(Photo by Saketh Garuda on Unsplash)
In a previous post on Passive Income in Crypto, Celsius was used as an example for making a yield on crypto deposited on their platform. Celsius is a crypto lending company that allows users to take out loans against their crypto, or allows users to lend their crypto out for a percentage return in the underlying asset. Celsius had a town hall meeting in New York last week, in which I attended. One reason I was interested in attending is because I use the platform, and I wanted to look into the eyes of the people I was giving my bearer assets to. The company uses BitGo to custody client funds, but these are not segregated accounts, and the funds are eventually lend out to counterparties. Suffice it to say, there is a high risk that client funds may never come back, but that is a 100% risk of default which can be taken into account.
A curious development that was hotly discussed was the treatment of New York residence. It seems as though the company can no longer provide interest payments to clients domiciled in New York state and Washington state. There were more than a few questions about this topic, as can be expected when the meeting took place in New York City. There was no timeline on when these clients would gain access to the services provided by Celsius. It was a bit ridiculous to hear that no resident of New York could use the company’s services, and a resident of New Jersey traveling through New York would also find the service unavailable while that client was attempting to access the app in New York state. These bit-license issues are becoming unmanageable.
The Celsius service is available to residence of most other states in the US (I am not confident if all 48, but this is my understanding at this time). The company uses IP location and address records to determine residency, which can be circumvented by out of state residence and VPNs, but it is comforting to hear that Celsius
is interested, and eager, to comply with all regulatory laws regarding crypto in the United States. It seems like a good sign.
There were many topics discussed which mostly revolved around the company’s utility token benefits, which seemed less interesting. But that was why we were all there in the first place. One other thing this author found interesting, was a tidbit of information about the borrowers that Celsius services. The large borrowers of crypto from Celsius are hedge funds, this is known and stated on the company’s website. What was fascinating to learn is the reason why they want to pay high fees to borrow crypto. My hypothesis from the previous article was the friction in acquiring crypto was high enough to charge a premium to institutions who otherwise could not gain large sources of crypto capital for trading. The reason stated at the town hall was that these funds will borrow in crypto, trade that crypto as a particular asset, and make a profit in that underlying asset. In this way the funds do not incur a taxable event because there was never a conversion to or from fiat. It is an interesting business idea, and a bit of a peek behind the machinery.
Celsius recently announced expansion of their yield bearing offerings with the addition of staking options for Dash. The move into paying some kind of yield from staking tokens seems like the next foray for crypto custody services to offer a return to their clients. For those interested in these tokens, more platforms may offer passive income for holding these tokens on your behalf. As always, hodler beware, giving crypto to a company creates counterparty risk. This may mean that your crypto may never come back to you.
disclaimer: these musings are offered, at best, as educational, and at worst for entertainment purposes. Do not take action on the descriptions above, as they contain risks, and are not intended as financial advice. Do not do anything above.