Controversy Continues! Celsius Network Accused of Providing Unsecured Loans, Official Statements Contradictory

The cryptocurrency lending platform Celsius Network has recently been embroiled in controversy. Apart from participating in liquidity mining for the DeFi project Compound with user funds in early July, the clarity of its business regarding the existence of "unsecured loans" remains unclear. Even the funds raised in the ICO are far below the initial $50 million target. All signs point to users considering switching to another platform!

Founded in 2017, Celsius Network was once hailed by Forbes in 2018 as a disruptor of traditional banking. Looking back at the special feature "Cryptocurrency as Fixed Deposit Commodity," centralized lending platforms like BlockFi and Celsius Network have drawbacks such as "limited asset selection" and "opaque interest mechanisms." The company emphasizes on its official website:

This is not a "Ponzi scheme." Celsius lends deposits to hedge funds, institutional traders, and exchanges to generate interest. Besides large institutions, it also provides dollar loans to users with cryptocurrencies as collateral, earning interest from these loans.

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Opaque Business Mechanism

In early July, it was reported that Celsius participated in Compound liquidity mining. Celsius founder Alex Mashinsky and Compound founder Leshner even engaged in a heated exchange on Twitter, with Leshner describing Celsius as a Ponzi scheme.

As a result, Mashinsky took to the forefront in mid-July and held an online AMA on YOUTUBE, where he stated:

Are we doing unsecured loans? Celsius doesn't do that because it puts users at too much risk.

However, the foreign media CoinDesk pointed out discrepancies with the description from Celsius spokesperson Anastasia Golovina, who had stated before the AMA:

Since 2018, Celsius' unsecured loans have been less than 1% of the total, by loan count, not 1% of the dollar volume, and these loans are usually of normal size and provided to large institutions.

How Deep Are the Institutional Pockets?

In addition to the aforementioned opaque business practices, Celsius raised $50 million in an ICO for its token CEL in 2018. However, according to CoinDesk, Celsius seemed to have held the raised Bitcoin and Ether throughout the entire bear market period, only converting to fiat currencies after the market collapse, resulting in approximately 50% losses. Spokesperson Golovina explained:

Reports indicate that Celsius raised $50 million, but we did not convert it to fiat currency immediately. The difference is due to accounting errors, taxes, and other reasons, and Celsius itself is also a "HODLer," only recognizing it as revenue when the ICO funds are converted to dollars.

In other words, Celsius admits to not immediately converting the funds to fiat currency after the ICO but did not mention the extent of the fund shrinkage. Despite this, Celsius still raised $19.22 million in the latest round of financing from BnkToTheFuture, and Tether also invested $10 million in Celsius at the end of June.

Among all centralized lending platforms, Celsius seems to be the most controversial, so from a risk-centric perspective, users have no need to choose Celsius, especially amidst the current popularity of DeFi liquidity mining. There are also many reports on the DeFi field, providing an opportunity to understand that decentralized lending platforms are also a good choice.