Savings/custodial services in crypto are a well-oiled machine that might just run out of oil in the coming days. In a frankly poetic turn of events, all-rounder, big-time CeFi services are beginning to collapse under their own weight. We've seen first-hand the fall of Celsius by way of insolvency. Now, Nexo and other prominent players seem to be headed towards their demise much in the same way.
Falling prey to the overarching bear market, custodial services and savings-account exchanges were swept down by their own colorful ways. From overlending to entrapping themselves in insolvency and liquidity crises, where the users' funds are the ones virtually taking the blunt of the impact with no consequence to the service itself.
This is troubling.
At its most basic form, the absence of regulations and the arrival of centralized services in nature within the crypto sphere facilitates all sorts of greedy behavior. The Bitcoin maximalist would tell you that the biggest advantage to cryptocurrencies is that it is unregulated, but the problem with many of these people is they purport this as an advantage in relation to the interface between the people and the financial system, political machine, basically any conglomeration that can demonstrably succumb to the human element.
What they don't realize is that the bulk of regulations tightly knits the legacy system from otherwise manifesting what these crypto custodial services are going through.
That is not to say that the legacy system doesn't still succumb to the sways of greed. Indeed, inflation is at an all time high, pronounced as the velocity of money accelerates as COVID restrictions ease up.
A Closer Look: Celsius
The collapse of the colossus has heralded the subsequent annihilation of other platforms similar to it. We all know how it went: Liquidity crisis by way of overlending and recklessly staking in highly volatile assets that would produce impressive interest rates. As the bears began their march, the fact reveled upon those faceless cowards in Celsius, and they realized those rates were not just unsustainable, they were at a huge risk of devaluation, and eventually insolvency to meet the demands of their users. Deposits/withdrawals are now frozen. Whatever semblance they once provided of freedom is now a phantom.
It is noteworthy at this point to mention that a user's relationship to Celsius is unlike one that would be had with a bank in the traditional system. Hidden in small print, any deposit to their platform is regarded as, as the Terms & conditions and policy dictate, an uncollateralized loan TO Celsius, rather than a deposit similar to a deposit in the bank. Essentially, you are delegating your assets to Celsius to go haywire with it, with little compensation in return, and no collateral or assurance as to the safety of your funds. They've bespoken their T&C to their wants, not their shoulds.
It goes much deeper than this. Few days after their big freeze, they've actively tapped into undergoing a radical restructuring of their own financial clockwork and operations. A stark admittance that they are in trouble of grandiose proportions. A company undertaking restructuring is usually their only option to negotiate and maneuver themselves out of imminent bankruptcy.
What about the user's funds? Are they going to be caught up in this process? Dozens of articles have mentioned the freeze, but haven't gone into detail regarding where exactly in limbo are these funds.
The reason why Celsius cannot satisfy their users' demands is because it is in their possession, but they are contractually stuck to another service somewhere in Cryptoland, likely a shady place that duped Celsius into higher rates of their own.
This is jolly good news for the ones caught up in the storm: Your funds might've ended up in possession of inept people, in a less-than ideal place to boot and to end, but at least those people are known, and places they've stashed the funds are still around. Problem is, we don't definitively know when these funds are going to let up.
So, what options does Celsius theoretically have in order to not completely run their and their buddies' reputation to the ground?
Could they wait until their funds are let up? Not exactly, their situation is so convoluted that their only hope is for a spontaneous bull market to come and engulf the difference between their target value and users' devalued funds, which is... y'know, extremely unlikely.
Could they employ their CEL token in compensating their users? I wouldn't hold my breath. Their token is going to get sold to near zero the moment its in their users' hands, effectively pricing out those in different time zones and the ones not fast enough to the sell button, not to mention how they went about handling their reputation.
Could they wait until their finances are straightened out? possibly, what with the restructuring. At this point, Celsius is holding user funds until they can satisfy withdrawal requests fully, without compromising.
Central Finance is incompatible...
...with the philosophy of Crypto. The unregulatory nature of the sphere is set up in such a unique way that it punishes those who are greedy, and rewards those who pool their contributions. This isn't simply a mishap or a hiccup in the Central Finance sector, this is a self-fulfilling prophecy and a plague at the same time.
The punishment for greed is for everyone that keeps this machine well oiled: Those that perpetrate CeFi have been caught in trouble, and those that were enamored by those rates are now in shambles. In time, this machine is going to collapse under its own weight. And when this happens, when their reputations become irreparable in the eyes of those inept users, the crypto sphere will achieve purity and unity.
Conclusion
Ultimately, blockchains that incorporate yield and savings apparatuses in their operations are the ones that will prevail in the long run, heralded by the collapse of CeFi. HIVE has it all: a monsterous %20 APR on HBD, a balkanized social media platform that rewards by the wisdom of the crowd, and the scaffolding for Web3 developers to thrive upon.
At this point, HIVE getting catapulted into the spotlight is an inevitability, its just a matter of the painful march of time.