, billionaires and little people will suddenly forget the easiest, fairest, securest way they've done finance on the internet.
- api 5y agoThis phenomenon itself could be here to stay and even grow in the future if world GDP continues to increase. There's just less and less downward pressure on things as the economy grows, less "natural selection" so to speak. Scammy or outright broken things can stumble along for a long time. Look at all the startups stumbling along for years and years with almost $0 revenue and a poor or nonexistent product. I wouldn't have a problem with this if there wasn't so much inequality at the human level. A schoolteacher should not be struggling to pay their rent when obvious bullshit NFTs are selling for hundreds of thousands of dollars and startups with barely a product and no revenue are raising A rounds.
- time_to_smile 5y ago> it might stick around for a long time now This is the most important financial lesson of the pandemic for me. There is something deeply wrong with many parts of our economy and financial system, any one who is an expert in any specific area will tell you that things seem weird and don't make sense. A great example of this is ad tech. I've worked in ad tech for many years and strongly agree with Tim Hwang's Subprime Attention Crisis. Everything is a house of cards, fraud (intentional or not) is wide spread. However one thing that Hwang (or anyone pointing out that our systems are houses of cards, scams, or otherwise unsound) fails to answer is the question "what makes it fall apart?" I'm a huge fan of at least the film version of the Big Short, which does a great job exploring the 2008 financial crisis and how unstable our financial system can be. But it's important to recognize that a key part of everyone's discovery isn't just realizing "this is all bullshit" it's realizing precisely when and why reality will come crashing in. There's even a great scene where Michael Burry calls the major banks and realizes that they essentially won't let the market collapse until they get their piece, that they can essentially push back reality a bit until they get theirs. So crypto may be unquestionably a ponzi scheme, but what will make that scheme fall apart? ad tech might be mostly bs, but what will make everyone stop paying into it? stock prices maybe completely out of line with reality (with inflation and cash injections who even knows) but what will force them to face reality? We may all be living in la la land, a wild fever dream, but pointing out you're in a dream doesn't always make you wake up. The question is "what precisely will wake us up". And for all the things that seem very wrong with our current world, I have yet to hear anyone give a concise answer or even guess as to what this is. If the pandemic didn't knock over our house of cards, I'm not entirely sure what will or when it will happen. If Wile E. Coyote never looks down after running of a cliff, will he still fall?
- deleted 5y ago[deleted]
- asdfsd234234444 5y agotell me you don't understand crypto without telling me you don't understand crypto
- glitchc 5y agoIs the smallest crypto lending company not a Ponzi scheme? If not, then all crypto lending companies are Ponzi schemes.
- cinntaile 5y agoThis logic doesn't make sense. It's not the size that decides if something is a ponzi scheme or not. So it's perfectly possible for the smallest and the biggest crypto lending companies to be ponzi schemes while the middle is not.
- etskinner 5y ago> It is possible for customers to take out USD stable coin loans from Celsius, under the condition that they provide a Bitcoin or Ethereum collateral of at least twice the value of the loan. How does one provide Bitcoin or Ethereum collateral? Wouldn't you have to give away your private key (maybe in escrow), or transfer coins to them?
- tantalor 5y ago"smart contracts"?
- tluyben2 5y agoYou transfer the coins into a contract or a custodian account usually. But yes, they are locked up for the duration aka not yours anymore in the private key/wallet sense.
- exportedm 5y agoAlso in a legal sense. The Celsius user agreement explicitly states that you are giving your coins to Celsius: you have no legal claim to them, you’re relying on the goodwill of Celsius to return them… meaning if Celsius goes under, your collateral is gone.
- remram 5y agoSo you're selling your coins for half the USD value, but you have to return the USD at some point anyway? Why wouldn't you just sell your coins at full value instead of using this "loan"?
- LunaSea 5y agoBecause the coins might have been obtained in an illegal way.
- randomhodler84 5y ago
- paulpauper 5y agoBut high yields may be sustainable given that borrowing is expensive.
- namdnay 5y ago> it's not like individuals can just borrow at 1% like majors companies can do. with 200% collateral? I'm pretty sure they can. I don't know what's it's like in hte US, but in the eurozone, long term home loans are around 1% , and even short term consumer loans are between 1-3%
- adventured 5y agoThat depends on what part of the Eurozone you're talking about. Fixed rate, long-term mortgages in eg Spain are nowhere near 1% (closer to 3%).
- toyg 5y agoIn the UK they are sub-2% if your loan/value ratio is decent (i.e. under 70%).
- eli 5y agoIt doesn't prove fraud but it absolutely implies it
- anonymoushn 5y agoAs a crypto fund we're willing to borrow at pretty high rates but Celsius's offering of overcollateralized borrowing is not useful to us. They have disclosed that they offer undercollateralized borrowing to some crypto funds. I suppose it is not easy to get on that list.
- jeremyjh 5y agoTFA addresses this point. They are paying a significantly higher yield than they are charging in interest.
- prepend 5y agoThis seems so common to me and it’s surprising how many of these ventures are around. And that they haven’t busted yet. I looked at these a few years ago when the 5%+ returns started popping up and they are all unregulated, not fdic insured, and seem to survive on bitcoin’s ever increasing rise. If these returns were true then institutional investors would use them. But they do seem like they should have collapsed years ago. Maybe they aren’t run by scam artists but by people who earnestly believe that they can make money by mining and pawn it off as returns. But not being audited is such a terrible signal. It’s weird that anyone would genuinely buy into these.
- anonymoushn 5y ago> If these returns were true then institutional investors would use them. But they do seem like they should have collapsed years ago. After trying to raise money for arb strategies with higher returns than Celsius all year I'm really tired of hearing this.
- kristjansson 5y agoRate arb is the just about the most reasonable way to make money that I can imagine. Seems like execution is the hard part though, what's your system like?
- anonymoushn 5y agoHello, I've updated my email in my hacker news profile if you'd like to chat about that sort of thing.
- infecto 5y agoWhat are you trying to say?
- anonymoushn 5y agoThere's no actual mechanism that matches capital to risk-adjusted returns. Reasoning as if there is reliably leads to incorrect conclusions. Celsius is probably a scam, but the reasoning above is not why.
- bovermyer 5y agoPersonally, I still feel that cryptocurrency in general is a net negative for the human race.
- arch-ninja 5y agoNet negative for most, net positive for a few, good learning experience for all.
- duxup 5y ago> good learning experience for all I wonder how productive that is. People fall for the same things all the time, i’m not sure a learning experience is getting us anything positive generally.
- janeroe 5y ago> Net negative for most, net positive for a few, good learning experience for all. You mean the printing press, right?
- bitxbitxbitcoin 5y agoThis viewpoint really discounts the experiences of those living in countries with rampant inflation or hyperinflation.
- bovermyer 5y agoNo, I'm aware of those situations. When I say "net negative" I don't mean "universally negative," I mean "taken as a whole given all available data."
- KoftaBob 5y agoThe early "wild west" days of new concepts/ideas tend to attract scammer types like this. For the most part, it tends to level out over time and the fraudulent parties are dealt with.
- toyg 5y ago... once legislation is brought in. The market itself has no way to curb excessive behaviour. The problem is that cryptocurrency users exist precisely because they oppose all legislation on currency markets. So they will continue to be scammed over and over again, and be happy with it. It's just the cost of doing business, like drug dealers losing a few shipments to the feds.
- KoftaBob 5y agoMy understanding is that the original motivation behind BTC and crypto was avoiding the centralized authority behind the USD and other fiat currencies. Early adopters didn't like that the USD was influenced/controlled by one central entity, especially in the days of the 2008 financial crisis, when BTC was created. I can't speak for all of crypto, but BTC's motivations didn't seem to revolve around "opposing all legislation", in some pursuit of anarcho-capitalism, but rather opposing currencies that are controlled/influenced by one central entity. But to your original point, yes the most likely way that the scammers will be flushed out of the system is through regulation, just like all the other wild west phases of industries/concepts.
- daoismyname 5y agoYeah! How can we forget new concepts and ideas such as "the Indian Removal Act"?
- obayesshelton 5y agoCrypto and NFT is one big ponzi scheme. Who on earth is spending $000,000s on a virtual ship? I sense it is a case of somebody close to the NFT or virtual world buying the asset and making out it is a great thing and then selling it on quickly. Many a scam involves somebody from the group buying something so the unwilling feel like it safe. As always, don't be left holding the baby.
- edem 5y agoYou obviously don't understand any of this. Is USD not a ponzi scheme? Is Quantitative Easing not a ponzi scheme? Is MMT not a ponzi scheme?
- sharemywin 5y agoSo, what your saying is cryto needs an army...
- serverholic 5y agoThey are a ponzi scheme, the world is full of ponzi schemes. Stock market growth partly relies on young people getting educated about stocks in high school and college then investing. You literally have the previous generation indoctrinating the newest generation into the scheme.
- jodrellblank 5y agoPonzi's scheme was that early investors got paid with the buy-in from the later investors, out to infinity, and the early investors crowing about how much money they made generated the hype for the later investors to buy in, and overall no value was added to the world to support any of this, it was exclusively a money-funnel from lots of late people to a few early people. It makes no sense to talk about USD being a Ponzi scheme because you can't exchange your $100 USD for someone else's $2000 USD, and later they exchange it for $4000 USD from people excited to pay $4000 USD for $100 USD in the hope they can sell $100 USD for $8000 USD in future. It's clearly madness. Anyone would pay approximately $100 USD for your $100 USD, all other things being equal (no money laundering, no additional services wink wink, and not thinking about century timescales where historic value or inflation comes into it, etc). While "wealth begets wealth" in many ways such as compound interest, simply holding $100 USD from years ago doesn't by itself give you any advantage over people in the present day. Holding BitCoin from 2012 does give you advantage over people in the present day, and that advantage comes not from any value BitCoin itself generates, but from the present day buyers seeing the increase in money the 2012 buyers got for no effort, and wanting part of it, so throwing more money at it than the 2012 buyers did. Quantitative Easing isn't a Ponzi scheme because you don't buy Quantitative Easing hoping you can sell your Quantititative Easing for more to new people interested in the hype of Quantitative Easing. Exchanging USD for steel, fashioning it into a steel bolt, and exchanging the bolt for more USD, is not a Ponzi scheme. Buying shares in a company, the company making steel bolts and becoming more valueable, and your share of it becoming more valuable, is not a Ponzi scheme. Exchanging USD for one BitCoin, then exchanging one BitCoin for significantly more USD, where that extra USD comes from the other person, who doesn't value the BitCoin but only hopes the BitCoin will increase in value in future, makes it very much like a Ponzi scheme. You can grow flowers in your garden, you can find someone to exchange their company shares for your flowers, that doesn't make flowers a currency. You can declare that USD is a currency with an army behind it, that doesn't make it a Ponzi scheme. The open question is whether BitCoin can get enough buy-in from people wanting to cash out for free money to generate a secondary market of people exchanging BitCoin for goods and services, large enough that when no more people want to buy in for the free-money aspect, people still want to buy-in for the practical use cases. Since most of the practical and legal use cases are well served by USD, the faff of exchanging USD for BitCoin to buy bolts and lose consumer protections instead of exchanging the USD for bolts seems value removing, not value adding.
- joren485 5y agoThe (centralized) crypto lending space has been slowly imploding in the past year. Most companies give a promotional rate on the first coin(s), but will pay very little interest on any large amount. A detailed analysis of the various players in the space: https://prohashing.com/guides/earning-interest-on-crypto https://prohashing.com/guides/earning-interest-on-crypto
- avtolik 5y agoThe other big company in this space is also mentioned in the article - Nexo. I wonder if their case is the same. They are very big in my country in hiring, ads, etc. And showed up from nowhere...
- djbebs 5y agoHa! They blocked me on twitter a few months ago when i pointed out it was a ponzi! Glad to see im not the only noticing this crap
- reginold 5y agoCan you share more details?
- shp0ngle 5y ago“10 to 12.68% annual returns on USD stable coins and this with little to no risks.” well… I mean…
- jacquesm 5y agoRight up to the grand closing.
- anonymoushn 5y agoyou've been able to sell the quarterly basis for 2-4x that much for years. See here: https://cryptohayes.medium.com/all-aboard-4d50435190d6 https://cryptohayes.medium.com/all-aboard-4d50435190d6
- pjc50 5y agoSo who's taking the other side of these trades? Who's paying 10% to borrow money under these circumstances?
- anonymoushn 5y agoAnyone with a non-directional strategy that generates higher returns than that. There are probably hundreds of such firms by now.
- 7ouda2 5y agogood
- ruffrey 5y agoNote that Celsius, the company in question, is not listed by DeFi Pulse.
- zucker42 5y agoThe fact that a large pension fund is invested in this, presumably because of a personal connection, is pretty disgusting.
- jacquesm 5y agoIt's a money laundering engine long before it is a Ponzi scheme.
- aketchum 5y agowhat about blockfi, with similar interest rates but audited by state of new york regularly?
- exabrial 5y agoCurious as well
- ceejayoz 5y agoCan you explain what "audited by state of new york" means? I'm not aware of NY offering such services outside the realm of "we're investigating you for financial crimes"; https://www.google.com/search?q=site%3Ablockfi.com+audit https://www.google.com/search?q=site%3Ablockfi.com+audit is not promising. Tether claimed audits for years, too, and it was bullshit. https://help.blockfi.com/hc/en-us/articles/360049344531-Why-isn-t-the-Interest-Account-available-in-NY- https://help.blockfi.com/hc/en-us/articles/360049344531-Why-... ("Unfortunately we're unable to offer the interest account in NY") and https://blockfi.com/licenses/ https://blockfi.com/licenses/ don't look too promising for this claim, either.
- adamduren 5y agoFrom what I can discern from their website they are not allowed to offer interest bearing accounts in NY [1] which contradicts your claim. > Unfortunately we're unable to offer the interest account in NY. > We're hopeful that some of the state rules and regulations surrounding crypto change in the near future so we will be able to offer our interest account in those states. Unfortunately BlockFi's hands are tied until those rules and regulations change as we take our Compliance extremely seriously. [1] https://help.blockfi.com/hc/en-us/articles/360049344531-Why-isn-t-the-Interest-Account-available-in-NY- https://help.blockfi.com/hc/en-us/articles/360049344531-Why-...
- ptero 5y agoI think a few posts here are conflating crypto currencies, NFTs and crypto lending in stablecoin for "too good to be true" interest. The article focuses on the last point, which rings absolutely true to me. Offering huge yields (> 8%) while removing the crypto volatility (dealing in stablecoin, effectively making all transactions and amounts look, to an external user, as if made with regular bank in dollars) cannot exist for a long time. Either something fishy is going on, or there is a large risk that people using this schema are not aware of (e.g., "stablecoin yields if bitcoin stays in this band, otherwise you lose some money"), or both. My 2c.
- lostmsu 5y agoWhich ones of them guarantee yield?
- pcthrowaway 5y agoIn a sense I think the yields on stable coins are a reflection onto the user of value which would otherwise be captured by the banking industry. There are some assurances lost at the same time, and most would consider stablecoins less safe than a bank, but these are tradeoffs one makes when using stablecoins.
- ptero 5y agoI am not sure of this (or maybe I misunderstood your point, sorry). Instead of retail clients, which could get a raw deal from the bank, we can look at inter-bank rates for a sanity check. And those rates, paid to non-retail customers (who know well how to derive a maximum risk-adjusted value) are still very, very low today. US Treasuries yield curve shows pay 0.3% for a 1-year and 1.5% for a 10-year. While it is certainly harder for a company to get rates as low as US Gov't, solid businesses can get money for 2-3% and weak ones for 5-8% in as large a chunk as they want. Why would they spend a lot of effort chasing retail clients (which are a pain to deal with) and offering them way more?
- azth 5y agoLending money (with interest obviously) is a ponzi scheme. It's not surprising to be honest, and this shouldn't be news. We've known this for literally thousands of years now. It has nothing to do with crypto currencies per se.
- infecto 5y agoCan you explain the math on how lending money is a ponzi scheme? I don't entirely understand.
- azth 5y agoWe saw what happened in the 2008 crash. Selling debt for debt, facilitated only by lending money at non zero interest, caused a huge chain to come to existence. Once the first domino tipped, everything came crashing down.
- roywiggins 5y agoPonzi schemes don't lend money to anyone, they just shuffle money from late investors to early investors.
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- chinathrow 5y agoSo I have a friend putting his Crypto into Nexo.io and I am 100% sure these are scammers as well, promising of up to 20% yields per annum. How can I find out and warn him (with more data)?
- marcinjachymiak 5y agoI'm not a fan or user of Celsius, but this is an incredibly inflammatory title with very little evidence to back it up. Claims like that demand greater proof. This is an incredibly lazy article The author pretty much failed to do any research on DeFi investments (point 3 in the OP). Compound and Aave are just 2 of many places investors place their assets, and are definitely near the lower end of APYs. Badger, which Celsius has already said they used, offers much higher returns. So do other projects like e.g. Convex Finance. Where do these high APYs come from? Well a lot of it is coming from incentives of these protocols and speculation in those native assets. But the author doesn't even know that, so I won't bother steelmanning his argument
- popol12 5y agoThis. Plus, if you deposit Eth on Aave, it's not for the 1% returns but because it then allows you to borrow other coins which you can use somewhere else in DeFi, where it can bring you much higher returns (convex/curve for instance). I'm amazed that this guy wrote such a big article on a topic he obviously doesn't fully understand.
- roywiggins 5y agoThe problem is that every Ponzi insists that their critics just don't understand their special sauce that generates their phony returns.
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- max48 5y agoThe problem is also that people are using the word "ponzi" to describe every investment they think is bad and/or don't understand. offering high rates doesn't automatically means it's a ponzi. With the definition that some of you are using here, literally every single bank, currency, edge fund and all publicly traded companies would be a ponzi.
- shoto_io 5y agoI am really getting fed up with these black and white verdicts on DeFi. I am missing a nuanced view of the potential but also the possibilities behind DeFi. Yes, maybe some of these platforms and players are not legit. But constantly putting the entire crypto and DeFi world into the "shit-this-world-does-not-need" bucket is so tiering.
- gruez 5y ago> I am really getting fed up with these black and white verdicts on DeFi. I am missing a nuanced view of the potential but also the possibilities behind DeFi. Are we reading the same article here? The only mention of defi is how celius' yields isn't consistent with returns on defi platforms. I'm not really seeing it as an indictment on defi.
- tonetheman 5y agoYou meant to say "All crypto lending companies are ponzi schemes"
- estro0182 5y agoGiven what this expose says about institutional lending not being able to account for high ROI, how is Gemini Earn[0] able to offer up to 8% on GUSD and slightly less on other coins? Gemini is audited and says all GUSD Earn backing funds are FDIC insured up to 250k. Definitely concerning. [0]:https://www.gemini.com/earn https://www.gemini.com/earn
- stickfigure 5y agoFrom that page: For GUSD in Earn, while the U.S. dollar reserves backing the GUSD tokens are eligible for FDIC insurance, the GUSD tokens themselves are not insured, whether or not in Earn. I'm not sure how to parse that, but it doesn't sound reassuring?
- notahacker 5y agoSeems the correct way to parse that is "the GUSD tokens themselves are not insured, whether or not in Earn". The first clause is deliberate obfuscation, and is basically the same as a random member of the public saying "if you give me cash and I put it in my account, that account's FDIC insured" in the hope that this makes him sound like a financial intemediary and not a guy that's really keen for you to give him cash.
- estro0182 5y agoIt means that Gemini is not responsible for the GUSD coins you purchased, but if you have 1 GUSD coin you can exchange it for 1 USD up to the FDIC limit.
- mgamache 5y agoI don't really get all the "crypto is a Ponzi scheme" responses. This is about one company probably being shady with their books and claims. It's like saying Bernie Madoff built a Ponzi so USD is a Ponzi. Maybe crypto is a Ponzi, but this article is no evidence at all besides a hot market that provides the chum for sharks. It's very reminiscent of the housing bubble and the insane claims and over leverage (which is what they are probably doing in part).
- asdfsd234234444 5y agoJealousy/FOMO/feeling like they missed the boat.
- serverholic 5y agoI don't get it either. I think these people need to reach out beyond hacker news because they're being fed a narrative and are eating it up.
- photochemsyn 5y agoLending cryptocurrency as a business model seems like absolute nonsense to be honest. My entire understanding is that the bitcoin model isn't compatible with investment capitalism, nor is it compatible with high-volume low-value transactions (i.e. buying food at grocery stores). It's only real purpose is as an independent store of value, for example you might convert $US 10K to Bitcoin and then just sit on it, not really expecting it to decline or increase in value in terms of actual goods/services purchasing power. Not that I know all that much about it, just what I've seen so far.
- matheusmoreira 5y agoLending is a fundamental operation in futures markets. It allows you to establish positions worth many times your collateral.
- sakopov 5y agoCrypto loans are generally cheaper than traditional personal loans and credit cards and obviously require no credit checks. That to me is where it all stops. The volatility makes borrowing crazy scary to me. Getting margin-called when the market tanks and having a couple of days to prop up your original collateral is not for the faint of heart. With that said, this doesn't seem to deter some. I know some folks who borrowed against their crypto to fund certain investments with recurring revenue which end up paying for the loan.
- Tangokat 5y agoClickbait title and no proof at all. HN hates all things crypto so much this gets upvotes even though the quality is less than Buzzfeed. Rates like these are absolutely possible to get using Defi, futures and so on. One example of doing it risk free (staying delta neutral) is by selling crypto futures contracts and buying the underlying asset to hedge. With that said, lenders like Celsius, Nexo, Crypto.com etc. should have transparent audits for sure. Same goes for stablecoin providers. Everyone pretty much agrees on this.
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- melenaboija 5y agoI trust HN community advices almost as much as my grandma ones.
- malfist 5y agoHow can you read the whole article and say there was no proof? The article certainly provides plenty of evidence why celcius can't be offering the interest rates they're offering.
- CynicusRex 5y agoThat's kind of obvious considering crypto“currencies” are inherent multi-level marketing pyramid Ponzi schemes too.
- therealmarv 5y agoA lot of fundamentals to fully understand any problems are not covered here. It can be the article is right or wrong but it's nevertheless inflammatory. Just to prove my point: Look at the P2P micro credit market (which works in the similar direction and out of the scope of fed regulated money market) where it is no big problem to get 12% APY on established P2P institutions.
- spottybanana 5y agoThose P2P loans get also lost quite often. If you have transaction logs that show you making consistent 12% for years that would be quite interesting to many. Due to the nature of p2p lending sites the sites often have incentive to make it look good for the investor, as for them any activity on the platform brings fees in. I think it is pretty logical that if some place makes consistent 12% to have that lowered along the years as investors will find the good places quite quickly and start competing for the price.
- therealmarv 5y agoLoans fail sometimes. But many p2p companies have that calculated in and give you an insurance for failing credits (including interest). This works as long as the p2p companies have put enough aside and work in profit (there are some where this works for years).
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- NelsonMinar 5y agoThis brave world of unregulated opaque finance is just awesome, isn't it?
- throwaway405769 5y agoDeFi is much more transparent than traditional finance.
- NelsonMinar 5y agoTrenchant comment, throwaway405769. It's true there are many more transparent frauds in the DeFi world.
- throwaway405769 5y agoAh yes, transparency. The root of all evil.
- boxmonster 5y agoI'm interested in revenue for infrastructure, high speed rail, social obligations and defense so I'm concerned about tax cheats and money laundering. Might the same technology that is used to implement decentralization also be used by tax collection agencies in kind of a DIRS (decentralized IRS) to track the lifetime of every Bitcoin (for example) and insure the appropriate taxes are paid along the way. Maybe a tax on every transfer.
- sakopov 5y agoAnother interesting thing of note is that Tether made loans worth billions to Celsius with bitcoin as collateral. [1] Now, whether that's good or bad depends on whether you think Tether itself is a ponzi but it definitely has an colorful history. [1] https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
- dustintrex 5y agoIt is, of course, complete coincidence that it would be really easy to offer 10% APY if somebody is selling you dollars for 90 cents each.
- _xnmw 5y agoFor those who believe "crypto is too big to fail", or the genie is out of the bottle, or that crypto concepts have become so engrained and popular that it's not possible to stop, I'd like to point out that Bernie Madoff's Ponzi scam lasted for 30+ years. People built entire lives on his very professional-seeming "business". Scams can go on for a very long time, and very large numbers of people can build their whole lives on a lie (even successfully). Crypto is probably the most brilliant scam in the history of mankind, because it combines plausible deniability with techno-obfuscation and meme-driven popularity to a degree that makes it nearly impossible for democratic governments to regulate (good on China for banning it!), and this state of affairs may continue for quite a while. But even if it doesn't all come crashing down in my lifetime, I still won't touch it with a ten-foot pole as a matter of principle, no matter the potential gains. There are some things I won't get involved with as a matter of principle, such as certain illegal drugs, even if they were legal.
- dqpb 5y agoWhat do you even mean by Crypto? It's like saying "Internet is probably the most brilliant scam in the history of mankind". It's so non-specific it's meaningless.
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- ricardobayes 5y agoSame here, even though it's increasingly hard. All my friends say I'm stupid to choose to leave out.
- lardo 5y agoWhat about legal drugs?
- twox2 5y agoSure, let's talk shit about a new system that's largely censorship resistant (or trying to be) and call it the biggest scam in history (without any evidence) while praising the world's most authoritarian government. Hard to take you seriously.
- vmception 5y agoOffering fixed interest while achieving variable interest in underlying assets carries inherent risks whether Celsius has a shortfall or not. Crypto Lending services are just like banks in the sense that they pocket a spread. This article is incorrect in the sense that Celsius doesnt have much higher DeFi yield earning opportunities. I can go fetch a highly volatile 60% right now (the rate is highly volatile but the principle is not necessarily highly volatile), actively managed, and offer users a super competitive 8-12%.
- bluehorseray 5y agoI think people underestimate how long fraudulent / ponzi schemes can last. Madoff's ponzi scheme ($65B) went unnoticed for ~50 years until a whistleblower got the SEC to take notice, and it could have potentially gone on a while longer if that hadn't happened. There's a lot more money in the crypto-sphere, and no great way to regulate. I wouldn't be surprised if lots of these entities are able to run on for 100+ years before they implode.
- zucker42 5y agoThis is not quite factually accurate with regards to Bernie Madoff. The SEC ignored the whistleblower Harry Markopolos, and the fraud wasn't revealed until the fund became insolvent many years later (7-8 years after Markopolos originally suspected fraud). After he couldn't meet investor redemptions, Madoff confessed to his sons, who subsequently called lawyers and alerted the SEC. Doesn't change the point of your post though.
- DeathArrow 5y agoIf people are curious about the pornstar who headed institutional lending at Celsius, her name is Jessica Khater.
- ajross 5y agoHonestly, this point was just dumb. Even skipping the whole "pornstar!" angle, the core point was that the CEO put some rando acquaintance in a position of power who has no relevant experience. I mean, duh? This is the crypto world, it's not exactly staffed by former Lehman traders. Everyone's an amateur. That's not to say she was good at her job, but she's no less "qualified" than 90% of the other big movers in the market.
- janandonly 5y agoHaving the Celcius bubble burst is short term bad for the whole market. But mid/long term very good because all thay money can flow into actual working products and projects like Bitcoin itself.
- kristjansson 5y agoThe clearest non-scam answer I’ve found for ‘who the hell is funding these APYs’ is fiat denominated loans against BTC, ETH et al. People with long, appreciated crypto positions want to take profit/add leverage, so they borrow stable coin against crypto at substantial rates, collateralized by the crypto. As long as crypto goes up and to the right, borrower is in the green, can pay interest with some of the borrowed stablecoin (or in the underlying crypto asset) and has some nice stuff. This demand for fiat denominated borrowing can be seen in the differential rates offered to BTC/ETH/… depositors vs stablecoins. An order of magnitude difference in favor of the stablecoin is not unlikely. The lender is basically long the underlying asset, which they could pay to hedge (likely impairing their 10-20% APY) or just hold, since crypto only goes up. The stablecoin depositor is ‘risk free’ in the sense that loans are secured against other crypto, but exposed to massive exchange rate risk. In a year 2BTC recovered from a default on 100k USD might be pittance or a windfall, but I wouldn’t take a strong position on which, at least not for 1200bps. In general one wonders how many of these 10-20% APY crypto things are just mis-priced exchange rate risk/exposure. A hypothetical protocol/coin minting 10% if it’s overall volume per year would have no problem paying 10% nominal APY to holders. But, like investing in a bond issued in an foreign, inflating currency, one would expect the exchange rate to decline enough consume most of the nominal yield, leaving some real yield proportional to the other underlying risks. If the mechanism is sufficiently obscured, or lost in the frothy demand , borrowers might actually get outsized returns, for a while. If it’s not, they might be surprised when they try to take profit in fiat. This is compounded by PoS systems where there are real rewards minted by holders to compensate for the costs of maintaining the network.
- dskloet 5y agoGenitrust is another such ponzi scheme.
- tim333 5y agoCelsius probably isn't a ponzi scheme. There have been quite a lot of opportunities to make high interest returns in crypto by doing things like buying bitcoins and selling the matching futures. The institutions borrowing from Celsius are probably doing that kind of thing. The fact that "Celsius has never revealed the name of a single of these institutions nor their creditworthiness." doesn't really prove anything. Also Celsius doesn't need to know their creditworthiness - it's lending is all backed by crypto deposits. Margin lending as done by most US stockbrokers basically.