What are stablecoins? How to earn more on your dollars with Celsius
As of January 2021, we are paying on average 10–14% APY on stablecoins supported in the Celsius wallet. In a world where banks pay less than 1% around the world, why can Celsius pay so much on stablecoins? Is this actually sustainable? We often get this question, so I wanted to address what stablecoin business means to Celsius.
What are stablecoins?
In short, a stablecoin is a type of cryptocurrency pegged to a stable asset, most commonly a government-backed currency (such as the US dollar) at a 1:1 ratio. Stablecoins are not subjected to the same volatility as other cryptocurrencies, hence the name stablecoin. For a more detailed explanation of what stablecoins are and how they work, you can read more here.
What can we do with stablecoins?
Let’s go back to the question of the day. Why can we (and why should we) pay such a high reward rate on stablecoins when banks around the world are paying less than 1% to their customers? First of all, let’s quickly review the Celsius business model. In a nutshell, we make money by deploying the coins transferred to Celsius and return up to 80% of our revenue to the community before we take out any expenses. Each coin supported in the Celsius wallet offers annual rates based on its own market demand. Our “bread and butter business” is crypto lending, which means we use the coins we get from our borrowers as collateral and lend or use them to do additional business with institutions and make money in the form of loans.
What can we do with stablecoins? If there is no demand for it, we are not able to pay for it, right? We have several different use cases for the stablecoins. First of all, because they are pegged to the USD and the issuer is obliged to redeem as much as you have, possessing stablecoins is effectively the same as having cash. Since our bread and butter business is lending USD, we are always looking for cash. This by itself is a huge driver for us to look for stablecoins and pay handsome rewards for them, but if that is only the reason for holding stablecoins, why not just borrow cash? Stablecoins do have a distinct advantage over cash.
The blockchain operates 24/7, which allows us to settle transactions around the clock. If you have cash with a bank, other than going online and checking the balance, pretty much all other operations have to be done within 8:30–16:00 on weekdays, and most of these activities take some time to settle — whether we are talking about ACH or check depositing. Wiring, which settles within a few minutes, charges a high amount of fees, even if you have established some kind of status with the given institution there still may be some kind of charge. Currency exchange is not handled by every single branch that you walk into and can take only major currencies majority of the time. Nowadays many banks around the world allow cash withdrawals outside the banking hours, but still put some upper limit restrictions during weekends and some banks charge extra fees for that. Blockchain wallets allow users to bypass these issues altogether by allowing wallet owners to send and receive any amount of any currency at any time the users choose with a little gas fees. Also, this allows flexibility of going back and forth between different cryptocurrencies while enjoying the luxury of being able to redeem into USD at will. What this means is Celsius is paying every penny to our community from what we actually earn.
How are we able to offer such high rates on stable coins?
Let’s go to the next question. Why can we pay so much more for your coins than the banks or other crypto lenders can on your cash? There are several reasons behind it, and not every crypto institution operates the same way as Celsius.
1) As a blockchain-based company, we have a much lower overhead, which allows much higher payout to begin with. We do not have physical locations, old infrastructure, hundreds of thousands of employees to feed (we currently have about 100 people around the world to operate this entire $5+ billion asset company that is extremely rapidly growing), and we do not run the typical shareholder company structure.
2) Our aim is to get better and bigger with the community. We’re not in the business of enabling our leadership and shareholders to get rich and the customers getting serviced out of what’s left of it. So, we deliberately make higher payout.
3) Stablecoins, aside from their ease of use as stated previously, are beginning to be utilized in the areas where cash/fiat were traditionally used, like payment, payroll, remittance and better alternative to settlement tool (because of its immediate settlement feature instead of traditional Trade day +1, 2, 3 days type of settlement). This helps us add more use cases to what we have on our balance sheet.
Celsius takes full advantage of these natures of stablecoins in order to conduct our day-to-day business and pay out much higher returns to our community than anyone else. I know that some of you are wondering if such returns are actually legitimate and sustainable. While we can’t promise that we will always offer the same reward rates available today (marketing movement and coin demand are ever-changing and relatively unpredictable), we will never change the fundamental values that power Celsius, and our community will always come first. We can continue growing with our community.
If you still are curious about our business model or how we’re able to offer yield on your crypto assets, be sure to check out the rest of the Celsius blog, read our FAQs, and tune in to our weekly AMAs!
About Harumi Urata-Thompson
Harumi specializes in leading and advising companies on taking innovative paths to achieve strategic, operational and marketing success in their businesses. She serves on the board of directors of several companies and speaks on topics including Artificial Intelligence, Blockchain, Cryptocurrency, Cybersecurity, Outerspace, Cross-border Business, and Diversity & Inclusion. Previously, Harumi was the Chief Operating Officer for CFA Society New York, a nonprofit affiliate of the CFA Institute with 10,000 financial professionals which she successfully completed a turnaround. Before CFA Society New York, Harumi spent 14 years at Thomson Reuters managing various innovation initiatives, business unit and products. Harumi began her career in investment banking with Morgan Stanley and Citigroup, working with fixed income derivatives and mergers & acquisitions. Harumi has an MBA from INSEAD in France and a BA, magna cum laude, in business from Sophia University in Japan. She is a Chartered Financial Analyst, Project Management Professional certified, an Advanced Communicator and Leader of Toastmasters.
Celsius is a democratized reward-earning and crypto lending platform accessible via a mobile app. Built on the belief that financial services should only do what is in the best interests of the community, Celsius is a modern platform where membership provides access to curated financial services that are not available through traditional financial institutions. Crypto holders can earn rewards by transferring their coins to their Celsius Wallet and can borrow USD or stablecoins against their crypto collateral at interest rates as low as 1% APR.
Download the Celsius app and start earning rewards on your crypto today!