The biggest crypto lending company is a ponzi scheme

https://rorodi.substack.com/p/the-biggest-crypto-lending-company

by kevin_hu • 5 years ago

273 398 5 years ago

rorodi.substack.com

glitchc• 5 years ago

Is the smallest crypto lending company not a Ponzi scheme? If not, then all crypto lending companies are Ponzi schemes.

cinntaile• 5 years ago

This 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• 5 years 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• 5 years ago

"smart contracts"?

tluyben22• 5 years 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• 5 years 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.

theli0nheart• 5 years 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.

isoprophlex2• 5 years 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• 5 years ago

Exactly. You're trying to leverage for more returns.

dfadsadsf• 5 years ago

You have to pay taxes if you sell. Loaning against collateral is tax minimization strategy

pbhjpbhj• 5 years 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?

paulpauper• 5 years ago

But high yields may be sustainable given that borrowing is expensive.

namdnay2• 5 years 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• 5 years ago

That 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%).

eli• 5 years ago

It doesn't prove fraud but it absolutely implies it

anonymoushn11• 5 years ago

As 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.

jeremyjh2• 5 years ago

TFA addresses this point. They are paying a significantly higher yield than they are charging in interest.

prepend2• 5 years ago

This 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.

anonymoushn11• 5 years 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.

infecto3• 5 years ago

What are you trying to say?

kristjansson2• 5 years ago

Rate 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?

bovermyer2• 5 years ago

Personally, I still feel that cryptocurrency in general is a net negative for the human race.

arch-ninja• 5 years ago

Net negative for most, net positive for a few, good learning experience for all.

duxup• 5 years 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• 5 years ago

Net negative for most, net positive for a few, good learning experience for all.

You mean the printing press, right?

bitxbitxbitcoin• 5 years ago

This viewpoint really discounts the experiences of those living in countries with rampant inflation or hyperinflation.

bovermyer2• 5 years ago

No, 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."

gentleman113• 5 years ago

We 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• 5 years 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• 5 years ago

Probably 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• 5 years ago

This all true, but avast and the vpn industry are 2 orders of magnitude smaller than the crypto.

astoor3• 5 years ago

And 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).

marginalia_nu2• 5 years ago

Crypto sure has a vested intrerest in making it seem that way: https://www.investopedia.com/news/are-cryptos-high-trading-v...

WFHRenaissance• 5 years ago

I'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.

criddell2• 5 years ago

It 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?

daniel-thompson2• 5 years ago

it will remain very useful as a medium of exchange

The only current usecase I'm aware of for crypto as a medium of exchange is for criminals, i.e. ransomware / extortion / etc.

skeeter20202• 5 years ago

Except every time there's any instability in the actual crypto we see an immediate attempt by everyone try to flee to sovereign currencies, typically USD. And if you're relying on it for a medium of exchange you'll be dead from scurvy in a month or two.

gonehome12• 5 years ago

Yep agreed, and other underlying applications (NFTs as evidence of group membership or ownership that can be easily owned and transferred, an auditable historical record) have a lot of value.

The ability to hold decentralized state is a resilient way is pretty cool and a lot of the finance applications are better than legacy stuff - try sending large amounts of money around in the legacy system, expect to wait several days for every action.

HN people can continue to cynically dismiss it, but the nice thing about economic bets is it doesn't really matter. Those that see the value will become rich anyway. There are always people dismissing any new thing - the value of that signal is near zero.

I'm excited about what kind incentive alignment we might be able to achieve with programmable money. The city coins stuff I think is pretty cool, maybe a way out of NIMBY type incentive problems. There's a ton of stuff that's being figured out on the frontier - it's exciting. Like I imagine the web was like in 1999 (with the good, and as potentially the case in the OP's article, the bad).

arcticbull12• 5 years ago

Stablecoins will turn into CBDCs and CBDCs will serve that purpose. Bitcoin is down from 68K to 48K in the last what 3 weeks? Stores of value don't flail wildly and incoherently at the whims of a few whales, and given it supports 2-3 tx/sec using the energy of an entire country, it's a crap medium of exchange too.

The future of crypto for anyone other than an anacap libertarian is CBDCs.

UnpossibleJim• 5 years ago

I 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!".

astoor3• 5 years ago

I 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.

skeeter20202• 5 years ago

except 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.

vadansky• 5 years ago

That'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.

lostmsu4• 5 years ago

The funny thing is that you assume crypto enthusiasts are the irrational ones.

Applejinx• 5 years ago

No… the statements 'the market can stay irrational longer than you can stay solvent' is not at all the same as 'the market can stay irrational longer than IT can stay solvent'.

There are structural problems at play. It's completely impossible for there to be an escape velocity of irrationality where Ponzi schemes can become legitimate. All you're able to observe is that people with more money than YOU are still playing. That's not the same as escape velocity: the real money is still waiting for its cue to throw the Ponzi scheme under the buss, and you will not get warning of this.

claaams• 5 years ago

Im naive, can you explain the scammy VPN industry to me?

gentleman113• 5 years ago

Well, 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/?gu...

https://techcrunch.com/2019/02/21/facebook-removes-onavo/

https://www.pcmag.com/news/7-vpn-services-found-recording-us...

tata714• 5 years ago

Yes, billionaires and little people will suddenly forget the easiest, fairest, securest way they've done finance on the internet.

api• 5 years ago

This 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• 5 years 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?

KoftaBob2• 5 years ago

The 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.

toyg2• 5 years 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.

KoftaBob2• 5 years ago

My 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• 5 years ago

Yeah!

How can we forget new concepts and ideas such as "the Indian Removal Act"?

obayesshelton• 5 years ago

Crypto 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• 5 years ago

You 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?

sharemywin2• 5 years ago

So, what your saying is cryto needs an army...

serverholic2• 5 years ago

They 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• 5 years ago

Ponzi'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.

mciancia• 5 years ago

Who on earth is spending $000,000s on a virtual ship?

Money laundering?

Guest42• 5 years ago

True, but it seems like there would be many better ways to do that...i.e. a not particularly successful simple business mixed with personal funds.

agilob• 5 years ago

https://mobile.twitter.com/Foone/status/1457749433844568066

MathYouF• 5 years ago

They call it a con because it involves instilling "confidence" in others.

High sale prices are one way to inspire confidence in others.

Whether that person thinks the sale price is a legitimate indication of value, or they think at least someone else down the line will believe that, is not always clear. Because of the nature of crypto anonymity, there's always at least some percent chance any given sale is a legitimate transaction between two unique and non-colluding parties, and vice versa.

ebiester• 5 years ago

Art is a really weird market in general. The problem with NFT is that people are buying it as an investment rather than a work of art with its own merit of which appreciation might be one benefit.

There's likely no museum backstop for most NFTs. (By which I mean that rich people buy art, sell it amongst themselves/have inflated art appraisals to raise the price, and donate to museums and claim as a tax writeoff.) See https://www.latimes.com/local/la-me-irs2mar02-story.html

NFT as a concept will live - I can see them as placed alongside offline art as an online component that doubles as proof of ownership and lineage, and in the long run could be a major anti-counterfitting strategy.

gonehome12• 5 years ago

I think the art is the wrong thing to focus on. The more novel piece is a ticket to community membership and a way to align incentives within that community. It can take the form of art, but doesn't really have to.

That said, yeah regular art markets don't really make sense wrt value either.

physicsguy• 5 years ago

NFT as a concept will live

I think we just need to wait until the first NFTs start disappearing because of the servers hosting the images shutting down. The actual images aren't stored in the blockchain, it's just a URL.

twox25• 5 years ago

With regards to the museum backstop... I think it's coming. The big auction houses are there already and it's a blurred boundary.

tomp• 5 years ago

How is spending $1 000 000 on a "virtual image" (NFT) any different than spending it on a Picasso? There are equivalent/superior copies of both readily available, but some people value provenance...

moron4hire7• 5 years ago

NFTs only prove the first derivative of ownership. There is no mechanism within the blockchain that can prove that the person who minted the NFT owned the media associated with the NFT, e.g. there's nothing stopping you from minting an NFT claiming ownership of an actual Picasso. Which means that we have to fall back to the traditional system of legal contracts and physical possession to prove the ownership, at which point the NFT isn't adding anything.

The NFT is also not the work in question. While there are some proof of concept works that have their binary data stored directly in the blockchain, the vast majority are just URLs to some other site, URLs that could die or change at any time. And there is no recourse within the blockchain itself to adjudicate the breach of trust that would represent. Which means, again, we have to fall back on the traditional system of legal contracts and courts to resolve disputes.

In other words, the decentralized, "zero-trust" nature of NFTs completely undermines any concept of ownership that isn't a post-hoc rationalization designed to part fools from dollars.

onlyrealcuzzo9• 5 years ago

The Picasso is truly scarce. The NFT is artificially scarce.

marginalia_nu2• 5 years ago

It isn't. The fine art market is a scam, too.

latexr• 5 years ago

but some people value provenance...

Those people should stay away from NFTs, because theft is rampant[1].

How is spending $1 000 000 on a "virtual image" (NFT) any different than spending it on a Picasso?

You own the Picasso but you don’t own the NFT image. Not in any way that matters. Your “ownership” of the virtual image via an NFT isn’t legally recognised and you have no rights to it. Especially not when the minter stole the image[1].

An NFT isn’t a virtual image, but a reference to it. Anyone else can download the same file for free and your purchase can be gone without recourse[2].

A more apt comparison would be spending $1,000,000 on a Picasso or a document that says you own the Moon.

[1] https://www.vice.com/en/article/n7vxe7/people-are-stealing-a...

[2] https://www.vice.com/en/article/pkdj79/peoples-expensive-nft...

AlwaysRock• 5 years ago

People still pay X,xxx or XX,xxx a month to rent Second Life property. Sure it seems silly to me but some people really like NFTs.

moron4hire7• 5 years ago

And they do it without NFTs. So what does the blockchain add here?

usehackernews• 5 years ago

Why do people on HN assume that if they don’t find something valuable, others shouldn’t either.

I think of NFTs like car titles.

Having the car title in your name is the only way to prove you own a car. Someone can burrow your car, and have it in their possession but that doesn’t make them the owner - the title does. When you buy a car, what you’re really buying is a little paper that says you’re the owner - without it, you’re just renting.

NFTs work the same but for digital items. When you buy an NFT, you’re really buying the title for that artwork. Sure, people can copy and paste a JPEG, but they can’t take the title from you - Just like possesing a car without a title doesn’t make you the owner.

The concept of an NFT isn’t absurd, it’s a digital version of a real world use case we all rely on daily to prove ownership.

marcan_42• 5 years ago

It's absurd because if you have a car, someone else doesn't have a car, and the car has intrinsic usefulness. Having the car in your name isn't valuable in and of itself; it's valuable because it allows you to claim the car as your own, and the car is useful and can only be moved, not copied.

Having a JPEG as your own isn't valuable, because JPEGs can be infinitely copied at zero cost. The title for the artwork doesn't mean anything when anyone can duplicate it.

If you want to spend money on art, why not commission some artwork from your favorite artist instead of throwing away money on procedurally generated garbage with a zillion transaction fees tacked on? At least that way the artwork might be something unique to you with a personal significance which makes it have more intrinsic value to you than it would to someone else.

lalos• 5 years ago

The absurd part would be that there are multiple registries, so more than one person can own the same NFT since they are on different systems. Which one is used to prove ownership? The one backed by entity A or the one backed by entity B?

P.S. I find value in this tech but it is still in primitive phase in my perspective.

quietbritishjim2• 5 years ago

Sure, people can copy and paste a JPEG, but they can’t copy the title. Just like driving a friends car doesn’t make you the owner.

This is exactly why NFTs are different to a car title. If someone tries to use your car (the car which you have the title to) without your permission, then the police can intervene. (They often won't, but that's the principle.) In theory at least, they have no right to make use of that object.

If I own the NFT for a JPEG, there's nothing I can do to stop someone copying it, as you say. Not even an ineffective or theoretical method. That's just not part of the rights associated with an NFT to begin with.

In fact it's worse than that. The JPEG (or the image it represents) can still have copyright that someone can own and sell on independently of the NFT. That copyright is the actual analogue of a car title (though enforcement by the police is even less likely). You could have a NFT of a JPEG but not be allowed, in theory, to have a copy the JPEG itself!

onlyrealcuzzo9• 5 years ago

No - when you buy a house - you also are "buying a title". That's not why people buy houses or cars. They buy them to use & own them.

Maybe Ultra High Net Worth Individuals who collect cars and $10M lakefront mansions across the world don't buy cars and houses to "use" them. But >99% of cars and houses are bought for use - not for a piece of paper to prove ownership.

Sure - the people buying $1M NFTs are probably Ultra High Net Worth Individuals (or complete frauds - maybe both?). But the majority of NFTs are not $1M - and the majority of people buying them are not Ultra High Net Worth Individuals.

ceejayoz4• 5 years ago

When you buy an NFT, you’re really buying the title for that artwork.

You're not necessarily, though. When Jack Dorsey sold his first tweet as a NFT, it didn't infer any actual ownership rights. You couldn't even make him delete it.

A car's title holds specific legal weight. The only way NFTs do is if there's a contract, at which point you don't need the NFT anyways.

eckmLJE• 5 years ago

When you buy an NFT, you're really buying an NFT and not the artwork. It's like the opposite of a car title.

psyc• 5 years ago

When you get a title from the real DMV, it's backed by a lot of mutually reinforcing real power. A group of kids can get together and play DMV, issuing titles to each other in crayon on notebook paper. In both cases there is only meaning by consensus, but NFTs sure seem much, much closer to the kids playing.

Everybody except a few conspiracy nuts believe a title is what it is supposed to be. Your friends and neighbors, your parents, the government, the courts, law enforcement, car dealers… but the only people who believe NFTs are what they are supposed to be are insiders.

lfnoise• 5 years ago

The legitimacy of a car title is backed by a government agency. What legal entity backs an NFT? To what authority do you go to enforce your ownership of a JPEG if there is a dispute? Will courts recognize an NFT in a case of disputed ownership?

piaste• 5 years ago

Owning a car vs. renting one allows me to keep it in my garage indefinitely.

If I try to keep in my garage without the ownership title, the police will come, take the car, give it to the owner, and put me in jail.

What does owning a NFT of a JPEG allow me to do that I cannot do with just a saved copy of the JPEG on my hard disk? (Selling the NFT itself doesn't count, for obvious reasons.)

micromacrofoot4• 5 years ago

When you buy the car you own the car. When you buy the NFT you typically own the title but not the car.

floor2• 5 years ago

The car title is analogous to owning the copyright or trademark on an image - something that actually confers meaningful legal power over it.

The NFT is more like a car enthusiast club issuing stickers or badges to its members.

meteorstorm• 5 years ago

Visa?

https://www.cnbc.com/2021/08/23/visa-buys-cryptopunk-nft-for...

machiaweliczny• 5 years ago

Please learn about f2p business model and whale concept. Most f2p apps and many people behind them live from others paying $1M for some digital stuff.

I think it's not super healthy but as long it's taxed I guess it's fine but that shows wealth inequality.

Check "Genshin Impact" for prominient example.

joren485• 5 years ago

The (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

djbebs• 5 years ago

Ha! 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

reginold2• 5 years ago

Can you share more details?

shp0ngle• 5 years ago

“10 to 12.68% annual returns on USD stable coins and this with little to no risks.”

well… I mean…

jacquesm3• 5 years ago

Right up to the grand closing.

anonymoushn11• 5 years ago

you've been able to sell the quarterly basis for 2-4x that much for years. See here: https://cryptohayes.medium.com/all-aboard-4d50435190d6

pjc504• 5 years ago

So who's taking the other side of these trades? Who's paying 10% to borrow money under these circumstances?

anonymoushn11• 5 years ago

Anyone with a non-directional strategy that generates higher returns than that. There are probably hundreds of such firms by now.

avtolik• 5 years ago

The 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...

ruffrey• 5 years ago

Note that Celsius, the company in question, is not listed by DeFi Pulse.

zucker423• 5 years ago

The fact that a large pension fund is invested in this, presumably because of a personal connection, is pretty disgusting.

jacquesm3• 5 years ago

It's a money laundering engine long before it is a Ponzi scheme.

aketchum• 5 years ago

what about blockfi, with similar interest rates but audited by state of new york regularly?

exabrial• 5 years ago

Curious as well

ceejayoz4• 5 years ago

Can 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 is not promising.

Tether claimed audits for years, too, and it was bullshit.

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/ don't look too promising for this claim, either.

adamduren• 5 years ago

From 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-...

ptero2• 5 years ago

I 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.

lostmsu4• 5 years ago

Which ones of them guarantee yield?

pcthrowaway• 5 years ago

In 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.

ptero2• 5 years ago

I 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?

azth2• 5 years ago

Lending 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.

infecto3• 5 years ago

Can you explain the math on how lending money is a ponzi scheme? I don't entirely understand.

azth2• 5 years ago

We 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.

roywiggins7• 5 years ago

Ponzi schemes don't lend money to anyone, they just shuffle money from late investors to early investors.

chinathrow• 5 years ago

So 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)?

marcinjachymiak3• 5 years ago

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

vesinisa• 5 years 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.

marcinjachymiak3• 5 years 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.

thr0wawayf00• 5 years ago

Agreed. And once the irrational optimism leaves the market, we'll see just how stable this whole system is. It mirrors the irrational, misplaced confidence in the housing market back in 2007.

Tether feels like the most likely POF based purely on the attention they're getting now, but nobody knows exactly how it will bust.

tinco• 5 years ago

So, definitely not in defense of Celsius it smells funny to me as well. But the author doesn't seem to understand DeFi. I don't know how Celsius operates but if there's a genuine zero-knowledge proof of their operations then that is better than an actual audit. The author doesn't understand this and proceeds as if no audit actually happened. If the author instead spent some time researching the contents and the merits of the proof they'd make a better point. If the zK proof is bullshit, that's a far worse indictment than all the other circumstantial evidence in my opinion.

Anyway, I don't have much faith an operation ran by an old con artist and a 24-yr old actress would actually produce a valid zK-proof that covers their operations. That's the sort of thing you need a serious technical team for. So the article still stands in that regard.

popol12• 5 years 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.

roywiggins7• 5 years ago

The problem is that every Ponzi insists that their critics just don't understand their special sauce that generates their phony returns.

gzer0• 5 years 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.

roywiggins7• 5 years 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.

FanaHOVA• 5 years ago

Yields for nascent crypto projects are basically marketing budgets and user acquisition costs passed on to the user as profits instead of going to Google Ads or being a coupon for free fries with your order. They want to incentivize people to bring liquidity to them, and pay them for it. The real question is whether or not this actually leads to retention or of it's wasted capital, but that's beyond the point of the article.

Alex3917• 5 years 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• 5 years 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.

dustintrex2• 5 years 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!!

berberous2• 5 years 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.

bglusman2• 5 years 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

reginold2• 5 years 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.

shoto_io• 5 years 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.

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.

gruez4• 5 years 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.

estro01822• 5 years ago

Given 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

stickfigure2• 5 years ago

From 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?

notahacker10• 5 years ago

Seems 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.

estro01822• 5 years ago

It 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• 5 years ago

I 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).

asdfsd2342344445• 5 years ago

Jealousy/FOMO/feeling like they missed the boat.

serverholic2• 5 years ago

I 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• 5 years ago

Lending 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.

matheusmoreira2• 5 years ago

Lending is a fundamental operation in futures markets. It allows you to establish positions worth many times your collateral.

sakopov2• 5 years ago

Crypto 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• 5 years ago

Clickbait 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.

malfist• 5 years ago

How 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• 5 years ago

That's kind of obvious considering crypto“currencies” are inherent multi-level marketing pyramid Ponzi schemes too.

therealmarv2• 5 years ago

A 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• 5 years ago

Those 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.

therealmarv2• 5 years ago

Loans 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).

NelsonMinar2• 5 years ago

This brave world of unregulated opaque finance is just awesome, isn't it?

throwaway4057694• 5 years ago

DeFi is much more transparent than traditional finance.

NelsonMinar2• 5 years ago

Trenchant comment, throwaway405769. It's true there are many more transparent frauds in the DeFi world.

boxmonster• 5 years ago

I'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.

sakopov2• 5 years ago

Another 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-my...

dustintrex2• 5 years ago

It 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.

_xnmw3• 5 years ago

For 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.

lardo• 5 years ago

What about legal drugs?

twox25• 5 years ago

Sure, 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.

ericd• 5 years ago

They forgot to mention the widespread vested interest by the large number of speculators to deny/downplay the issues in every discussion ;-)

gitfan86• 5 years ago

Pyramid schemes like Rodan and Fields can go on forever, they will grow and contract over time, but there will always be a new group of people who are interested in getting rich. The mentality isn't much different than gambling at casinos I guess.

ajross• 5 years ago

Crypto is a mix, though. Yes, there's lots of feedback-growth/tulip-bubble nonsense. There's also a very large amount of very real money flight being enabled. The PRC clampdown was fundamentally aimed at that trick: wealthy folks in China with a ton of RMB don't trust the government not to steal their fortune (c.f. Jack Ma). But you can't turn those yuan into anything liquid outside the country without tipping them off that you're running, then you'll end up just like Jack anyway.

But... if you can build a datacenter in China with RMB, and pay chinese workers with RMB, and buy equipment and electricity with RMB, and get *bitcoin* out, then you've evaded the trap and liquified[1] your Chinese holdings.

It's not at all clear to me how much this hole has been closed, honestly. But it's possible this is still going on at a level high enough to explain crypto's continued expansion.

That said: duh, it's a bubble and it's coming down at some point. But there's real economics happening too.

[1] Or laundered, depending on how you swing.

SZJX• 5 years ago

First, there were already various capital transfer methods for the Chinese rich before crypto exploded (also, Jack Ma wasn’t really targeted to give up his wealth or whatsoever. Legally speaking any Chinese person can only transfer up to 50K USD abroad per year, and that’s the reason for the search after capital flight mechanisms, but that’s a separate point). Second, this could not be a particular reason why the crypto market would suddenly balloon 10 times in less than a year (why would Bitcoin’s value go up if it’s only bought/mined and sold constantly in exchange for fiat anyways, in the first place?). So yeah, capital flight has always been a use case of crypto, but it far from explains the market exuberance we’re seeing right now.

nradov• 5 years ago

China banned cryptocurrency not because it's a scam (which it mostly is) but because it provides a way for wealthy Chinese to evade currency controls. The Chinese renmimbi currency isn't freely convertible to foreign hard currency. But Chinese residents found a loophole. They could purchase cryptocurrency mining hardware and electricity with renmimbi, then use online exchanges to sell the resulting tokens for foreign currency. The Chinese Communist Party couldn't tolerate this challenge to their authority.

nprz2• 5 years ago

Eric Schmidt just joined ChainLink as a Strategic Advisor[0]. If crypto is such an obvious scam like so many hn readers believe to be the case, why would someone like Schmidt ruin his reputation by joining a crypto company?

[0] https://www.prnewswire.com/news-releases/former-google-ceo-e...

_xnmw3• 5 years ago

Even Bernie Madoff had highly respectable people working with him.

edit: removed my comment about Schmidt not really joining, I see it announced on his Twitter.

dqpb2• 5 years ago

What 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.

delabay7• 5 years ago

Crypto speaks to aspects of humanity which people hold near and dear.

Crypto no doubt harbors shady characters, ponzi schemes, scams. You also can't deny that there are ideas which threaten state control, monetary policy, nationalistic ideals, religion its self. Just look at the magnitude of the conversation.

Its easy to dismiss me as the ramblings of somebody caught up in the scam. But when has it been a good idea to completely dismiss ideas which can shake the bedrock of society? I'm sure dinosaurs never thought an asteroid would cause them to go extinct either.

I ask the skeptics to take a Bayesian approach to skepticism. If you think in absolutes you can never accept new information. Move your skept-o-meter from 100% to 99% and allow yourself a fraction of a sliver of consideration. It might just be one of the most important things you have done.

meepmorp• 5 years ago

If you think in absolutes you can never accept new information.

Never? Sounds a mite like absolute thinking.

jcranmer• 5 years ago

The basic issue with cryptocurrency is that very little of it is actually new. You talk about ideas which threaten monetary policy--except those 'ideas' were actually the typical monetary policy not a hundred years ago. So it's worth asking yourself why monetary policy was changed from your favored position before trying to convince everybody else that it should be changed back.

You know, a decade ago, I actually thought that cryptocurrency and blockchain were interesting ideas that might be well worth pursuing. But it has increasingly felt like a solution in search of a problem--it's hard to find any use cases that aren't already better solved with other solutions. And in these kinds of discussions, the cryptocurrency adherents themselves struggle to proffer any such problem that doesn't boil down to--as someone else put it--wanting to live in Galt's Gulch. Which isn't exactly a compelling problem for most of the world's population. And comments like yours aren't helping to move the needle in the direction you want it to move.

Daishiman• 5 years ago

But you're not being a skeptic here, you're just gambling.

Skepticism considers the ways in which you assumptions could have plausible positive or negative outcomes.

I see the entirety of the DeFi "industry" being regulated to death considering how many of these protocols and DAOs behave exactly like securities or replicate existing legal structures; I see no reason that governments will not seek to regulate them the same way.

We can look at the claims of crypt enthusiasts as stores of value, which is coherent, for sure, but if we're willing to give it the benefit of doubt then we should consider other equally shaky technologies and tech scenes, which doesn't give me much hope by itself.

The place where crypto has, and will likely continue to show value, is in money laundering and tax and currency control evasion. There are all things that, while illegal, _definitely_ have value, so my lower bound here is the value of a digital instrument to bypass these controls, especially in countries in which such things are tightly regulated.

That's not an insignificant lower bound; it is at least as large as a big fraction of the remittance industry + shadow banking. It's just that it's really, really difficult to make an honest living in this industry.

ricardobayes2• 5 years ago

There is nothing wrong with the global financial system. I can already send money electronically to anyone by way of bank transfer. In Europe, it's even easier, faster and cheaper than sending crypto.

monopoledance3• 5 years ago

You also can't deny that there are ideas which threaten state control, monetary policy, nationalistic ideals, religion its self.

Phew. Yeah, we all felt that. In 2010.

Now while we're reminiscing the past, I know another one! Lets provocatively ask: Isn't the colossal energy wasting worth freedom and all? - So exciting, wasn't it? And don't get me started on Wikileaks donations!

Reality has moved on, and nothing screams ponzi scheme more, than followers repeating decade old talking points, aged like milk, into dogma. Lol, I am pretty sure the vast majority of people doesn't even want that idea of ancap freedom, unregulated markets and tax evasion.

Paradigma112• 5 years ago

Crypto is an open protocol for financial services/transactions running on decentralised hardware. Thats pretty cool and useful.

Naturally the first thing that happened was that all the scammers and get rich idiots moved in like with any powerful new technology.

It will surely take some time to get the real world usage up and the portion of moon boys/scammers down but it will happen nevertheless.

_xnmw3• 5 years ago

Crypto is an open protocol for financial services/transactions running on decentralised hardware.

Except it's not. "Open" and "decentralized" are the false promises of crypto. The entire crypto market is dominated by centralized exchanges, criminal enterprises like Tether and Binance.

moron4hire7• 5 years ago

Scammers moving in on new, powerful technologies is a function of regulartory arbitrage in the face of moving the massive boat of government. To get rid of the scam requires removing the arbitrage. Financial systems are centralized specifically because you can't regulate them without the rule of law. The IRS in the US has already required reporting crypto-asset income. All that is left is for government to ban transfers to/from anonymous wallets.

jerrygoyal• 5 years ago

For those who don't know Bernie Madoff was an American financier who executed the largest Ponzi scheme in history, defrauding thousands of investors out of tens of billions of dollars over the course of at least 17 years, and possibly longer. He was also a pioneer in electronic trading and chairman of the Nasdaq in the early 1990s.

ricardobayes2• 5 years ago

Same here, even though it's increasingly hard. All my friends say I'm stupid to choose to leave out.

SaltyFetus• 5 years ago

There is nothing of substance in this comment; its taken you two paragraphs to say "I think its a scam and I don't like it". Moralizing and vague threats make up the rest.

TimJRobinson4• 5 years ago

How are you so confident in something you clearly don't understand.

Celsius is not decentralized finance and does not represent crypto, it is a centralized opaque company which is literally the opposite.

Decentralized Finance is all open source and transparent, everything is written to a public blockchain and almost every piece of infrastructure you can go and look at the source code yourself.

It's a far better system than anything we've built so far because it's available for all to see the inner workings.

I'm surprised hacker news, a place that's supposed to be about intellectual curiosity, has been so ignorant and dismissive of this revolution underfoot for so long.

SergeAx• 5 years ago

Define "scam" then. I am 100% sure I can buy drugs, fake IDs, CP and other illegal goods and services with crypto, how's that a scam?

vmception• 5 years ago

Offering 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• 5 years ago

I 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.

zucker423• 5 years ago

This 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.

janandonly• 5 years ago

Having 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.

kristjansson2• 5 years ago

The 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• 5 years ago

Genitrust is another such ponzi scheme.

tim3332• 5 years ago

Celsius 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.

The biggest crypto lending company is a ponzi scheme

Related Stories