The central theses
- While interest rates may seem similar, there are many other factors to consider.
- Look for a clean record with no security breaches, misuse of funds, or regulatory issues.
- Look for ways to verify the assets the company claims to have.
Share this article
This article is the first in a series of guides examining the CeFi lending landscape. Four of the top crypto lending companies, Celsius, Nexo, Crypto.com and BlockFi, are evaluated on two key criteria: fund safety and auditability.
Comparison of CeFi lenders
At a high level, the business model of these companies is simple. People deposit their cryptos and receive interest (passive income). Then those companies profit by lending the crypto to someone else at a higher interest rate.
Typically, that other person is an institutional investor, corporation, exchange, or DeFi protocol looking to borrow or otherwise use large amounts of crypto.
Depositing crypto on central lending platforms therefore effectively means lending it, with the actual technical process abstracted from the platforms behind the scenes.
The result is avoidance of the Complexities of yield farming and DeFi in general and be able to keep it simple.
Of course, there is no such thing as risk-free free money – especially when it comes to “easy” 10%+ APYs on stablecoins.
When considering a platform, many factors should be considered.
Company reputation, fund security, verifiability, fairness of the loan processing process, fees and other costs, supported coins and additional offers such as credit cards.
This article focuses on two basics. security and auditability.
Good security is much more than just software.
How safe are the funds?
This is the first question everyone should ask themselves before depositing crypto anywhere – whether it’s a centralized or decentralized platform. Better rates and lower costs mean nothing when your funds could be lost, frozen or stolen.
When it comes to CeFi lenders, you ideally want the company to have a clean record with no security breaches, misuse of funds, or regulatory issues.
So let’s compare our sample top 4 CeFi lenders.
BlockFi has accidentally sent bitcoin to customers instead of stablecoinsallowed the theft of sensitive user information and Users could not be protected from email spam.
Krypto.com Lost $34 million in crypto from the wallets of 483 users in a direct hack of the platform in January 2022.
Celsius Lost $51 million in the BadgerDAO hack from last December.
Both Crypto.com and Celsius eventually fully compensated all affected users following the incidents.
Nexo is the only one of the four companies that has never had a public safety outage.
And it’s important to note that the Celsius incident stemmed from a security breach of a third-party platform. Don’t hack Celsius software. Given the exploit’s novelty, it’s unlikely it could have been stopped.
Celsius itself was never compromised; The company is ISO certified, operates a 24/7 Security Operations Center and recently acquired one of the leading crypto custody and security firms, GK8. It also has one extensive set of security functionsincluding address safelisting, biometric login, two-factor authentication and a 24-hour withdrawal lock.
Another critical aspect of fund security is insurance. Crypto.com is the only lender in the group to offer FDIC insurance for USD balances. This applies to US residents only and up to $250,000. The company also has $750 million in insurance against property damage or third-party theft.
Nexo is insured for $375 million through its third-party custodians Ledger Vault and BitGo.
BlockFi has not made any announcements about insurance. Celsius is planning one user-funded insurance program for more than a year.
Are you wondering why do you think this company can handle customer withdrawals at any time?
Are there publicly available proofs of financing?
Being able to personally verify that a CeFi lender actually has the assets they claim to have is one of the best ways to ensure the company can be trusted. This is a real problem – as evidenced by what has happened to people who have trusted credit or quadriga.
Celsius has simplified this by partnering with the leading blockchain oracle developer chain link in real time and fully transparent Proof of reserves.
Similarly, Nexo has partnered with CPA and one of the leading accounting firms in the US, Armanino, to provide a publicly available document real-time confirmation his wealth.
Ironically, given the security breach listed above, Crypto.com has more than announced a security audit. But nothing for his finances.
BlockFi has posted a job vacancy for a Head of Internal Audit.
Final Thoughts
In summary, only one of the top four CeFi lenders has not had a public safety outage to date. For the remaining three that did, it’s important to consider the nature of the incidents and how the companies handled them.
After BlockFi accidentally sent users free bitcoin, it threatened legal action against those who refused to return it, which didn’t sit well with its customer base.
When Crypto.com was hacked for $34 million, it was first downplayed the exploit and did not admit that it was hacked. It also wrongly publicly stated that all user funds are safe. When it eventually failed, the company did not share any security details about what exactly happened and what it is doing to prevent a similar incident from happening again.
When Celsius lost money in the BadgerDAO hack, it immediately admitted, explaining what happened and pointing out that no user funds were ever affected.
In terms of auditability, Celsius and Nexo stand out with real-time proof-of-reserves or proof of assets. Crypto.com and BlockFi have not provided public proof of funding.
This article was sponsored by Celsius. Find out why 1.7 million people call Celsius home for crypto.
Share this article
The information on or through this website is obtained from independent sources which we believe to be accurate and reliable, but Decentral Media, Inc. makes no representations or warranties as to the timeliness, completeness or accuracy of any information on or through this website. Decentral Media, Inc. is not an investment advisor. We do not provide personalized investment advice or any other financial advice. Information on this website is subject to change without notice. Some or all information on this website may be or become out of date, incomplete or inaccurate. We have the right, but not the obligation, to update any information that is out of date, incomplete or inaccurate.
You should never make an investment decision about any ICO, IEO or any other investment based on the information on this website, and you should never interpret or otherwise rely on the information on this website as investment advice. We strongly encourage you to consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO or any other investment. We do not accept compensation in any form for analysis or coverage of ICO, IEO, cryptocurrency, currency, tokenized sales, securities or commodities.
See full terms and conditions.
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.