By Darren Parkin
The world of cryptocurrencies has seen its fair share of successes and failures. The three recent scandals of Celsius Network, BlockFi and FTX will go down in history as examples of what excessive greed can lead to. All three platforms promised to revolutionize crypto by offering high-interest savings accounts, lending services, and other financial products, including crypto exchanges.
However, despite their early promise, each has suffered setbacks that left investors reeling, no longer worried about a return on their capital, but a return of their capital.
Pyramids and Ponzi schemes never go out of style, because investors are greedy to get unrealistic yields – driven by shiny marketing and deceptive newsfeeds. With the increasing popularity of cryptocurrencies, retailers need to properly understand how to manage their investment in this now not-so-new but still exciting asset class.
In the maelstrom of deception
Pretty much like any ambitious crypto venture, Celsius Network launched in those blissful pre-pandemic and pre-recessionary days of 2018, with a bold mission to create a decentralised financial platform that would allow users to earn high-yield interest on their crypto holdings.
Thus, the company offered interest rates that surpassed legacy finance by a mile, and many investors saw this as a compelling opportunity – with balances rising and only a smart or just a lucky few cashing out before the crash. However, Celsius’s meteoric rise was short-lived, as the company soon became embroiled in a series of controversies that led to a loss of investors’ confidence – and capital.
One of the critical issues with Celsius was its business model and false claims. Like many other well-advertised “CeFi disruptors,” the company claimed to be decentralised. In reality, it was highly centralised, with a few individuals controlling the vast majority of the platform’s assets. This led to concerns about the company’s transparency and accountability, and many investors began to question whether their funds were ever genuinely secure.
In addition, Celsius was criticized for its opaque and complicated fee structure, making it difficult for investors to understand exactly how their returns were calculated. The company was also accused of using its own funds to manipulate interest rates, leading to further mistrust from investors.
Despite these issues, Celsius continued to grow and attract new sheep to the slaughterhouse, but in the end, the company’s problems proved insurmountable. In 2020, the company suffered a major security breach, which resulted in the loss of a significant amount of client’s funds. This was the final straw for many investors, who quickly pulled what hard-earned bucks were left from the platform and moved on to other, seemingly more trustworthy crypto savings accounts.
Now BlockFi, another crypto platform that promised high-interest savings accounts, was also met with controversy. The latter was founded in 2017 and quickly gained a reputation for offering some of the best interest rates in crypto. However, despite its early success, BlockFi soon found itself in the crosshairs of regulators and investors alike.
Long story short, one of the most significant issues with BlockFi was also its questionable business model, which relied heavily on borrowing and lending. This was a risky strategy, as it exposed the company to the risk of default by borrowers. In addition, the platform was accused of engaging in insider trading, which led to a loss of investor confidence and calls for greater regulatory oversight.
Like Celsius, BlockFi’s problems proved to be too much to overcome, and the company suffered a significant setback in 2020 when one of its key lending partners defaulted on its loans. This resulted in a substantial loss of investor funds, and many investors quickly moved their assets to other crypto savings accounts.
FTX is also the most recent example of a seemingly wildly successful crypto exchange and FTX cryptocurrency imploding, with operations run on Quickbooks – just like Celsius – and with funds co-mingled with and covering the losses of the allegedly independent Alameda Research.
Instead, the reportedly polyamorous inner circle was also fiddling with the books and the tens of billions on offer, while Sam Bankman-Fried, renamed by some on social media as Scam Bankrupt-Fraud, played the role of honest, vegan broker who could play online games while participating in business calls that would normally require one’s full attention – and while FTX may well be resuscitated, its reputation presumably never will be, with customer funds in the billions still unaccounted for.
The not-so-funny thing is that both Celsius and BlockFi crashed well before FTX, yet still the masses flocked to invest, although FTX having the funds to sponsor sports stadiums and have big celebrity endorsements kept the train running before it too suffered a massive derailment, the financial equivalent of East Palestine, Ohio, on steroids.
Get your profit fast or die trying
At the end of the day, Celsius, BlockFi and FTX serve as excellent examples of why investors should refrain from trying to hunt for higher yields in crypto. These three crypto platforms promised to revolutionize the space by offering high-interest savings accounts and other financial products, with shades of ponzi recognizable to only a few before their respective crashes, and by everyone thereafter.
However, despite their early promise, all three firms were met with controversy and suffered significant setbacks resulting in investor funds’ loss, with the Celsius and FTX sites no longer working properly, while BlockFi still exists, but who would trust it?
The Anchor Protocol was another perfect demonstration of unrealistic yield expectations, which fell like a house of cards along with the Luna in May 2022.
Understanding the business model behind the crazy interest rates of up to and over 20% took time since borrowers were also rewarded for borrowing. And where did the money come from? Prior to its downfall, some people were already warning that Anchor was unsustainable, as there weren’t enough borrowers!
The most charitable thing about that delicious 20% rate is that maybe it was meant as a customer acquisition strategy, with the overwhelmingly high APY presumably set to be revised much lower at a future time, with the idea being to pay for as many eyeballs as possible and figure out how to really make money from it later.
As noted, others recognized what appeared to be an obvious Ponzi scheme, where money from later investors was paid to earlier investors as “interest”. However, old stories and lessons from such schemes stopped almost nobody – and even Bernie Madoff didn’t consistently give his investors 20% interest rates!
Regardless, a lot of Terra was deposited in Anchor — as much as 72% of Terra, according to Decrypt. On May 7, 2022, the price of the then-$18-billion algorithmic stablecoin terraUSD (UST), which was supposed to maintain a $1 peg, started to wobble and fell to 35 cents on May 9. Moreover, its companion token, LUNA, meant to stabilize UST’s price, fell from $80 to a very few cents by May 12. What happened later was one of the largest and most painful crashes in crypto, which is still felt across the markets today.
Stepping onwards carefully
These failures serve as a cautionary tale for investors and highlight the importance of due diligence when considering investing in cryptocurrencies.
Noncustodial solutions gain more importance in the circumstances like this. To address this issue, retailers can turn to truly decentralised exchanges or other cost-effective solutions that allow them to store and manage their cryptocurrencies without paying high fees.
The cryptocurrency world offers many opportunities for retailers to cut costs and increase profits. By focusing on how they receive payment, store and manage their cryptocurrency, and helping customers understand the risks associated with this new asset class, retailers can take advantage of the benefits cryptocurrency offers.
Needless to say, in these conditions, currencies like STASIS-issued EURS, other euro stablecoins or Xin-Fin’s XDC are the perfect instruments to enter and exit crypto with centralized services or DeFi. The European fintech company STASIS, for example, is developing native Web 3.0 with the ecosystem to manage digital assets as well as public and private blockchains.
Being the biggest European cryptocurrency since 2018, the company now claims it intends to make its flagship product – EURS – the first stablecoin procured in the EU to have its reserves fully backed by cash. This latest move comes as a response to the growing regulatory concerns in the industry. Furthermore, BDO conducted intermediate certification, ensuring that all the STASIS-held assets are in 100% liquid euro balances. It’s also worth mentioning that during most of the project’s lifetime, cash reserves varied from 60% to 100%, thus reassuring investors of EURS credibility.
Increasingly in the future, enhancing transparency and security measures for stablecoin users will play a crucial role in promoting the broader adoption of cryptocurrencies as a legitimate medium for investment and exchange.
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