\n
Placeholder while article actions load<\/title><\/div>\n<div class=\"teaser-content grid-center\">\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">Savers frustrated with the paltry yields offered by banks in recent years appeared to have found a solution: so-called crypto lending accounts that pay interest rates as high as 18%. Millions piled into these products offered by upstart firms including Celsius Network, introducing a whole new cohort of investors to cryptocurrencies. Now it appears some of those eye-popping returns may have been too good to be true. After amassing more than $20 billion in assets, including many people\u2019s life savings, Celsius plunged into a solvency crisis that shook confidence in the largely unregulated world of crypto finance.\u00a0<\/p>\n<\/div>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">1. What is crypto lending?<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">At first blush, crypto lending accounts look a lot like savings accounts offered by banks, but with cryptocurrencies instead of traditional money. An investor opens an account, deposits cryptocurrency and earns interest. Many deposits are in Bitcoin, while other investors use stablecoins — tokens whose price is often pegged at $1. Others use lesser-known, more volatile cryptocurrencies. The accounts typically pay interest in the same currencies that are deposited. Some have rates that change daily. Others offer a fixed rate and the money is locked up for a fixed period.\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">2. How big is crypto lending?<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">It\u2019s still tiny compared with traditional banking, but it\u2019s been growing fast. Celsius said it had close to $11.8 billion worth of deposits on May 17, while BlockFi Inc. declared deposits of more than $10 billion. Gemini Trust Co. began offering accounts in February 2021 and said last August it had more than $3 billion in deposits.\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">3. How can they afford the hefty returns?<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">The firms that offer the accounts say they\u2019re able to lend customer deposits to institutional investors at even higher rates. These institutions sometimes need to borrow crypto to execute their own trades, such as betting that the price of crypto will fall or to take advantage of price differences in other financial instruments. But regulators have said they believe some crypto lending firms are using the money for other business activities. Some may be investing customer funds in riskier crypto projects, making a profit on the bets and pocketing the difference. The bottom line is that there aren\u2019t uniform rules for firms to disclose what exactly the deposits can and can\u2019t be used for. The same goes for decentralized-finance, or DeFi, instruments that also lure crypto investors with sky-high interest payments.\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">4. How does crypto lending differ from DeFi?<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">Celsius, BlockFi and other crypto lending companies deal directly with their customers and pay them interest. With DeFi, it\u2019s just some computer code, rather than an intermediary, that manages the interest payments. Lending out crypto to earn interest via DeFi is sometimes called yield farming. That in turn is different from staking, where holders of a cryptocurrency let their tokens be used to help order transactions on the blockchain, or digital ledger, that is used by that coin.\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">5. What happened with Celsius?<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">The trouble began after Celsius made a big investment in a staking token called stETH. StETH lets people — and companies like Celsius — stake on the Ethereum blockchain and earn additional returns through DeFi. A sharp drop in the value of crypto assets in May left stETH trading at a discount and the token became more illiquid. That made it harder for Celsius to raise money for redemptions when users wanted to withdraw their funds. On June 12, Celsius announced it was halting withdrawals because of \u201cextreme market conditions,\u201d an apparent effort to ward off the digital equivalent of a bank run.\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">6. What have regulators done about crypto lending?\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">Regulators and investor advocates worry that consumers don\u2019t understand that they\u2019re taking on much more risk than they would in a bank savings account. Because the crypto accounts aren\u2019t FDIC insured, customers can lose their deposits if a firm goes bust, is hacked, or otherwise loses its customers\u2019 funds. Few of the firms offering the accounts first sought approvals from US federal regulators, and that already led to a backlash. In July 2021, securities regulators for Alabama, Texas, New Jersey, Kentucky and Vermont brought actions against BlockFi alleging that the company was offering unregistered securities. Several of the same states brought actions against Celsius. Coinbase Global Inc. planned to offer similar accounts but dropped that proposal after the Securities and Exchange Commission said it might sue the company. BlockFi announced in February that it would seek the SEC\u2019s approval for accounts that pay clients high yields for lending out their crypto as part of a record $100 million settlement with federal and state securities watchdogs.\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">7. What could change as a result of Celsius\u2019s problems? \u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">The crisis at Celsius may accelerate the regulatory crackdown. Financial watchdogs appear to view crypto lenders as some of the lowest hanging fruit in their attempt to bring law and order to the broader crypto industry. After all, with firms like Celsius and BlockFi there\u2019s a clear entity to sue, rather than just some computer code as in some DeFi transactions. The SEC already more or less put an end to a boom in what were known as initial coin offerings, or ICOs, by entrepreneurs hoping to launch the next Bitcoin, when it ruled that most of the tokens counted as securities — shares of endeavors where investors pool funds and get returns that depend on the actions of others.\u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">8. What happens if crypto accounts are deemed securities?<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">The designation opens the firms up to an entirely new regime of registrations and disclosure requirements to make the products safer. That would probably mean higher costs for the crypto firms, and possibly the end of those gargantuan returns for investors. \u00a0<\/p>\n<\/div>\n<div class=\"article-body\" data-qa=\"article-body\">\n<p data-qa=\"drop-cap-letter\" data-el=\"text\" class=\"font-copy font--article-body gray-darkest ma-0 pb-md\">More stories like this are available on <a target=\"_blank\" href=\"https:\/\/www.bloomberg.com\" rel=\"noopener\">bloomberg.com<\/a><\/p>\n<\/div>\n<section class=\"b bt bc-offblack dn-ns hide-for-print\" data-testid=\"mostRead\" \/><\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.washingtonpost.com\/business\/whats-crypto-lending-and-how-did-blockfi-promise-to-change-it\/2022\/06\/16\/16645242-ed7e-11ec-9f90-79df1fb28296_story.html\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Placeholder while article actions load Savers frustrated with the paltry yields offered by banks in recent years appeared to have found a solution: so-called crypto lending accounts that pay interest rates as high as 18%. Millions piled into these products offered by upstart firms including Celsius Network, introducing a whole new cohort of investors to […]<\/p>\n","protected":false},"author":1,"featured_media":20080,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[39],"tags":[1112,697,62,1213,7675,677],"class_list":["post-20079","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ico","tag-blockfi","tag-change","tag-crypto","tag-lending","tag-promise","tag-whats"],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"http:\/\/egrowonline.com\/wp-content\/uploads\/2022\/06\/CWDQM3HNPYI6ZH4QPHPR7MUCSY.jpgw1440.jpeg","_links":{"self":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/20079","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=20079"}],"version-history":[{"count":1,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/20079\/revisions"}],"predecessor-version":[{"id":20081,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/posts\/20079\/revisions\/20081"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=\/wp\/v2\/media\/20080"}],"wp:attachment":[{"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=20079"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=20079"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/egrowonline.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=20079"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}