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> 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 leas

> 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 ago
You 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 ago
  Also 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 ago
    So 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 ago
      Because the coins might have been obtained in an illegal way.
      - randomhodler84 5y ago
        If they are flagged by chain analytics you ain’t getting the coin back. And you probably get a visit from the authorities. No, the centralized loan provider market is not useful for this.
    - xyzzy123 5y ago
      Assume you want to HODL crypto forever (you DCA x% of your salary into it) but need to pay for a temporary expense. You're not selling the coins, you're pawning them. Also you wouldn't have to pay capital gains tax in countries that require that on crypto sales.
    - jeremyjh 5y ago
      My guess is you want to HODL and let your "assets" appreciate in value, but need liquidity. I can't really imagine why you'd trust any company in the crypto space with long-term storage of your assets.
    - gruez 5y ago
      to not realize capital gains. same reason why jeff bezos doesn't sell his amazon stocks and instead takes out loans on them.
      - tluyben2 5y ago
        I would think this is the main reason. Borrowing is a lot cheaper than cap gains in a lot of countries and it is legal.
    - WJW 5y ago
      Several reasons: - People hope that the value of the underlying coins will rise in the meantime. (It may, of course, also fall but crypto enthusiasts usually don't worry too much about that) - Quite often the volume available is not that high for many coins, so if it hovers around (say) USD 100 per coin but you want to sell 10 million coins, you would not be able to get 100*10 million is 1 billion USD for them. The market simply can't absorb that much, but if you use the coins as collateral you won't "sell" them and thus won't impact the market price. - Selling things of value can have tax implications in certain jurisdictions, which you can avoid by lending against those things instead.
    - tim333 5y ago
      No you are not selling your coins. You are depositing them with Celsius and then borrowing against them.
theli0nheart 5y ago
Not necessarily. AAVE and other DeFi lending protocols maintain collateral by locking ETH or wrapped BTC in a smart contract. But I wouldn’t be surprised if that’s not the case here.
isoprophlex 5y ago
I don't get this, you'd have to be entirely crazy to do this right? Why post twice the loan value as collateral? Why not sell half of the crypto assets instead? On the assumption that suddenly your crypto can go to the moon?! It might equally well lose its value...
- bombcar 5y ago
  Exactly. You're trying to leverage for more returns.
- dfadsadsf 5y ago
  You have to pay taxes if you sell. Loaning against collateral is tax minimization strategy
  - isoprophlex 5y ago
    Interesting angle, I hadn't considered that. Thanks.
pbhjpbhj 5y ago
So, you can buy Celsius and get double-leverage on moving Btc/Eth. If you know where Celsius buy their coin you don't need to move the whole market just produce a local shortage. Don't know if that's realistically workable, I wonder how rich you'd have to be?

tantalor 5y ago

"smart contracts"?

tluyben2 5y ago

You 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 ago
Also 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 ago
  So 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 ago
    Because the coins might have been obtained in an illegal way.
    - randomhodler84 5y ago
      If they are flagged by chain analytics you ain’t getting the coin back. And you probably get a visit from the authorities. No, the centralized loan provider market is not useful for this.
  - xyzzy123 5y ago
    Assume you want to HODL crypto forever (you DCA x% of your salary into it) but need to pay for a temporary expense. You're not selling the coins, you're pawning them. Also you wouldn't have to pay capital gains tax in countries that require that on crypto sales.
  - jeremyjh 5y ago
    My guess is you want to HODL and let your "assets" appreciate in value, but need liquidity. I can't really imagine why you'd trust any company in the crypto space with long-term storage of your assets.
  - gruez 5y ago
    to not realize capital gains. same reason why jeff bezos doesn't sell his amazon stocks and instead takes out loans on them.
    - tluyben2 5y ago
      I would think this is the main reason. Borrowing is a lot cheaper than cap gains in a lot of countries and it is legal.
  - WJW 5y ago
    Several reasons: - People hope that the value of the underlying coins will rise in the meantime. (It may, of course, also fall but crypto enthusiasts usually don't worry too much about that) - Quite often the volume available is not that high for many coins, so if it hovers around (say) USD 100 per coin but you want to sell 10 million coins, you would not be able to get 100*10 million is 1 billion USD for them. The market simply can't absorb that much, but if you use the coins as collateral you won't "sell" them and thus won't impact the market price. - Selling things of value can have tax implications in certain jurisdictions, which you can avoid by lending against those things instead.
  - tim333 5y ago
    No you are not selling your coins. You are depositing them with Celsius and then borrowing against them.

theli0nheart 5y ago

Not necessarily. AAVE and other DeFi lending protocols maintain collateral by locking ETH or wrapped BTC in a smart contract. But I wouldn’t be surprised if that’s not the case here.

isoprophlex 5y ago

I don't get this, you'd have to be entirely crazy to do this right? Why post twice the loan value as collateral? Why not sell half of the crypto assets instead? On the assumption that suddenly your crypto can go to the moon?! It might equally well lose its value...

bombcar 5y ago
Exactly. You're trying to leverage for more returns.
dfadsadsf 5y ago
You have to pay taxes if you sell. Loaning against collateral is tax minimization strategy
- isoprophlex 5y ago
  Interesting angle, I hadn't considered that. Thanks.

pbhjpbhj 5y ago

So, you can buy Celsius and get double-leverage on moving Btc/Eth. If you know where Celsius buy their coin you don't need to move the whole market just produce a local shortage. Don't know if that's realistically workable, I wonder how rich you'd have to be?