7 min read

Optimise your Savings with Celsius

Savings accounts currently pay less than 0.5% p.a. in interest. This sucks. It's time to optimise your savings.
Optimise your Savings with Celsius
Where should you keep your savings?

With interest rates at record lows, most of us are earning anywhere from 0-1% interest on our savings accounts at traditional banks. This sucks.

From the mysterious world of cryptocurrencies, you may have heard of the phrase 'yield farming', an investment strategy which typically involves locking up an asset in return for a payment reward (interest), usually in the same currency.

With decentralised finance (DeFi) boasting 1000% annualised percentage interest rates, the space has attracted significant attention over the last few years, with yield farming becoming increasingly popular.

However, most of these protocols are quite complicated to understand, especially for those without a finance background or a deep understanding of the cryptocurrency space.

Fortunately, not all DeFi platforms are overly complex or speculative. There are ways to earn more than the 0.2-0.3% paid by your bank.

Bank Savings Account Interest Rates (as at 21 Feb 2022)

Stablecoins

Most people naturally think that cryptocurrency are risky, but it's important to understand that there are different types of cryptocurrencies with a wide range of risk profiles.

Stablecoins are a type of digital currency pegged to another currency. The most popular stablecoins are pegged to the US dollar, with the largest being USDC and Tether. These two stablecoins collectively have over US$170bn in circulation, which illustrates the widespread adoption and usage of stablecoins in the crypto community.

The basic premise of a stablecoin is that one US dollar stablecoin will always equal one US dollar. To do this, these companies hold treasury accounts (reserves) which have an equivalent amount of US dollars backing each stablecoin they issue i.e. if there are 100 USDC stablecoins in circulation, Circle (the issuing company) holds $100 US dollars in their treasury.

Start Earning

Stablecoins are a relatively low-risk cryptocurrency asset which can be held in savings accounts to earn interest. They are lower risk than other cryptocurrencies because they are tied to a fiat currency.

Introducing Celsius, a FinCEN registered US-based company offering up to 17% yield on cryptocurrency assets to over 1.6 million users.

On Celsius, stablecoins are currently paying 8.5% p.a, paid weekly with no lockup. Compared with a savings account at a traditional financial institution (e.g. Westpac, CBA, NAB, or ANZ), this has a few key benefits. Put simply:

  • 8.5% is much better than 0.25%
  • Having interest paid into your account weekly gives you more flexibility to move your money around and make withdrawals without foregoing accrued interest

Must be a Ponzi Scheme

Sounds too good to be true. Here's a quick and dirty look at why it works.

Savings Account Model

The diagram above shows a grossly oversimplified view of how the banks, and Celsius, make money.

(1) You deposit money into a savings account,

(2) The bank/Celsius lends that money out to third parties (individuals and organisations), and charges them a certain interest rate

(3) When the third party pays back the loan, the bank/Celsius keeps a percentage of the interest

(4) The bank/Celsius then pays you interest as a reward for providing capital

Since crypto is still a nascent industry, liquidity (especially in the form of stablecoins) is extremely valuable for growing organisations, who are willing to pay much higher interest rates to access loans and funding.

As the DeFi industry grows, new protocols require substantial liquidity to fund liquidity pools and automated market makers, so they are willing to borrow cryptocurrencies at very high interest rates.

In turn, this allows Celsius to pay out much higher interest rates to its users than banks.

Show me the money

So is it worth moving your money from a savings account into Celsius?

Moving money from a bank account into US dollars into crypto stablecoins on Celsius seems like a lot of effort. Is it really worth it? Here's a look at the additional interest you could earn on $5000 AUD of savings.

In one year, you can make an additional $452 in savings by doing absolutely nothing. This amounts to an effective interest rate of over 10% p.a., which is 9% more than a savings account paying 1% p.a.

It's likely that your bank is paying much less than 1%. This sensitivity table shows the additional savings you could earn based on the amount you transfer into the Celsius platform (horizontal axis), and the interest rate your bank is paying (vertical axis)

The Risks

As the common saying goes, 'there's no such thing as a free lunch'. It's true, there are risks to be cognisant of.

These are the key risks that come to mind, but it's by no means exhaustive:

  • Currency risk: if you're doing this from Australia, you'll need to convert AUD into USD to purchase USD, so you're exposed to adverse moves in the AUD/USD exchange rate
  • Business risk: Celsius has a strong track record with billions under management and has clearly expressed its intentions to comply with existing and future regulation. However, there remains a risk that Celsius goes bust
  • Stablecoin issuer risk: Stablecoins like USDC are issued by private companies, in this case Circle. Similar to Celsius, Circle has a strong track record of regulatory compliance (particularly in the US) and engagement with regulatory bodies. However, you may lose your USDC if the company goes bust
  • Custody risk: When you transfer your stablecoins into the Celsius platform, they hold custody of your assets. Your cryptocurrency is exposed if Celsius' security measures are breached. In October 2021, a DAO called BadgerDAO was hacked, and had a wallet linked to Celsius which was drained of $120m in wBTC, however it doesn't appear that the Celsius network has been directly hacked. For some additional information on Celsius' security, see here

The Call to Action

If you've made it this far, and are interested in rethinking your savings strategy, please consider using my Celsius promo code when you sign up and transfer >US$400 into a Celsius account (button below). We'll each earn $50 in BTC after 30 days!

Click the button below to get started, and reach out with any questions!

Note: I am not sponsored by Celsius in any way, but have been using their product for over 6 months and currently have ~15% of my savings on the platform.


Some Footnotes

I'm happy to send through the excel backing to anybody trying to understand the mechanics of my analysis. I am a strong believer in open source information, so please let me know if any other analysis would be useful, or if you spot any errors.

Key Assumptions which impact the returns analysis:

  • Assumes the current interest rates of 8.5% for USDC and 6.2% for BTC remain the same for the entire year
  • Assumes a comparative savings account interest rate of 1% (this is conservative. Most accounts are paying much less than this) (see sensitivity table above for analysis at different savings account interest rates
  • The exchange rate stays fixed at 1.42 AUD/USD over the course of the year, with fixed currency conversion fees of $20
  • Assumes no other promo codes are used for additional cryptocurrency payouts (you can make even more money by using other Celsius promo codes)
  • All interest is earned in the native currency (USDC and BTC)
  • Assumes that two Celsius promo codes are used - (1) STABLE50/HODL50 (*although check the website for the most up-to-date promo codes), which pays out US$50 in BTC once you transfer US$400 in USDC and leave it in Celsius for 30 days, and (2) my personal referral code (button above), which pays us both US$50 in BTC after depositing US$400 and leaving for 30 days
  • BTC price stays flat in that time  
  • Assumes the interest is paid out in a lump sum, whereas it is actually paid weekly (i.e. $421/52). This provides you with substantially more flexibility to withdraw your money from Celsius without missing out on too much accrued interest

This sensitivity table shows the effective Celsius yield (total interest net of fees, as a % of initial investment) based on different initial deposit amounts (horizontal axis), and Celsius USDC interest rates (vertical axis).

I've shown the effective yield at USDC interest rates of 7.5% and 8% in case Celsius reduces their interest rate over time.

Essentially, the more you invest, the less the fixed US$35 withdrawal fees will impact your yield. The withdrawal fee is required when you transfer USDC from an exchange (e.g. Binance, Coinbase, Coinspot etc.) to Celsius because the transfer occurs on the Ethereum blockchain, which charges gas fees for transactions. Binance charges a flat ~$35 USD ($50 AUD), which is extremely expensive.

Do your own research (DYOR)

None of this is financial advice. Always do your own research before making investment / savings decisions. Some sources to begin your research may include the following: