Celsius is Pirate 2.0Pirate presaged Celsius Network, which is worse than anything in defi.There is nothing new under the sun. Some people here categorically reject defi, while they forget what Bitcoin was like in its toddler years. Bitcoinland was befouled with mountains of garbage worse than anything in defi: These early Bitcoin mass-scams were the forerunners of Celsius Network.
Yes, it is ironic that Vitalik wrote the below-quoted article; he knew this world well! Compare the blatant HYIP schemes in defi called “Yield Farming” in the past two years. Then pause to reflect that at least those Yield Farms do not entrust funds to a centralized custodian—unlike the following. “Not your keys...”
Ponzi schemes: The Danger of High Interest Savings Funds
Vitalik Buterin
May 31, 2012
Over the past five months, the Bitcoin community has seen the emergence of savings funds offering interest rates far higher than any seen in the traditional economy. The most innocuous form of high-interest deposits, mining contracts, have been around for a long time, allowing anyone to financially participate in mining operations by buying shares and collecting a percentage of the profits in return, offering returns of up to 1.4% per week, or an annual percentage rate (APR) of 106%. Non-mining opportunities began to offer even higher returns than this. GLBSE assets like TYGRR-BANK return up to 2.2% per week, or 211% APR, and in mid-January a forum user known as “imsaguy” offered 6% per 2 weeks, or 357% APR, although at the cost of a somewhat long-term commitment. More recently, however, the interest rates seem to have lost all sanity. Looking at the “lending” and “securities” subforms at bitcointalk.org, we see headlines like “ShadowAlexey’s Deposits 12-18% per month“, “Savings Account, 4% Weekly“, and even “Hashking’s 6.75% Weekly Deposit Special” – a staggering 2921% APR.
The largest of these lenders, and likely the one that many of the other funds are at least partially themselves invested in, goes by the name “pirateat40″, or Pirate for short, and Pirate’s deposit operation is formally called “Bitcoin Savings & Trust”. Accounts in BST are heavily coveted, with Pirate enforcing limits on the number and size of deposits, and interest rates are very high: 4.2% for deposits of at least 100 BTC, 5.6% at 500 BTC and 7% (that’s 3313% APR) at 2000 BTC. Pirate has been unwilling to reveal much about how he is able to earn such high interest rates in the first place, although the reasons that he has given include market arbitrage and “private loans to network members”. Pirate boasts that his activities in such fields provide returns of 10.65% per week, and he pays out an average of 5.98%.
Recently mentioned:
Defi is a wilderness—just like early Bitcoin was a wilderness of scams, Ponzis, and children’s games, but with added VC corruption. Early Bitcoin was an obscene shitshow from pirateat40 to Gox, to name only a few of the most notorious early-Bitcoinland embarrassments that remind me of defi today. If you venture out into defi today, put on your waders and prepare to get knee-deep in bull-excrement.
I disagree, at least regarding Pirate@40, it was
market manipulation which worked (for a while); pool a lot of BTC to one guy who makes
whale splashes at the biggest exchange,
at the expense of everyone else trading. When he went
insolvent due to taking on more than he could chew (in profit payouts) his former backers cried
ponzi.
A
large proportion of defi, in a nutshell. (
Some of the rest of defi has some awesome ideas, such as building no-KYC permissionless exchanges.)
P.S., how was pirate different than a16z,
et al. now? The latter are surely much more sophisticated, and “respectable”. I mean: If you peer through the layers of grand-scale financial manipulation, and set aside the implementation details, how are they
essentially different?
The main difference seems to be how we interpret the words, to me "scam" or "ponzi" is associated with original intent to take the money and run, not how a failed plan ending in bankruptcy eventually plays out.
I agree about the grand-scale financial manipulation, it's basically the same thing, the key difference is it's being sanctioned by the banking system.
“Scam” denotes fraud: Knowingly making false statements of material fact that mislead people to their detriment. (Legal elements of fraud.) “Ponzi” denotes a scam which uses new investors’ money to pay old investors.
I don’t want to go off into a detailed scrutiny of the facts here. Rather, I will assume for the sake of discussion that your description is fully accurate as to fact.
Still, I don’t buy for even one moment any proposition that Trendon Shavers started with honest intentions. He promised BTC interest rates that are impossible to sustain. His advertising was so outrageous that I am unsympathetic to anyone who lost money with him. The greed and foolishness of the victims does not excuse the scam, but it does to some degree mean that they were “asking for it”.
Defi was the wrong comparison. According to your own description,
the Pirate scam was most similar to Celsius Network, which is not even defi.Promise depositors that they will be paid interest on BTC. Celsius promised rates that seemed superficially at the outside bounds of what
could arguably be plausible—
maybe. pirateat40 promised wildly impossible rates that should have set off the “SCAM!” senses of any ordinary reasonable person.
Use “arbitrage” as an excuse for promising impossible yields. Arbitrage can be good; I have profitably done it myself, and I plan to do much more of it in the future. However, arbitrage opportunities are limited and competitive. Neither Celsius nor Pirate could plausibly claim to generate the promised returns from arbs with the volumes of money involved.
Take deposits. Use the BTC to trash the BTC market (one way or another), to make it possible to pay interest to depositors—
for awhile. How do you like what Celsius has allegedly done to our market for about the past six months?
Ultimately go insolvent, because the scam is unsustainable.
Needless to say, both systems are entirely centralized and custodial. “Not your keys” overtly centralized custodial garbage cannot be called “defi (decentralized finance)”.
The earliest available Wayback snapshot of the
“First Pirate Savings and Trust” OP:First Pirate Savings & Trust | www(.)BTCLending(.)com[...]
7-Day Interest Rate on Deposits- 100 BTC + 4.2%
- 500 BTC + 5.6%
- 2000 BTC + 7.0%
In the case of pirateat40, everyone had an explicit warning that this was an obvious, blatant scam.
Post #2 in the thread was by someone with good sense, and a finely tuned b.s. detector:Smells like a classical HYIP scam.
I apologize to defi for comparing it to pirateat40. Celsius Network is the proper comparison to pirateat40. The worst shitcoin Ponzis in defi look innocent by comparison.
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