Celsius — What went wrong?

There’s a difference between stated preferences and revealed preferences. The best example of this is privacy. We all say we want privacy but are quick to share private information if doing so affords us some conveniences.

We say we want transparency but live by the philosophy of “ignorance is bliss”. The moment we have someone like Celsius offering us fixed returns we sign up without having any visibility into where the money is being invested and how the returns are being generated.

What does Celsius do and why has it been in the news lately?

Celsius functions somewhat like a bank. A bank takes deposits in say dollars and then lends the same out at a higher rate of interest. Celsius does the same but with cryptocurrencies. It takes deposits in say BTC and lends the same out.

With dollars and other fiat currencies offering little or even negative interest rates, crypto yield products like Celsius’ were becoming quite popular. Other similar platforms include — Amber, Nexo, and BlockFi.

Earlier this month, Celsius froze customer withdrawals citing extreme market volatility. One suspects that they’re facing a liquidity crisis if not a full-blown bankruptcy.