The Celsius Network, a crypto lending company founded by Alex Mashinsky and S Daniel Leon in 2017, has seen a 2,165% growth in deposits since opening for business last year. However, concerns over how interest is generated still remain.
The company based in New York raised $50 million in a token sale in May 2018 at the height of the ICO (Initial Coin Offering) boom. This was a time with the crypto news was full of ICO success stories. Since then, 10415 users have taken out loans in fiat currency using crypto as collateral. Celsius also claim that they have processed more than 160,000 lending transactions whilst accumulating approximately $345 million in assets. Yet, concerns continue.
As reported in Altbitnews.com, the move into crypto lending as a whole has not reaped full rewards yet. The lucrative small loans market believed to be worth $90 billion annually is yet to be conquered by crypto. Whilst moves have made into the greyer area of the bad credit business loans sphere, there remains a big gap, albeit a closing one, between the worlds of crypto lending and fiat lending.
Celsius says that it earns interest by lending to exchanges, hedge funds and institutional traders. However, the company is unclear as to whether or not it also lends to margin traders via margin trading programs offered by some exchanges.
Bitfinex, who generated $378 million in profit last year is one of the exchanges that work with Celsius. However, it is currently embroiled in a series of legal disputes. By lending to margin traders on the Bitfinex exchange, Celsius gives Bitfinex full control of risk management on the loans which could mean that Celsius is exposed to regulatory and operational risk.
Although the margin trading side of the Bitfinex business has not generated any losses so far, there have been cases where a large-scale liquidation of an exchange ended up with large-scale losses for crypto lenders, such as the case with Poloniex.
