Celsius Bankruptcy Shows Crypto-Bank Math Doesn’t Add Up
Crypto’s magical math was made possible in large part by untenable interest rates in DeFi projects.
Source: mpvisuals/iStockphoto/Getty ImagesWelcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition, Michael P. Regan looks at crypto-banking calculations that don’t add up:
There’s a joke from last century that says bankers abide by what’s known as the “3-6-3 Rule.” They pay 3% on deposits and collect 6% on loans – a nifty business model that allows them to tee off on the golf course by 3 o’clock in the afternoon on a weekday, profits in hand.
The numbers have changed over the years – it’s something more like pay 0.1% on deposits now, and collect 5.7% on loans – but the 3-6-3 joke is still a pretty useful way to illustrate the net interest margins that determine how profitable a bank’s most basic services are. So long as that second number is greater than the first, everyone in the industry gets to tee off in the afternoon.
It’s obvious that Alex Mashinsky, CEO of Celsius Network, didn’t want to abide by any part of the 3-6-3 Rule. Not even the punchline about getting to the golf course by 3 p.m. “Stablecoins provide a necessary alternative to banking hours and 5 day work weeks banks imposed on us,” Mashinksy was quoted as saying in a 2019 press release.