Fast-growing crypto lending platform Celsius faces scrutiny over unclear interest sources, further raising user concerns.

Celsius Network is a cryptocurrency lending startup that has seen a 2,165% growth in deposits over the past year. However, recent reports have surfaced about the unclear source of interest payments on deposits, leading to concerns among users.

Celsius Network was founded in 2017 and is the fastest-growing crypto lending company, with $300 million in deposits within 12 months and $2 billion in cryptocurrency loans completed. In 2018, it was recognized by Forbes as a disruptor in traditional banking.

The company currently accepts 6 cryptocurrencies as collateral, including Bitcoin, Ethereum, Litecoin, Ripple, Dash, and Bitcoin Gold (BTG).

According to Celsius CEO Alex Mashinsky, the company has processed over 160,000 loans since its launch last year and manages approximately $345 million in assets.

Opaque Interest Mechanism

In simple terms, users do not know where Celsius' interest comes from or which large institutions Celsius partners with for lending.

The company emphasizes on its website that this is not a "Ponzi scheme." Celsius lends deposits to hedge funds, institutional traders, and exchanges to generate interest. Besides large institutions, it can also provide dollar loans to users with crypto assets as collateral and earn interest from these loans.

However, Celsius does not explicitly state to users that it provides loans to exchanges, meaning Celsius directly lends to users of certain exchanges through its peer-to-peer margin trading program.

Mashinsky stated:

In this scenario, the exchange makes sure to get collateral from the margin traders, and the loans that the exchanges provide to the traders are coming from the exchange users or lending institutions like Celsius.

Reports indicate that in this way, the default risk of margin traders is borne solely by the exchanges. This also means that if exchanges encounter problems, lenders such as Celsius may face default risks, including Celsius.

Mashinsky mentioned that the company collaborates with over 150 institutions for lending and borrowing, but due to "competitive factors," he refuses to disclose the identities of any institutions.

Mashinsky explicitly stated that Celsius currently does not provide any Bitcoin to Bitfinex, as the annual interest rate is only 0.3%, making it more attractive to lend to hedge funds and other institutional traders.

Further Reading

• The rising demand for cryptocurrency loans
• After a visit to Switzerland, U.S. regulators still have doubts about crypto

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