And so, laughing and joking, we witnessed an epochal collapse. Another. I well remember Soros’ attack on the lira, as well as certain stock market crashes before the advent of the euro. I remember the collapse of the dot com economy just as wellwhen we passed, from one day to the next, from being the most desired by the media to a state of pariah: one day some people who knew me very well, seeing me from a distance, embarrassed changed sidewalk so as not to have to say goodbye.
I remember 2008 with the subprime and Lehman Brothers, when in Mayfair they literally offered you Mercedes S-Class on the street for the price of a Polo: they were the berlinones of the many newly fired bankers. And of course, I remember Bitcoin’s various ups and downs. On closer inspection, none of these events have ever occurred without some kind of warning first. However, they are always ignored by the greedy, or the deluded.
The bear market of recent weeks, for example, was already in the air since February: inflation, industrial supply chains blown up, war, economic slowdown did not bode well for the markets, obviously including crypto. Then came the attack on Earth / Moon to give a push to everything else too. To date, it is likely that most of those who have invested in crypto are, as they say, underwater.
Everybody on the ground
by Adriano Marconetto
As always, in such situations panic plays an important role: they would be interesting times to buy, instead people want to escape, whatever the cost. Last Sunday, in a single day, crypto assets worth around half a billion dollars were withdrawn.
The problem is that in such cases not everyone is able to meet the demands, which increases the panic. Faced with an on-chain entity like Tether, which returned 11 billion dollars in 4 days to its customers without batting an eyelid (I repeat myself: do you know a bank that can do the same?), A leading company like Celsius has been taken targeted on Twitter and, after a few days of reassuring everyone about his estate (Lehman Brothers also said that everything was under control up to four hours after default ..), she found herself officially communicating that there is no possibility of withdrawing the cryptocurrencies that customers had delivered to her. A few hours later a competitor, Nexo, officially offered to buy certain of his assets, namely his remains.
And here we come to the point. CeFi (Centralized Finance) subjects such as Celsius, BlockFi, Nexo are based on a business model very similar to that of traditional banks: you customer deposits your crypto, I give you a good weekly or monthly remuneration and what I do with yours crypto is my business.
Typically these cryptocurrencies are used – often leveraged, often high-leveraged – in various liquidity pools capable of generating much greater rewards than those paid to clients. Everything runs smoothly if the market goes up, or in any case it does not collapse at any moment. In this case the leverage acts in the opposite way and the funds to be returned are not there, or rather there are not enough, or they are blocked and in any case their value is too low, which is a problem if they have been blocked as collateral for some operation. borrowing or lending, perhaps of some highly speculative small emerging crypto (altcoin).
All things that, typically, the customer is unaware of, as is a detail that makes all the difference: the cryptocurrencies put to work on these services, as well as all the crypto purchased on almost all exchanges, starting with Coinbase. and Binance, and left there in custody, are de facto owned by these serviceswho can dispose of them at will except having to return them to the customer when they are requested.
Just like when we leave our euros in the current account: the bank can use it as it sees fit, as long as it gives it to us when we make a withdrawal. If we all withdraw all of our savings at the same time, the bank goes bankrupt. And a little bit what’s happening these days with Celsius. That’s what a giant like Coinbase is putting at risk. It is, in essence, what is decreeing the end of CeFi’s opaque model.
Two others oppose this model, different from each other but which have one thing in common: the lack of opacity. One is, of course, decentralized finance, institutional and otherwise. It can be complex to approach and manage, it can be risky but it doesn’t hide anything from you: it’s all written about smart contracts. It’s up to you to decide whether to play that game.
The other is that of custodian companies: centralized entities born with the primary purpose of effectively guarding the crypto of their customers and in some cases to make them work within various DeFi solutions. These subjects (disclaimer: Anubi Digital is one of them) generally let the customer choose the passive or active custody options and each is well argued so that the customer is well aware of the option chosen.
But, even more importantly, the Terms & Conditions of these entities clearly highlight that, contrary to what is expressed by the major exchanges and CeFi entities, cryptocurrencies are customers and only customers can decide what to do with them. And, again, for no reason, the cryptocurrencies of the customers somehow make up the patrimony of the custodians as is the case in CeFi companies or in most exchanges. We are talking about an abysmal difference that, unfortunately, hardly anyone had the desire to go and discover.
To be clear: if companies acclaimed yesterday and talked about today like Celsius or Coinbase fail (hopefully not) and you had your cryptocurrencies with them, first shareholders and creditors go to the collection and then if something remains it’s up to you. With custodians, on the other hand, the cryptocurrencies of customers have nothing to do with their balance sheet: if a custodian were to close the shop, the cryptocurrencies of the customers are always returned to the rightful owner without anyone being able to legitimately block them. In short, this major crisis, like every crisis, is also an opportunity to clean up the market and clarify terms. Which customers, however, should learn to read before clicking.