A good retail haircut for cryptocurrencies

If you don’t pay for the product, you are the product

The cryptocurrency world has seen its fair share of successes and failures. His two recent examples of Celsius Network and Blockphi will go down in history as examples of what excessive greed can bring. Both platforms promised to revolutionize cryptocurrencies by offering high-interest savings accounts, lending services, and other financial products. But despite initial promises, both companies suffered a setback that rocked investors.

Ponzi schemes and Ponzi schemes will never go out of style. Investors are greedy for unrealistic returns through flashy marketing and deceptive news feeds. As cryptocurrencies grow in popularity, retailers need to get the hang of how to manage their investments in this new asset class.

in the maelstrom of deception

Much like any ambitious crypto venture, Celsius Network launched in 2018 with a bold mission to create a decentralized financial platform that allows users to earn high-yield interest on their crypto holdings. I’m here. As such, the company offered interest rates that he beat traditional finance by a mile, and many investors saw this as an attractive opportunity. However, Celsius’s meteoric rise was short-lived, and the company was soon embroiled in a string of controversies that eroded investor confidence.

One of Celsius’ key problems was its business model and false claims. Like many other touted “CeFi disruptors,” the company claimed to be decentralized. In practice, it was highly centralized, with a few individuals controlling the majority of the platform’s assets. began to question whether his funds were really safe.

Additionally, Celsius has been criticized for its opaque and complex fee structure, making it difficult for investors to understand exactly how returns are calculated. The company has also been accused of using its own funds to manipulate interest rates, leading to further distrust from investors.

Despite these problems, Celsius continued to grow and attract new sheep to the slaughterhouse, but ultimately the company’s problems proved insurmountable. In 2020, the company suffered a major security breach that resulted in significant loss of client funds. This was the final straw for many investors. They quickly withdrew their hard-earned money from the platform and moved it to other cryptocurrency savings accounts deemed more trustworthy.

BlockFi, another crypto platform that now promises high-interest savings accounts, has also been hit with controversy. The latter was founded in 2017 and quickly gained a reputation for offering the best interest rates in cryptocurrencies. will be combined.

Simply put, one of BlockFi’s most significant problems was also its dubious business model, which relies heavily on borrowing and lending. This was a risky strategy that exposed the company to the risk of default by the borrower. Additionally, the platform was accused of engaging in insider trading, lost investor confidence, and called for increased regulatory scrutiny.

Like Celsius, BlockFi’s problems proved too big to overcome, and the company was hit hard in 2020 when one of its major lending partners defaulted on a loan. This resulted in a significant loss of investor funds, with many quickly moving their assets to other cryptocurrency savings accounts.

Get your profit fast or die

After all, Celsius and BlockFi are excellent examples of why investors should refrain from chasing higher yields in cryptocurrencies. These two cryptocurrency platforms promised to revolutionize the sector by offering high-interest savings accounts and other financial products.

However, despite initial promises, the two companies faced controversy and suffered significant setbacks that led to the loss of investor funds. The Anchor Protocol was another perfect demonstration of unrealistic yield expectations that fell like Trump’s house in May 2022 with Luna.

It took me a while to understand the business model behind the 20% interest rate because borrowers were also getting paid for borrowing. And where did the money come from? Before Anchor went bankrupt, some had warned that Anchor was unsustainable because it didn’t have enough borrowers.

Perhaps the most charitable thing about that delicious 20% rate is that it was intended as a customer acquisition strategy, with an overwhelmingly high APY to be later corrected lower. Others said it looked like an obvious Ponzi scheme where money from later investors was paid to earlier investors as “interest.” But the old story hasn’t stopped almost anyone: even Bernie Madoff wasn’t consistently giving investors a 20% interest rate.

In any case, Anchor held a lot of Terra. That’s 72% of Terra, according to Decrypt. On May 7, 2022, the price of the then $18 billion algorithmic stablecoin terraUSD (UST) began to fluctuate, dropping to 35 cents on May 9. , which was intended to stabilize the price of UST, fell from $80 to a few cents by May 12.

move forward cautiously

These failures act as a warning to investors and highlight the importance of due diligence when considering investing in cryptocurrencies.

Non-custodial solutions become more important in these situations. To address this issue, retailers can turn to decentralized exchanges and other cost-effective solutions to allow them to store and manage cryptocurrencies without paying high fees.

The cryptocurrency world offers many opportunities for retailers to reduce costs and increase profits. Retailers can take advantage of the benefits cryptocurrencies offer by focusing on receiving payments, storing and managing cryptocurrencies, and understanding the risks associated with this new asset class.

In this context, currencies such as EURS issued by STASIS, other Euro stablecoins, or Xin-Fin’s XDC are the best vehicles to get in and out of crypto using centralized services or DeFi. . For example, European fintech company STASIS is developing a native Web 3.0 with an ecosystem for managing digital assets and public and private blockchains. The company, the largest European cryptocurrency since 2018, now claims its flagship product, the EUR, to be the first stablecoin raised in the EU, with its reserves fully cash-backed. doing. This latest move comes as a response to growing regulatory concerns in the industry. In addition, BDO has carried out an intermediate certification, confirming that all assets held by STASIS are 100% liquid Euro balances. It’s also worth mentioning that for most of the life of the project, the cash reserve varied from 60% to 100% of his, reassured investors of the credibility of his EURS.

Increasingly, increasing transparency and security measures for users of stablecoins will play a key role in facilitating the widespread adoption of cryptocurrencies as a legitimate medium for investment and exchange. .