Celsius Network FAQ

Answers to common questions about using Celsius Network

Image Courtesy of Celsius Network

General Questions

Q: What is Celsius?

Celsius Network lets you earn interest on your crypto and instantly borrow against it, with no fees ever. Celsius’ mission is to return 80% of their revenue to their community in the form of interest on crypto held in the Celsius app. They currently offer rates of 11.5% APY on stablecoins, and anywhere from 2–18% APY on other cryptocurrencies such as Bitcoin and Ethereum. Their rates fluctuate over time and are set weekly based on how much Celsius earned in the previous week.

Q: What are stablecoins?

Stablecoins are tokens (ERC20) on the Ethereum blockchain that are each backed 1:1 with a physical US Dollar. Coinbase is a co-founder of a consortium called CENTRE, which issues a stablecoin called USDC. The prices of stablecoins are designed to be stable and to stay pegged to a set value. In most cases, this peg is $1 USD, although stablecoins do exist for other currencies such as the British Pound or even balanced collections of different currencies.

USDC is backed 1:1 with physical USD stored in special bank accounts. Because CENTRE is a trust, their reserves are stored in the form of US Treasury bonds, meaning that these funds are better secured than funds you store with a bank. These reserves are audited monthly by Grant Thornton LLP (top-5 US accounting firm) to attest that they have one physical dollar backing each USDC. Because of this, if you ever want to exchange your USDC, you can freely and instantly exchange USDC for USD on Coinbase. Coinbase then has next-business day ACH withdrawals to your bank account (for free). For all of these reasons, USDC is my personal choice for stablecoins.

Q: How does Celsius pay such high interest rates?

First of all, it’s important to keep in mind that Celsius only pays what they earn, and this is why they typically adjust rates frequently. If you look at what traditional finance banks/lenders earn, it’s around 15–20% net profits– but these go to company shareholders, not depositors. Celsius does not pay shareholders dividends, and instead passes these earnings along to users. This is Celsius mission– to return 80% of their revenue to their community in the form of weekly interest payments.

Celsius predominantly generates revenue through lending crypto (such as Bitcoin or Ethereum) to institutions. Here’s an example of the typical workflow:

  1. An institution (such as a hedge fund) wants exposure to a crypto asset such as Bitcoin to participate in market making or arbitrage trading, but doesn’t want to take on the risk of buying Bitcoin with dollars. Crypto markets are notoriously volatile, and if the institution buys Bitcoin and the price goes down, they have now lost money.
  2. Instead, the institution borrows the Bitcoin from Celsius. Because the institution is borrowing Bitcoin, and not dollars, the price of Bitcoin no longer matters– and the institutions in fact benefit from market volatility, as it drives arbitrage and market making opportunities– this is typically when Celsius has highest demand for loans.
  3. Now the institution is free to use the Bitcoin as they see fit– without exposure to fluctuations in price– and pays Celsius a premium in interest for the right to do so. At the end of the loan period, the institution simply has to return the same amount of Bitcoin back to Celsius plus interest– even if this Bitcoin is worth half as much or twice as much as when Celsius originally lent it out.
  4. Importantly, the business model works because of the interest rates Celsius can offer to depositors on their assets. Users who were going to hold their crypto long-term anyway now benefit from the interest payments coming via the institutions who want to borrow their crypto. Celsius acts as an intermediary, connecting the two parties together and passing along 80% of revenue to the users.

Celsius currently has over 55,000 active users and 340 institutional clients (these numbers are consistently rising– when I first wrote this answer a few months ago, the numbers were 30,000 and 250).

Celsius also published a fairly detailed explanation of how they set their rates back in 2019 here.

Q: What about taxes? How should I calculate those?

If you only use a service such as Celsius, your taxes are simple. In this case, your income from Celsius will be reported in the same way as income from an interest-bearing account from a bank– you simply report the interest (however much extra crypto you have than you started with) as income. Celsius makes it easy to download this information in a .CSV file that can easily be loaded into Microsoft Excel, and also sends out 1099 forms to users at the end of every year.

*Note: I am not a tax professional so make sure you do your own research on this front (especially depending on what state you live in), but realistically taxes are not difficult as long as you are not actively trading cryptocurrency (just like with stocks).

Q: How can I know my money is safe?

Celsius’ number 1 priority is security. They have spoken before some of the steps they take– including multi-signature authorization for transactions, multi-party computation for their base layer, as well as whitelisted withdrawal addresses with a timelock– so even if a hacker managed to get in, they could only send the funds to certain pre-approved addresses. If you want to hear more about it, Celsius devoted an entire AMA to it with their Security team– you can watch that here.

Q: What about insurance?

Celsius does have $20 million in insurance on their hot wallets (coins in transit from one place to another)– but they don’t have insurance on coins lent out. They don’t really need this, because Celsius loans out the coins to so many institutions, and these loans are collateralized (unlike with many other lenders in this space), so there is an extremely small chance that multiple institutions would get hacked and lose Celsius’ funds while at the same time not having enough collateral to cover the losses.

Q: Why do the rates change every week?

Celsius pays out 80% of their revenue to their depositors every week as interest payments. If Celsius is able to increase their revenue, they pay out more, but also if revenue goes down on a coin, then Celsius will lower the rates.

Q: What is CEL token? Why should I buy it?

CEL token is the native token of Celsius ecosystem– you’ll often hear about the CEL token flywheel– you can watch Alex discuss it here.

Essentially, CEL token can be held to receive bonus interest on deposits and discounts on loan interest payments. Here’s how:

Based on the percent of your holdings that are in CEL token, you qualify for loyalty levels– the highest is for users who hold at ratio of at least 15% CEL to all other assets. At the highest loyalty level, you earn 35% bonus interest on deposits when earning in CEL, and receive a 30% discount on loan interest payments when repaying in CEL. These both create inherent demand for CEL token– users buying the token to hold for the improved rates, for paying off loans, and Celsius buying the tokens back off the open market for weekly interest payments for those who are earning in CEL.

On its own, the demand created by this would not be large– but the same can be said for ETH price. ETH is meant to be used solely as payments for transactions on the Ethereum network. But– in come the speculators, who drive up the price. In the case of CEL, speculators can either be those who earn in CEL and hold because they believe the token will be more valuable later on (greater demand due to increased user base), or just those who buy the token from exchanges because they believe it will go up in price.

One other thing– sadly, earn in CEL is currently not available for US residents (although they can earn CEL interest on CEL token). Celsius is looking for ways to make this available, and it is likely that in the near future Accredited Investors in the US will be able to start earning in CEL.

Q: Why haven’t I gotten paid yet? Did Celsius miss a payment?

This is a common misunderstanding. Although Celsius sends out interest payments every Monday, they are calculated using a price snapshot every Friday– thus, in the app, your previous payments will display as being paid on a Friday even though you received them on a Monday. However, if Tuesday morning (USA time) rolls around and you still haven’t received an interest payment, feel free to reach out to app@celsius.network for support.

Q: How does Celsius make money on 1% loans?

Alex explains it best here. To simplify, 1% loans are only offered at 25% LTV (loan-to-value). This means that to borrow $1000, you must put up $4000 in collateral. By doing this, Celsius ensures that the loan is 100% safe on their end and there is no risk of the borrower defaulting.

Furthermore, Celsius no longer has to pay interest on your $4000 of collateral, and they can now lend it out further to generate yield.

So, to summarize:

  1. You give Celsius $4,000, which they can lend out to earn money on (at an average of 10–20% APY).
  2. Celsius gives you $1,000 back, and you pay them 1% on this loan.
  3. In total, Celsius is earning anywhere between 41–81% APY on the $1,000 they let you borrow.

Questions from past AMAs

Every week, Alex Mashinsky (CEO of Celsius) hosts live AMAs (Ask Me Anything) on YouTube where he provides updates on Celsius and answers questions submitted by the community. Below are a selection of questions from the AMAs, with the video timestamp hyperlinked to the question itself.

Q: Why do institutions and hedge funds borrow from Celsius when they have access to cheap capital?

Alex: The biggest difference– if you tell your lender that you are going to be buying Bitcoin and transacting on these exchanges– they will shut down your account! These banks do not want you touching crypto– the cluster of money that can be used on Wall Street and the cluster of money that can be used on crypto is completely different.

It’s also worth noting– these institutions borrow crypto from Celsius because it exposes them to much lower risk than if they were to borrow fiat and then buy the crypto. By borrowing from Celsius, they’re not exposed to price movement of the underlying asset– they simply have to return the same amount of coins as they borrowed (plus interest). To help simplify:

Borrow 100 BTC from Celsius -> price crashes -> return 100 BTC, no problem

Borrow $1,000,000 from bank -> buy 100 BTC -> price crashes -> $500,000 loss -> hedge fund manager is fired

Q: Now that my CEL token collateral is more valuable, can I increase the size of my current loan?

Alex: Yes, you can refinance your loan at any time, once per month. If the price of your collateral goes up, you can either request a bigger loan or you can ask for some of your collateral to be released. You can also swap your collateral from one coin to another in your wallet (for instance, when ETH rates go up and you’re borrowing against ETH)– and this can help you earn more interest every week.

Q: What is corporate onboarding and what are the benefits of using a corporate account vs a personal one?

Alex: There are many benefits to having a corporate account– corporations spend billions of dollars lobbying in Washington to create special tax loopholes for themselves. While they’re not announced, any normal person can create their own LLC or offshore entity and receive the same benefits as these giant corporations. This has nothing to do with tax evasion– and these things can be complicated– but any person can take advantage of any of these loopholes. If you’d like to do so, start researching for yourself or contact your local tax professional.

Q: If I take a loan with Celsius but continue to deposit more of the same collateral, will I still earn interest on the amount above my loan collateral?

Alex: Yes, this is automatic– you don’t need to do anything. Whatever is not locked up as collateral you will be earning interest on. We’re also able to swap your collateral between different coins– say the rates on ETH go up, and you want to change your ETH collateral to XRP collateral– just reach out to loans@celsius.network.

Q: What’s the best way to independently verify the assets that Celsius holds?

Alex: The best way currently is to watch our inbound wallets and do chain analysis on them. But even better than that– we will be going live soon with our Proof of Community (PoC). PoC is a blockchain-based system that allows Celsius to cryptographically verify that we are paying out correct amounts of interest and that we have the AUM that we say we do.

The point of this is we’re trying to be as transparent as possible. I know that people may think that paying 11% on stablecoins isn’t possible– especially when banks pay 1/1000th of that. And so people think that we must be lying, because there’s no way that their banks are lying to them! But realistically, the banks could pay you these same rates, they just choose not to– instead, they pay their earnings out to their shareholders.

Want to unbank yourself with Celsius (and get a free $20)?

You will earn $20 in BTC once you hold your deposit for 30 days

…And click here for a step-by-step guide for onboarding with Celsius.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store


🐶👒 at Yearn. Find me on telegram or twitter @dudesahn.