“You can’t make a good deal with a bad person.” – Warren Buffett
Trillions of dollars are traded each day in the global financial markets. With that much fiat perpetually moving around in digital Brinks trucks, it is inevitable that grifters would slink in with ever-more creative ways to hijack a few of them for themselves. The public servants at the Securities and Exchange Commission (SEC) are supposed to play a pivotal role in society as they execute their mission to “protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.” The regulatory framework that exists today represents the culmination of key learnings from the frauds of yesteryear. Absent these rules and oversight, investors would have far less confidence in the markets, driving up the cost of capital substantially for everyone in the economy.
In the crypto universe – and especially in the decentralized finance (DeFi) space – we are seeing in real time why regulations are crucial for properly functioning financial markets, and proof that regulators act far too slowly to prevent petty schemes from growing into systemically risky collapses. As we type this, tens of billions of “dollars” of investor capital are being pilfered or otherwise torched by blatantly obvious scams. With regulators scandalously absent from the arena, bad actors with questionable histories don’t even need to be creative – timeless fraud strategies wrapped in modern jargon seem to be working just fine. We are in the middle of an epic but predictable unwinding of some of the fastest-growing DeFi operations, and “investors” are discovering they are the marks in these dramas with precious few options for recourse. The most recent fiasco with Celsius puts the fate of one of the biggest names in the sector in jeopardy.
Celsius, the once-popular crypto lending platform, is now teetering on the edge of bankruptcy, presumably taking billions of customer assets with it. Inspecting the About section of their website, we find these comforting and inspiring words:
“An economy where financial freedom doesn’t come with a price tag. Where the interests of the people are put first. Where ethical behavior is the baseline, and where everyone – and we mean everyone – has the opportunity to succeed financially. With a little bit of humanity and honesty, and the power of a digital currency that’s as strong as it is accessible, we’re ushering in the new economy today.
Celsius is proud to provide a platform of curated services that have been abandoned by big banks – things like fair yield, zero fees, and lightning quick transactions. Our goal is to disrupt the financial industry, one happy user at a time, and introduce financial freedom through crypto.”
One doesn’t have to understand the nuances of crypto lending platforms, the particulars of the company’s white paper, or the mechanics of how its CEL token works to have a pretty good idea of what was really going on here and how it was inevitably going to end. Focusing on the bark of any particular tree is a distraction from the obvious risks shadowing over the proverbial forest. Consider this fact set: