The Great Retail Haircut in Crypto

If you do not pay for the product, then you are the product

The world of cryptocurrencies has seen its fair share of successes and failures. Two recent examples of Celsius Network and BlockFi will go down in history as examples of what excessive greed may lead to. Both platforms promised to revolutionize crypto by offering high-interest savings accounts, lending services, and other financial products. However, despite their early promise, both companies have suffered setbacks that have left investors reeling.

Pyramids and Ponzi schemes never go out of style because investors are greedy to get unrealistic yields driven by shiny marketing and deceptive newsfeed. With the increasing popularity of cryptocurrencies, retailers need to properly understand how to manage their investment in this new asset class. 

In The Maelstrom Of Deception

Pretty much like any ambitious crypto venture, Celsius Network launched in 2018 with a bold mission to create a decentralized financial platform that would allow users to earn high-yield interest on their crypto holdings. Thus, the company offered interest rates that surpassed legacy finance by a mile, and many investors saw this as a compelling opportunity. However, Celsius's meteoric rise was short-lived, as the company soon became embroiled in a series of controversies that led to a loss of investors’ confidence.

One of the critical issues with Celsius was its business model and false claims. Like many other well-advertised “CeFi disruptors,” the company claimed to be decentralized. In reality, it was highly centralized, with a few individuals controlling the vast majority of the platform's assets. This led to concerns about the company's transparency and accountability, and many investors began to question whether their funds were genuinely secure.

In addition, Celsius was criticized for its opaque and complicated fee structure, making it difficult for investors to understand exactly how their returns were calculated. The company was also accused of using its own funds to manipulate interest rates, leading to further mistrust from investors.

Despite these issues, Celsius continued to grow and attract new sheep to the slaughterhouse, but in the end, the company's problems proved insurmountable. In 2020, the company suffered a major security breach, which resulted in the loss of a significant amount of clients’ funds. This was the final straw for many investors, who quickly pulled their hard-earned bucks from the platform and moved on to other, seemingly more trustworthy crypto savings accounts.

Now BlockFi, another crypto platform that promised high-interest savings accounts, was also met with controversy. The latter was founded in 2017 and quickly gained a reputation for offering some of the best interest rates in crypto. However, despite its early success, BlockFi soon found itself in the crosshairs of regulators and investors alike.

Long story short, one of the most significant issues with BlockFi was also its questionable business model, which relied heavily on borrowing and lending. This was a risky strategy, as it exposed the company to the risk of default by borrowers. In addition, the platform was accused of engaging in insider trading, which led to a loss of investor confidence and calls for greater regulatory oversight.

Like Celsius, BlockFi's problems proved to be too much to overcome, and the company suffered a significant setback in 2020 when one of its key lending partners defaulted on its loans. This resulted in a substantial loss of investor funds, and many investors quickly moved their assets to other crypto savings accounts.

Get Your Profit Fast Or Die Trying

At the end of the day, Celsius and BlockFi serve as excellent examples of why investors should refrain from trying to hunt for higher yields in crypto. These two crypto platforms promised to revolutionize the space by offering high-interest savings accounts and other financial products. 

However, despite their early promise, both firms were met with controversy and suffered significant setbacks resulting in investor funds' loss. The Anchor Protocol was another perfect demonstration of unrealistic yield expectations, which fell like a house of cards along with the Luna in May 2022.

Understanding the business model behind the 20 % interest rate took time since borrowers were also rewarded for borrowing. And where did the money come from? Prior to its downfall, some people were already warning that Anchor was unsustainable since there weren’t enough borrowers!

The most charitable thing about that delicious 20 percent rate is that maybe it was meant as a customer acquisition strategy, while the overwhelmingly high APY was going to be revised lower later. Others said it looked like an obvious Ponzi scheme, where money from later investors was paid to earlier investors as “interest.” But old stories stopped almost nobody - even Bernie Madoff didn’t consistently give his investors 20 percent interest rates.

Regardless, a lot of Terra was deposited in Anchor — as much as 72 percent of Terra, according to Decrypt. On May 7, 2022, the price of the then-$18-billion algorithmic stablecoin terraUSD (UST), which цфы supposed to maintain a $1 peg, started to wobble and fell to 35 cents on May 9. Moreover, its companion token, LUNA, meant to stabilize UST's price, fell from $80 to a very few cents by May 12. What happened later was one of the largest and most painful crashes in crypto, which is still felt across the markets. 

Stepping Onwards Carefully

These failures serve as a cautionary tale for investors and highlight the importance of due diligence when considering investing in cryptocurrencies.

Noncustodial solutions gain more importance in the circumstances like this. To address this issue, retailers can turn to decentralized exchanges or other cost-effective solutions that allow them to store and manage their cryptocurrency without paying high fees.

The cryptocurrency world offers many opportunities for retailers to cut costs and increase profits. Retailers can take advantage of the benefits cryptocurrency offers by focusing on how they receive payment, store and manage their cryptocurrency, and understand the risks associated with this new asset class.

In these conditions, currencies like STASIS-issued EURS, other euro stablecoins, or Xin-Fin’s XDC are the perfect instruments to enter and exit crypto with centralized services or DeFi. The European fintech company STASIS, for example, is developing native Web 3.0 with the ecosystem to manage digital assets as well as public and private blockchains. Being the biggest European cryptocurrency since 2018, now, the company claims that it intends to make its flagship product - EURS - the first stablecoin procured in the EU to have its reserves fully backed by cash. This latest move comes as a response to the growing regulatory concerns in the industry. Furthermore, BDO conducted intermediate certification, ensuring that all the STASIS-held assets are in 100% liquid euro balances. It’s also worth mentioning that during most of the project's lifetime, cash reserves varied from 60% to 100%, thus reassuring investors of EURS credibility.

Increasingly in the future, enhancing transparency and security measures for stablecoin users will play a crucial role in promoting the broader adoption of cryptocurrencies as a legitimate medium for investment and exchange.