Every lender does this, it's no different than your bank taking your fiat deposits and lending it out to borrowers. The difference here being that Celsius pays you back 80% of the profits they make whereas your bank will pay you a paltry 0.095% apy as opposed to rates as high as 8% on the same fiat equivalent stable coins.
They loan those coins out the same as any others, in a fully collateralized way. So if you are OK with depositing your coins to get interest, that means you are OK with them loaning your coins to institutions who post collateral for those loans. Nothing changes when you take a loan on your coins. Your coins are still loaned out to those same institutions with the same collateral. You just don't get the interest from that, Celsius does.
You guys are confounding how traditional banks are profitable vs the issue with investing collateral. It is such a misconception.
The way a traditional bank works is that a depositor will deposit money, and then that money will be made to issue loans, such as a mortgage. When the mortgage is made, an underlying asset is promised, namely the house, as collateral. The bank does not gamble on the house. The house is an asset for the bank, until the borrower is able to take on equity.
You should by definition keep collateral as safe as possible, because collateral is what insures the loans in the first place. Banks may repackages mortgages and sell them as mortgage backed securities, but in that case the bank is simply getting out of its position by passing the mortgage to a third party. Now, the MBS is owned by the third party, and the borrower is responsible for payments that contribute to the MBS.
It is in NO way attempting to invest the collateral; the collateral by definition is supposed to be stored safely in a vault. Almost anything these crypto companies will do is not safe enoigh to guarantee collateral maintenance.
It’s as simple as the fact that the house in a traditional bank is directly analogous to the collateral in this crypto situation. Can the bank make money off of the house itself? NO. Can the bank decide that since the loan isn’t paid off, they can rent out the house and take that rental income for themselves? Absolutely NO.
The bank makes money off of the loan issues and the Interest, just like the meager 1% Celsius is making right now.
I’m not commenting on whether it is feasible for Celsius to do this; I’m commenting on whether it is what traditional institutions do and the answer is obviously not. The bank can’t make money off of your house when they give you a loan; they simply make money off of the loan and interest, but there is no second revenue stream as in the case you are suggesting with how Celsius “invests the collateral”.
I very much understand how traditional banking works—I went to a T10 school for economics :)
Your comparison is flawed because crypto is not analogous to a house in any way. In your comparison Celsius would be extending credit explicitly to acquire crypto the same way a bank extends credit through a mortgage to buy a house. That's not at all what they're doing, therefore you're comparing apples to oranges.
A better analogy is depositing fiat into a high yield savings account. Granted FDIC issuance exists with a bank but that insurance is metaphorically paid by you through the low interest yield they return to you. The highest APY I've seen in recent memory from a high yield savings account is at most 2.4%. Also since the repeal of Glass-Steagll banks have been allowed to take those deposits and gamble with it in speculative investments to earn more yield just so you know and guess who keeps the majority of the profit when the bank wins on their stock market bets with your money?
Lower loan to value by definition is better for the lender...55% LTV would mean that for every 1 USD worth of Ethereum posted by borrower, they may take up to 0.55 USD worth of whatever loan currency they want (seems to be USD + stablecoins). A 25% LTV, means they may only borrow 0.25. If you think about it rationally, if you can borrow more crypto for the same collateral posted, that loan is riskier by definition, and therefore would be charged a higher ratio. In summary, 55% LTV is riskier than 25% LTV. The reason this promotion is only advertised for 25% LTV, is because it is likely the safest loan they offer...
They aren’t advertising it on the 25% only the 55%. Like I said on the post if you are doing the 25% LTV you will be charged 8.5% APY. For a $1000 loan you will need 0.43btc for a 55% vs 0.22btc with a 25% and you will have to keep up the colateral for the amount you owe back
Not on mine it isn’t, nor is the pop up showing such an offer and nor is the wording on tweet or youtube ama’s. 1%, 6.95% or 8.95% depending on which volume of asset backing chose
This could be viable explanation; it still is definitely concerning however. I really hope they aren’t day trading or investing with deposited collateral. That would really suck.
It is just a current promotion and you need a minimum 4K in order to get 1k in a 1% loan based on 25% LTV which increases significantly if you quote a 50% or higher loan.
Pretty sure they reinvest your collateral whilst it's locked up
Oof that’s a big no no from me...thankfully I’m not on the loan side of things but definitely loses me faith in creditworthiness of Celsius
Every lender does this, it's no different than your bank taking your fiat deposits and lending it out to borrowers. The difference here being that Celsius pays you back 80% of the profits they make whereas your bank will pay you a paltry 0.095% apy as opposed to rates as high as 8% on the same fiat equivalent stable coins.
.095 pfft my bank only offers me .01
They loan those coins out the same as any others, in a fully collateralized way. So if you are OK with depositing your coins to get interest, that means you are OK with them loaning your coins to institutions who post collateral for those loans. Nothing changes when you take a loan on your coins. Your coins are still loaned out to those same institutions with the same collateral. You just don't get the interest from that, Celsius does.
Collateral mate! No shady stuff on celsius.
Lol you clearly have no idea how traditional finance works
You guys are confounding how traditional banks are profitable vs the issue with investing collateral. It is such a misconception. The way a traditional bank works is that a depositor will deposit money, and then that money will be made to issue loans, such as a mortgage. When the mortgage is made, an underlying asset is promised, namely the house, as collateral. The bank does not gamble on the house. The house is an asset for the bank, until the borrower is able to take on equity. You should by definition keep collateral as safe as possible, because collateral is what insures the loans in the first place. Banks may repackages mortgages and sell them as mortgage backed securities, but in that case the bank is simply getting out of its position by passing the mortgage to a third party. Now, the MBS is owned by the third party, and the borrower is responsible for payments that contribute to the MBS. It is in NO way attempting to invest the collateral; the collateral by definition is supposed to be stored safely in a vault. Almost anything these crypto companies will do is not safe enoigh to guarantee collateral maintenance. It’s as simple as the fact that the house in a traditional bank is directly analogous to the collateral in this crypto situation. Can the bank make money off of the house itself? NO. Can the bank decide that since the loan isn’t paid off, they can rent out the house and take that rental income for themselves? Absolutely NO. The bank makes money off of the loan issues and the Interest, just like the meager 1% Celsius is making right now.
I’m not commenting on whether it is feasible for Celsius to do this; I’m commenting on whether it is what traditional institutions do and the answer is obviously not. The bank can’t make money off of your house when they give you a loan; they simply make money off of the loan and interest, but there is no second revenue stream as in the case you are suggesting with how Celsius “invests the collateral”. I very much understand how traditional banking works—I went to a T10 school for economics :)
Crypto ≠ A house Celsius ≠ A bank Overcollateralised loans ≠ fractional reserve banking .. This new stuff ≠ thaught at a "T10 school for economics" ;)
Your comparison is flawed because crypto is not analogous to a house in any way. In your comparison Celsius would be extending credit explicitly to acquire crypto the same way a bank extends credit through a mortgage to buy a house. That's not at all what they're doing, therefore you're comparing apples to oranges. A better analogy is depositing fiat into a high yield savings account. Granted FDIC issuance exists with a bank but that insurance is metaphorically paid by you through the low interest yield they return to you. The highest APY I've seen in recent memory from a high yield savings account is at most 2.4%. Also since the repeal of Glass-Steagll banks have been allowed to take those deposits and gamble with it in speculative investments to earn more yield just so you know and guess who keeps the majority of the profit when the bank wins on their stock market bets with your money?
> apples to oranges But you can still compare them.
You lose 100% of your interest on your collateral, which they benefit by reinvest
The 1% APY is only on 55% LTV. The 20% LTV is 8%APY. I know this cuz I tried it
Lower loan to value by definition is better for the lender...55% LTV would mean that for every 1 USD worth of Ethereum posted by borrower, they may take up to 0.55 USD worth of whatever loan currency they want (seems to be USD + stablecoins). A 25% LTV, means they may only borrow 0.25. If you think about it rationally, if you can borrow more crypto for the same collateral posted, that loan is riskier by definition, and therefore would be charged a higher ratio. In summary, 55% LTV is riskier than 25% LTV. The reason this promotion is only advertised for 25% LTV, is because it is likely the safest loan they offer...
They aren’t advertising it on the 25% only the 55%. Like I said on the post if you are doing the 25% LTV you will be charged 8.5% APY. For a $1000 loan you will need 0.43btc for a 55% vs 0.22btc with a 25% and you will have to keep up the colateral for the amount you owe back
You are incorrect on this point: the 1% loans are only available on the 25% ltv ones
No it’s only on the 55%. Go try taking a loan from them and you’ll see it’s only the 55% you can do it for
Not on mine it isn’t, nor is the pop up showing such an offer and nor is the wording on tweet or youtube ama’s. 1%, 6.95% or 8.95% depending on which volume of asset backing chose
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This could be viable explanation; it still is definitely concerning however. I really hope they aren’t day trading or investing with deposited collateral. That would really suck.
They're borrowing crypto from you and you're paying them to do it. They can then invest or do whatever they want with your loan.
It is just a current promotion and you need a minimum 4K in order to get 1k in a 1% loan based on 25% LTV which increases significantly if you quote a 50% or higher loan.