The Celsius Debacle
I’ll try to break down an extremely significant event that just occurred.
Celsius Network is one of the largest lending protocols in the crypto industry.
The way Celsius operates is by having users lend then take the funds and lend them out to institutions, often as high interest loans. Users get their cut, Celsius gets their cut, and we call it a day.
So Celsius recently blocked user transactions due to volatile market conditions. This isn’t shocking, especially if you understand the crypto market. Users are unable to move the money they deposited within the Celsius platform, which was meant to generate interest for them.
This is basically the equivalent of Robinhood not allowing users to sell their GameStop shares.
When a company can control user assets like this, it’s because the assets are being held on a centralized exchange. That centralized exchange operates as something called a custodian, as they take custody of user funds.
There are pros and cons to of using a centralized exchange and allowing a company to take custody of your assets.
- enhanced user experience
- lower or zero fees
- ease of bringing in new users
- not having access to your funds at your convenience (similar to now, Celsius locking up user funds due to market conditions)
- lack of anonymity
- being at the mercy of an exchange and losing your funds if they go bankrupt
I just launched the RuufPay Wallet. The Celsius meltdown can’t happen to us because we’re something called non-custodial, which means we cannot access user funds. The funds are stored on the blockchain.
Let’s go over the positives and negatives of this.
- user maintains full control and access of their funds. A 12 seed phrase called private keys are automatically generated for you when creating a new wallet. You are the only one that has these keys. If you lose those keys, you lose your money. But then again, only YOU are in control of your money. As famously quoted in Spider Man, “With great power there must also come great responsibility”. So you need to make sure you keep your private keys safe and secure.
- RuufPay, as the company, never gains custody of user funds. We can’t even access user funds if we wanted to.
- user can earn up to 18% in rewards on certain cryptocurrencies within the app and are distributed via smart contract (users don’t need to do more than push a few buttons within the app to make that happen).
- more real world utility is being built to give RuufPay a leg up on existing wallets.
- users can send and receive unlimited amounts of funds in seconds for extremely low fees from all over the world.
- the only time user uploads personal details is when they want to go from USD to crypto, or back from crypto to USD. This is because we are obligated to abide by US regulation, which requires strict compliance.
- slightly more complicated user-experience. Since we’re non-custodial and can’t touch your funds, it takes a few more button clicks to make transactions.
- if you lose your private keys and get locked out of your wallet, we can’t get you access again.
- network and transaction fees
There are pros and cons to both centralized and decentralized platforms. It’s up to the user to determine their risk tolerance.
So, would your prefer using a custodial or non-custodial service?
I’ll let you be the judge.
P.S — RuufPay is live for IOS. Android coming soon.
About the author: Eytan Grossman is the co-founder of RuufPay, a blockchain project bridging the gap between cryptocurrency and real world payments.