Ponzi Scheme? KeFi CEO Files Lawsuit Against Crypto Broker Celsius


Celsius was described as a Ponzi scam and a fraud by its former business partner. What a statement. Let’s go…

On July 7, Jason Stone, the CEO of KeyFi Inc., said that he is pursuing legal action against major cryptocurrency lender Celsius in a New York court.

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The persona behind the yield farming account 0xb1 accused Celsius of behaving like a Ponzi scheme and of violating a profit-sharing agreement.

The Tide is OUT!

Stone said that between August 2020 and April 2021, KeyFi performed as the manager of 0xb1, a unit of investment management that Celsius purchased in order to develop a monetization strategy.

According to Stone’s statements, Celsius has made hundreds of millions of dollars in deposits of depositors’ cryptocurrency assets on the platform for KeyFi to invest in. KeyFi holds up to $2 billion for the business as of April 2021.

In accordance with a joint agreement, Celsius is dedicated to closely observing investment activity and implementing hedging techniques to reduce risks. In February 2021, KeyFi learned Celsius was telling the lie.

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At the same time, the company is not hedging KeyFi positions but has increased its exposure to the market to an alarming level (their view).

Stone then made the offer to end his partnership with Celsius and return the funds. Due to the instability in the market, this sum experienced a substantial temporary loss while trading.

However, Celsius charges KeyFi with embezzlement and failing to make agreed-upon payments. After more than a year of private negotiations, KeyFi made the decision to sue Celsius for failing to reach an agreement.

Crypto Winter is Cold

KeyFi also accused Celsius of using a Ponzi scheme in court filings. Stone said that Celsius’ significant loss in January 2021, during which the cryptocurrency market experienced rapid growth, was caused by its undercover investment in DeFi.

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To address the shortage of liquidity, the corporation was subsequently compelled to purchase ETH at its highest price. Celsius lures new investors with up to two-digit deposit interest rates and uses their funds to reimburse previous investors.

According to the lawsuit, Celsius CEO Alex Mashinsky stole money from customers after reclaiming KeyFi’s assets for his own benefit (we have no idea).

Shortly after Celsius Network confirmed a full Bitcoin repayment, news of the court papers surfaced. The company paid off a loan of over 224 million DAI to Maker and withdrew nearly $450 million in collateral.

After making a repayment, Celsius deposited more than 25,000 Wrapped Bitcoin (wBTC), worth $528.9 million to the FTX exchange. Analysts are concerned that a sell-off will likely happen soon.

Is Celsius A Ponzi Scheme?

CeFi and DeFi systems were built within cryptocurrencies to satisfy consumers’ borrowing, investment, and payment needs. Lending is a popular service on exchanges like Celsius, Voyager, and BlockFi.

What’s the worst-case scenario for these lenders?

In truth, we don’t know. But let’s speculate…

A is a user, and B and C are two CeFi lending systems. User A mortgages his home to borrow money from B to purchase a house.

B lends C money and uses A’s property as collateral. When the financial crisis hit and the market crashed, platforms went bankrupt because of inadequate risk management, borrowing, and capital leverage misuse.

Furthermore, with ideal interest rates, the reward mechanism is not sustainable.

How does the model compare to a Ponzi scheme?

A Ponzi scheme involves borrowing money from one person and repaying it to another.

Borrowers offer lenders high-yield guarantees and showcase examples of past high-yield returns to entice subsequent lenders. High yields attract new lenders, causing consumers to borrow large sums of money from a growing number of new lenders.

This model generates wealth on a continuous basis, boosts prestige, and decreases risk for later entrants.

The person who comes in first faces the same risk of losing money as the person who comes in later, but the reward from interest is significantly bigger for the person who comes in first. In a nutshell, the plan offers a high rate of return in a relatively short period of time.

Profits from new investors will be used to compensate existing investors. This means that the hoax can continue for a long time without investors realizing it, but it will be exposed if everyone withdraws money at the same time.

In a word, there is a fine line between the Ponzi scam and today’s DeFi/CeFi drawbacks, and lending platforms are clearly in trouble once they cross it.

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Author: Nicholas Say

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