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I'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. T

I'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 ago
This. 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 ago
  The problem is that every Ponzi insists that their critics just don't understand their special sauce that generates their phony returns.
  - deleted 5y ago
    [deleted]
  - max48 5y ago
    The 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.
    - kangnkodos 5y ago
      I think it's a good rule of thumb to assume that anyone who guarantees returns greater than the historical return of the S&P 500 is a ponzi scheme. I don't know of a single reputable bank, hedge fund or publicly traded company that does that. A huge number of places do have high returns from time to time. But any reputable firm points out that past returns do not guarantee future results. No reputable firm guarantees returns that high in the future. The key is the guarantee. Anyone who GUARANTEES returns that high in the future is suspect, and therefore must be more transparent than usual in order to clear the bar. The article indicates that Celsius was less transparent than usual in describing exactly how they made their high returns.
      - roywiggins 5y ago
        Celsius does say "While Celsius strives to maintain stable reward rates over time, any change in circumstances may bring about changes to such rates, and in some events the rates may drop to 0%" deep in their Risk Disclosure. https://celsius.network/static/risk-disclosure.pdf https://celsius.network/static/risk-disclosure.pdf Which is a bit odd- there's no chance you might lose money? How are they making money without risking that the return might drop below 0?
  - deleted 5y ago
    [deleted]
vesinisa 5y ago
So instead of actually debunking his arguments you published a handwavy reply? I very much think that if someone is offering insanely high ROIs but does not divulge how the value is created, you can safely assume it's a scam, and simply pointing out the disparity suffices as proof to me at least.
- marcinjachymiak 5y ago
  I don't know what happens behind the scenes at Celsius. I do know there are many ways to get those high ROIs in DeFi. With zero evidence suggesting they are lying about returns, the charitable guess I can make is that they are getting high DeFi returns and giving their customers slightly lower ones after taking a cut.
  - adam_arthur 5y ago
    Can you explain some of the ways then? Not the user facing side, but the backend/underlying part that generates the returns necessary to sustain those yields.
    - sec400 5y ago
      Not Celsius specifically but you can see details about yearn's strats here: https://docs.yearn.finance/getting-started/products/yvaults/overview https://docs.yearn.finance/getting-started/products/yvaults/... Specific vaults strats: https://medium.com/yearn-state-of-the-vaults/the-vaults-at-yearn-9237905ffed3 https://medium.com/yearn-state-of-the-vaults/the-vaults-at-y... Links to the actual contracts: https://yearn.watch/ https://yearn.watch/
      - adam_arthur 5y ago
        I just glanced through these and don't see any explanation. They basically just say "we put it in a vault and harvest the rewards". What I'm asking is where do the rewards come from. What is the underlying mechanism that makes this model sustainable. If you invest in a REIT, tenants earn money through their business and pay rents. If you invest in a BDC, the BDC makes loans to businesses and collects interest. Relationship and risks are quite clear here. If you're Bernie Madoff you generated high yields for investors for decades by taking money from one investor to pay another, and ultimately was not sustainable and bankrupted many people. For example. So are DeFi yields like a BDC, or like a Bernie Madoff?
gzer0 5y ago
> 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 Is this not the very definition of a ponzi scheme? The returns coming from "incentives" of these protocols and "speculation" in those native assets sounds very ponzi-like to me.
- roywiggins 5y ago
  If the yields are actually coming from speculation, it's not a Ponzi. Ponzis don't generate real yields, they just shuffle money from new investors to old investors. If it's actually making risky bets and winning them it's more like a hedge fund or something. Of course hedge funds don't have steady 10% yields, they lose money when their risky bets don't pan out.
  - adam_arthur 5y ago
    That's essentially exactly what a Ponzi scheme is. You have an asset with 0 intrinsic value that only goes up in value due to new investors buying in. You will only ever make more money if somebody buys in after you. Unlike stocks where owning a share entitles you to profit stream of the company (intrinsic value)
    - roywiggins 5y ago
      If they are actually lending the money out to people who aren't investors, earning interest on it and returning that to investors, then Celcius is not a Ponzi scheme, it's probably speculating on weird, opaque and shitty assets, but it's not a Ponzi. Like, if I set up a business "investing" in worthless penny stocks and somehow manage to generate returns, I'm not running a Ponzi. Maybe I'm pumping and dumping those penny stocks. It's still a scheme, it's just not a Ponzi- I am actually earning money for my investors! I'm defrauding other people, but I'm not defrauding my investors.
      - adam_arthur 5y ago
Alex3917 5y ago
> Where do these high APYs come from The promise of DeFi is that it's supposed to reduce risk for lenders by letting them see the assets of borrowers in real time. If the risk to lenders is lower but interest rates are higher then how can it not be a Ponzi scheme? There's literally no other possible explanation.
JaimeThompson 5y ago
"Its flagship product: 10 to 12.68% annual returns on USD stable coins and this with little to no risks." What is more likely that they figured out a way to "hack" the financial system to make such returns in a very safe fashion or that they are doing things behind the scenes which may be a little bit sketchy? 10% safe annual returns is a bit high if one thinks that the APY is reflection of how risky the investment is.
dustintrex 5y ago
> Well a lot of it is coming from incentives of these protocols I keep seeing this for DeFi. - So you put 1 fiat into the magic box, and 2 fiat comes out. Where did the 1 fiat profit come from? - DeFi collateralized staking algorithms hash protocol incentives! - Yeah whatever but no really, it's a closed system so all inputs and outputs need to sum up, where did the new fiat come from? - YoU dOnT uNdErStAnD cRYpTo!!1!!
- berberous 5y ago
  I’m not really knowledgeable about DeFi, but here’s a simplistic model (would love to be corrected by someone with deep DeFi knowledge): 1. You put $1 of ETH into a new protocol, let’s say a new Decentralized Exchange on Ethereum that is paying a high amount of interest in order to attract liquidity to their protocol. The high interest is perhaps paid in ETH or maybe in a new token for the protocol. 2. Users flock to this new DEX, and actually use it, generating trading fees for the DEX, which drains activity from CEXs like Coinbase. If in step 1, the payment was made with a new token, perhaps that new token either earns a cut of trading fees, or gets governance rights over the DEX. 3. You either earned another $1 of ETH, or of the new token. In the above example, it’s not a closed system anymore than the US economy is. A new company was created, which created real value by creating a better exchange which attracted users over CEXs. The company has value now it can payout because it generates trading fees and the equity/governance of the company is valuable. It bootstrapped that with protocol incentives.
- bglusman 5y ago
  I think you may have just also described fractional reserve banking? that is literally where much of the money supply comes from. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
  - notahacker 5y ago
    Except of course, that the crypto world insists that all these cryptoinvestors borrowing crypto to buy other crypto to sell for more crypto to repay their original crypto debt is an ecosystem which isn't [even more] dependent on inflation of the crypto supply. That and unlike stablecoins the Fed doesn't pretend it's fully backed.
reginold 5y ago
I would be interested in seeing other articles on this topic. As someone new to DeFi, I found the article sparked new questions, even though as you said it wasn't deeply researched. If Celcius is basically reinvesting into a bunch of other assets, it's possible, or even likely, that the high yield assets are too good to be true. That's where my concern would be. Is BadgerDAO rock solid? Compound? I would be curious to see expert analysis of these. Celcius is simply built on top.

popol12 5y ago

This. 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 ago
The problem is that every Ponzi insists that their critics just don't understand their special sauce that generates their phony returns.
- deleted 5y ago
  [deleted]
- max48 5y ago
  The 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.
  - kangnkodos 5y ago
    I think it's a good rule of thumb to assume that anyone who guarantees returns greater than the historical return of the S&P 500 is a ponzi scheme. I don't know of a single reputable bank, hedge fund or publicly traded company that does that. A huge number of places do have high returns from time to time. But any reputable firm points out that past returns do not guarantee future results. No reputable firm guarantees returns that high in the future. The key is the guarantee. Anyone who GUARANTEES returns that high in the future is suspect, and therefore must be more transparent than usual in order to clear the bar. The article indicates that Celsius was less transparent than usual in describing exactly how they made their high returns.
    - roywiggins 5y ago
      Celsius does say "While Celsius strives to maintain stable reward rates over time, any change in circumstances may bring about changes to such rates, and in some events the rates may drop to 0%" deep in their Risk Disclosure. https://celsius.network/static/risk-disclosure.pdf https://celsius.network/static/risk-disclosure.pdf Which is a bit odd- there's no chance you might lose money? How are they making money without risking that the return might drop below 0?
- deleted 5y ago
  [deleted]

vesinisa 5y ago

So instead of actually debunking his arguments you published a handwavy reply? I very much think that if someone is offering insanely high ROIs but does not divulge how the value is created, you can safely assume it's a scam, and simply pointing out the disparity suffices as proof to me at least.

marcinjachymiak 5y ago
I don't know what happens behind the scenes at Celsius. I do know there are many ways to get those high ROIs in DeFi. With zero evidence suggesting they are lying about returns, the charitable guess I can make is that they are getting high DeFi returns and giving their customers slightly lower ones after taking a cut.
- adam_arthur 5y ago
  Can you explain some of the ways then? Not the user facing side, but the backend/underlying part that generates the returns necessary to sustain those yields.
  - sec400 5y ago
    Not Celsius specifically but you can see details about yearn's strats here: https://docs.yearn.finance/getting-started/products/yvaults/overview https://docs.yearn.finance/getting-started/products/yvaults/... Specific vaults strats: https://medium.com/yearn-state-of-the-vaults/the-vaults-at-yearn-9237905ffed3 https://medium.com/yearn-state-of-the-vaults/the-vaults-at-y... Links to the actual contracts: https://yearn.watch/ https://yearn.watch/
    - adam_arthur 5y ago
      I just glanced through these and don't see any explanation. They basically just say "we put it in a vault and harvest the rewards". What I'm asking is where do the rewards come from. What is the underlying mechanism that makes this model sustainable. If you invest in a REIT, tenants earn money through their business and pay rents. If you invest in a BDC, the BDC makes loans to businesses and collects interest. Relationship and risks are quite clear here. If you're Bernie Madoff you generated high yields for investors for decades by taking money from one investor to pay another, and ultimately was not sustainable and bankrupted many people. For example. So are DeFi yields like a BDC, or like a Bernie Madoff?

gzer0 5y ago

> 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 Is this not the very definition of a ponzi scheme? The returns coming from "incentives" of these protocols and "speculation" in those native assets sounds very ponzi-like to me.

roywiggins 5y ago
If the yields are actually coming from speculation, it's not a Ponzi. Ponzis don't generate real yields, they just shuffle money from new investors to old investors. If it's actually making risky bets and winning them it's more like a hedge fund or something. Of course hedge funds don't have steady 10% yields, they lose money when their risky bets don't pan out.
- adam_arthur 5y ago
  That's essentially exactly what a Ponzi scheme is. You have an asset with 0 intrinsic value that only goes up in value due to new investors buying in. You will only ever make more money if somebody buys in after you. Unlike stocks where owning a share entitles you to profit stream of the company (intrinsic value)
  - roywiggins 5y ago
    If they are actually lending the money out to people who aren't investors, earning interest on it and returning that to investors, then Celcius is not a Ponzi scheme, it's probably speculating on weird, opaque and shitty assets, but it's not a Ponzi. Like, if I set up a business "investing" in worthless penny stocks and somehow manage to generate returns, I'm not running a Ponzi. Maybe I'm pumping and dumping those penny stocks. It's still a scheme, it's just not a Ponzi- I am actually earning money for my investors! I'm defrauding other people, but I'm not defrauding my investors.
    - adam_arthur 5y ago

Alex3917 5y ago

> Where do these high APYs come from The promise of DeFi is that it's supposed to reduce risk for lenders by letting them see the assets of borrowers in real time. If the risk to lenders is lower but interest rates are higher then how can it not be a Ponzi scheme? There's literally no other possible explanation.

JaimeThompson 5y ago

"Its flagship product: 10 to 12.68% annual returns on USD stable coins and this with little to no risks." What is more likely that they figured out a way to "hack" the financial system to make such returns in a very safe fashion or that they are doing things behind the scenes which may be a little bit sketchy? 10% safe annual returns is a bit high if one thinks that the APY is reflection of how risky the investment is.

dustintrex 5y ago

> Well a lot of it is coming from incentives of these protocols I keep seeing this for DeFi. - So you put 1 fiat into the magic box, and 2 fiat comes out. Where did the 1 fiat profit come from? - DeFi collateralized staking algorithms hash protocol incentives! - Yeah whatever but no really, it's a closed system so all inputs and outputs need to sum up, where did the new fiat come from? - YoU dOnT uNdErStAnD cRYpTo!!1!!

berberous 5y ago
I’m not really knowledgeable about DeFi, but here’s a simplistic model (would love to be corrected by someone with deep DeFi knowledge): 1. You put $1 of ETH into a new protocol, let’s say a new Decentralized Exchange on Ethereum that is paying a high amount of interest in order to attract liquidity to their protocol. The high interest is perhaps paid in ETH or maybe in a new token for the protocol. 2. Users flock to this new DEX, and actually use it, generating trading fees for the DEX, which drains activity from CEXs like Coinbase. If in step 1, the payment was made with a new token, perhaps that new token either earns a cut of trading fees, or gets governance rights over the DEX. 3. You either earned another $1 of ETH, or of the new token. In the above example, it’s not a closed system anymore than the US economy is. A new company was created, which created real value by creating a better exchange which attracted users over CEXs. The company has value now it can payout because it generates trading fees and the equity/governance of the company is valuable. It bootstrapped that with protocol incentives.
bglusman 5y ago
I think you may have just also described fractional reserve banking? that is literally where much of the money supply comes from. https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
- notahacker 5y ago
  Except of course, that the crypto world insists that all these cryptoinvestors borrowing crypto to buy other crypto to sell for more crypto to repay their original crypto debt is an ecosystem which isn't [even more] dependent on inflation of the crypto supply. That and unlike stablecoins the Fed doesn't pretend it's fully backed.

reginold 5y ago

I would be interested in seeing other articles on this topic. As someone new to DeFi, I found the article sparked new questions, even though as you said it wasn't deeply researched. If Celcius is basically reinvesting into a bunch of other assets, it's possible, or even likely, that the high yield assets are too good to be true. That's where my concern would be. Is BadgerDAO rock solid? Compound? I would be curious to see expert analysis of these. Celcius is simply built on top.