I saw this tweet the othÂer day, did some quick math in my head, and wonÂdered if what âDr. Satoshiâ was doing made sense:
Letâs break this down.
Celsius is the âUnbankâ. Their busiÂness modÂel is to be sit in between deposÂiÂtors and buyÂers of crypÂtocurÂrenÂcies, facilÂiÂtate loans, and reward deposÂiÂtors with highÂer interÂest than a legacy/fiat bank. They do this all while havÂing increased transÂparenÂcy so you know what theyâre up to.
Celsius are runÂning a speÂcial:

The imporÂtant point for the sake of this breakÂdown is that botÂtom line â 25% LTV. LTV stands for âloan to valÂueâ and that means that you have to have 4x the amount of crypÂtocurÂrenÂcy on deposit against which can be borÂrowed.
âDr. Satoshiâ above borÂrowed 1,000 USDC (US dolÂlar coins, essenÂtialÂly $1,000), which means he has to have $4,000 worth of crypÂto on deposit in order to borÂrow that $1,000.
Celsius pays interÂest on crypÂto holdÂings that are not used to secure a loan. It does not pay when the crypÂto is used to secure a loan. In a latÂer tweet âDr. Satoshiâ shares that theyâre using BTC (bitÂcoin) to secure the loan, a quick glance at their curÂrent rates shows that s/he could earn about 4% on their holdÂings (Celsius rates vary week-to-week).
âDr. Satoshiâ is excitÂed to earn about 10% on their 1000 USDC loan. Rounding the rates to assume no comÂpoundÂing and that rates are the expectÂed annuÂal yield⊠theyâd earn about 100 USDC over the year.
However, theyâre payÂing 1% on the loan, which means theyâre earnÂing 90 USDC (itâs 1% on the 1,000 USD borÂrowed).
And, theyâre forÂfeitÂing 4% interÂest on $4000 worth of crypÂto thatâs used as colÂlatÂerÂal for the loan. Thatâs $160.
So, theyâre forÂfeitÂing $160 in income to earn $90, while takÂing on the risk that their loan gets called if their colÂlatÂerÂal valÂue drops. A 25% loan to valÂue is kinÂda conÂserÂvÂaÂtive, but crypÂtocurÂrenÂcies are volatile; in any case itâs more risk than not takÂing the loan.
With more risk, the investor should expect more reward. Only in this case, theyâre losÂing monÂey!
Obviously, âDr. Satoshiâ expects their investÂment in RealT to increase more than the amount theyâre losÂing in the interÂest arbiÂtrage.
Also, they might be doing this (as I would) to learn â how does a loan work? how does RealT work? and in that case⊠the small amount theyâre âlosÂingâ is not a loss, but an investÂment in eduÂcaÂtion. Itâs how I would do it, because I learn by doing and through expeÂriÂence.
Or, they might be doing it to diverÂsiÂfy their holdÂings. Now, instead of just the bitÂcoin they used as colÂlatÂerÂal, they have two holdÂings: bitÂcoin and the tokÂenized real estate.
Why would one take a loan against holdÂings then, instead of sellÂing? Not the point of this post, but here are some bulÂlets:
- Avoid capÂiÂtal gains tax because thereâs no sale of assets. Maybe you want to sell over a few sepÂaÂrate tax years to minÂiÂmize taxÂes by stayÂing in a lowÂer brackÂet, or simÂply to pay taxÂes over a couÂple of difÂferÂent years. (Disclosure: This is not tax advice!)
- Continue to be exposed to upside while being able to cash out some to spend (youâd do this if you were long-term bullÂish and wantÂed to keep the investÂment in play, while at the same time increasÂing your qualÂiÂty of life).
- To diverÂsiÂfy⊠maybe you hold BTC and itâs appreÂciÂatÂed a lot, and you want to say, buy a home. You donât want to sell (because of capÂiÂtal gains and because youâre long-term bullÂish) but you need capÂiÂtal as a downÂpayÂment for the home.
- And of course, my favorite (and someÂthing I strongÂly recÂomÂmend if youâre curiÂous about this space), they did it to learn someÂthing new. What is it like to take a loan? How does it work? When I did it, was there anyÂthing that hapÂpened that I didÂnât expect? What can I learn about RealT? Etc.
Anyways, not an examÂple of my best writÂing, but I hope a useÂful examÂple of how to think through a deciÂsion like this for yourÂself. Questions/comments are welÂcome below, but please keep them positive/constructive.
Let me know what you think