1: You can do the same thing yourself, but how much is your time worth?
You can get the same yield as Celsius on your own in DeFi. Use sites like coindix.com to explore the best protocols for each token on each chain. However, generating yield on more than one or two assets is time-consuming and stressful: you need to research the reputation and security of a platform; decide when you buy or less, hedge against loss, and harvest to reinvest gains. You also need to monitor crypto news - Celsius withdrew half a billion from UST a day before the de-peg. You’re paying Celsius to have a team that worries about your portfolio, not to get the highest returns.
2: Asset selection is more important than yield
Which assets you hold is more important than what platform you hold them on. Don’t fall into the trap of buying shitcoins on the promise of a high yield. The long-term price appreciation of successful projects has far greater potential than the APY. You may find that some assets have very low yield (Bitcoin) but have the greatest fundamental value and long-term potential.
3: Price risk is usually greater than custody risk
Crypto assets have experienced extreme price volatility, and a majority of tokens created have fallen into oblivion. If you have a portfolio of a dozen tokens, you are betting that some will thrive, while accepting that most will fail. Given the extreme risk that you’re taking off, trading additional custody risk for additional yield is reasonable. On the other hand, if you’re certain that Bitcoin or Ripple or whatever is going to win, maybe the custody risk is not worth it.
4: Time invested should drive your risk calculation
An asset earning 12% APR invested for 1 month will earn 1%. Invested for 10 years at 12%, it will earn 330%. The longer you earn yield with a provider, the more that custody risk is justified by the return. This implies that short-term investments are probably not worth earning yield on, while even a low APY can be justified if you plan on keeping your tokens invested long term.
5: Diversification only works if the risk levels are equivalent
Most of you are splitting your yield among multiple platforms. This only makes sense of the risk level of these platforms is the same. Celsius has more staff on its security team than the entire staff of most of its competitors. If you diversify into multiple platforms, allocate your portfolio by their relative levels of risk.
With these principles in mind, you should not use Celsius if:
- All your bets are short-term, so the additional yield is not worth the custody risk.
- You’re a full-time defi-researcher and can get better yield on your own.
- You’re a Bitcoin maximalist, and the 1% yield on > 3 BTC is not worth the custodian risk.
You should use Celsius if:
- You bet on a bunch of risky tokens, and you want additional yield on them.
- You have a day job and can’t bother to research the best and safest defi protocol yourself.
- You have to use four different wallets for your tokens, and losing your tokens due to user error is greater the risk of trusting a custodian.
- You plan to hold your tokens for decades, so even a 4% APY will triple your tokens in 30 years.
If you’ve read my previous emails, you know that I have a preference for Celsius Network
because they have:
- Longest track record (since 2017)
- Largest team
- The highest yield of the platforms meeting my security criteria
- Free withdrawals, swaps & more
- Great customer service
- The best promotions
- Superior security features, like HODL mode and pro-active threat detection