The press release of Cake DeFi was interesting to read yesterday and made me think. The release of Cake DeFi came in the wake of the collapse of Celsius, the crypto lending platform that has stopped its withdrawals and may or may not be completely insolvent. The release of Cake DeFi fell into a period of complete chaos in the markets, triggered by the following short but scathing tweet from Celsius.
.@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2
– Celsius (@CelsiusNetwork) June 13, 2022
Cake DeFi’s article entitled “What Sets Us Apart From Our Competitors: Why Cake DeFi Is Built On Transparency” confirms that the Celsius downward spiral will not cause any harm to Cake. The differences between the two models are also explained. This is a smart move by Cake, and I think that many companies would benefit from imitating it.
The contagion from the Celsius debacle could be enormous, and that will scare any crypto investor, regardless of what protocol or token they are exposed to. Celsius had $12 billion in client funds and is currently (desperately) clinging to a position at MakerDAO with half a billion worth of Bitcoin. At the time of writing this article, a 25% drop in the price of Bitcoin would mean a complete liquidation of the position and flooding the market with Bitcoin, which would only increase the risk of contagion.
Of course, even in the midst of this crisis, Bitcoin fell from about $ 30,000 to $ 22,300, and the crisis itself was probably caused by contagion effects of the downward spiral of VAT last month, since Celsius was invested in the Anchor Protocol via the now collapsed VAT. Cake DeFi confirmed: “First and foremost, we would like to assure our customers that the current market conditions have little or no impact on the day-to-day business of Cake. As usual, we process 99% of all withdrawals within 24 hours“ is a very smart and reassuring move.
This will dispel the fear that Cake is involved in the wave of contagion of the entire industry and will allow customers to keep their liquidity on the record with more composure.
Different business models
The post has more than calmed down. It confirmed that the business style is completely different from Celsius.
“As a Singapore-based fintech company, we need to ensure a clear separation of assets, where clients’ assets are separated from the company’s operating accounts. Simply put, our users have full control, ownership and authority over their funds,“ the post confirmed.
This is a big difference from Celsius, where the model was based on a central company that invested the assets in the market at will – a strategy that worked wonderfully in 2020 and 2021, when the bull market was enormous, but has since crashed. And as withdrawals increase, Celsius is in a crisis, as cash and cash equivalents no longer correspond to liabilities.
Cake DeFi is completely different. To use their own words, it provides users with a “secure passage” or access to decentralized financial services (DeFi): these services are all on the blockchain and are fully accessible and transparent to everyone. Technically, customers can carry out such transactions on the blockchain itself. What Cake DeFi offers is a one-stop platform where people can access all these services at a single point with customer and community support.“
Cake makes the difference clear by criticizing the “limited transparency and/or control” of centralized platforms like Celsius. “Thus, users would have no clarity or information about where the returns come from or – worse – whether their funds are mixed with operational funds,” the post continues.
In summary, we can say that this is a press release that highlights two things: firstly, transparency and secondly, communication – both factors that Celsius customers will now consider absolutely important. It is important to understand what you are investing in, and many who have joined Celsius will appreciate that it was impossible to know in any way what Celsius is using client funds for.
Celsius had a fatal mistake, namely what happens when the market turns and there is a mass exit all at once. This was revealed, and Cake DeFi clarifies that it is completely different from this model. This is a smart move that other companies that are not affected by the crisis would be only too happy to follow. And hopefully in the future, customers will place more emphasis on transparency.