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Celsius Network: Overreach or Fear of Regulations

Celsius Network: Overreach or Fear of Regulations

Crypto Gandalf

April 16, 2022

Introduction​

Stablecoins are perhaps the safest financial instruments in an otherwise highly volatile cryptocurrency industry. They have their value tethered to an outside reference like the US Dollar and are hence called stable.

In the US, if you wish to invest in these stablecoins, a safe instrument, to earn just about 7-12% interest, you need to qualify as an accredited investor, according to celsius. On the other hand, there are no apparent restrictions for IPOs even as many have eroded almost all of their value.

Why invest in stablecoins?

Stablecoins are those instruments that are tethered or pegged to a physical world object like a gram of gold, the US dollar, a barrel of oil, etc. These cryptocurrencies are highly stable and do not deviate more than 1-2% on any given day. They derive their value from the underlying commodity or currency.

Stablecoins are popular because of their stability and hence are widely used for payments, lending, borrowing, etc. If you own a few stablecoins, you can deposit them on a liquidity pool (a kind of crypto bank), and then you can easily earn interest, usually within 2-15%.

The Regulations

It is perhaps more of a self-imposed regulation by Celsius Network, a very popular liquidity pool and a crypto borrowing and lending company. 

Starting from April 15, Celsius Network will ban most of its US investors who have been earning from stablecoins lending. The company said in a statement that according to its conversations with US Regulators, the company said in a statement that celsius would ban non-accredited investors from its Celsius Earn.

To become an investor to earn just 7% returns, US users of Celsius Earn will have to get registered as accredited investors.

One reason that might be plausible was that these securities are considered unregistered and unregulated in the US market.

Accredited Investors

Accredited investors are those who either have a lot of money, giving them the comfort to lose a few in risky investments or have a high degree of knowledge in the unregistered securities market.

You can become an Accredited Investor if:

  1. You had an income of more than$200,000 in the past two years. Or your joint income with the spouse is over $300,000 in the same period.
  2. You or your joint(along with your spouse) net worth exceeds $1 Million at the time of investments. Your residence cannot be calculated as a part of your net worth.
  3. You hold certificates and credentials that prove your expertise in that unregistered security, such as cryptocurrencies. 
  4. You are a “knowledgeable” employee of a currently operating fund.

No such limits for applying IPOs 

Though stablecoins do not fluctuate to any considerable degree, they are put under the requirement of accredited investors because of systematic risk.

The same systematic risk is present in companies that easily raise money through IPO. Investors often lose money in such an IPO as DIDI, which eroded almost all(84%) of its value since its listing in June 2021. If a company fails in stock exchanges, it has the same systemic risk, but they are much less regulated.

Conclusion

Allowing select individuals to take benefits of the stablecoins interest appears as an injustice when everyone knows that they will lose their money in case some failure happens. If the government and SEC are worried about their wealth, there should also be restrictions on the companies that risk failure. Such discrimination favours the rich and increases their wealth while disallowing poor people even to have a chance.

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Crypto Gandalf

There Is Only One Lord Of The Ring. Only One Who Can Bend It To His Will. And He Does Not Share Power. In Bitcoin We Trust

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