News that the popular lending platform Celsius is preventing customer withdrawals and faces a liquidity crisis came as a shock to many this week. With millions of dollars worth of bitcoin and ethereum locked up in DeFi protocols, the sudden drop in the crypto market cap has left lenders unable to fulfill their promises, and they’re turning to desperate tactics to survive.
Celsius customers now face a complete loss of their deposits if the company goes insolvent. In a desperate attempt to prevent liquidation, they have even stopped users from taking out their money, possibly so they have collateral to prop up their bets on illiquid assets like staked ethereum.
While this is a terrible situation for those involved, this blog will cover how the rest can avoid falling for the same mistakes. As long as you have sole ownership of your keys, only you control your money.
Who owns your money?
Centralized exchanges are convenient, but in most cases the price you pay is giving them full control of your funds. When you buy through Binance, Celsius, Coinbase, or other custodial exchanges, they are free to use your money as they wish. Until you withdraw to self-custody, there is no guarantee that they ever even hold the assets that you paid for, while they could be using your funds to buy high-risk assets or invest in sketchy protocols to try to turn a profit before you decide to withdraw.
Platforms offering double-digit returns on investments usually depend on one of two things: deposits from new customers being used to pay existing ones (also known as a Ponzi scheme), or by using customer funds to speculate on risky projects. As a crypto user, there is never a good reason to let someone else gamble with your money. If you want to take the risk, the beauty of crypto is that you are free to do so yourself without depending on a third-party.
