CeFi - Will Confidence Return?

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1 year ago

When The Tide Goes Out

It’s all fun in the sun when the tide is up and everyone is enjoying the yields of the lending world. However, just like everything else, the tide too must turn. Summer eventually gives way to winter and a bolstering bull market will eventually surrender to a patient yet powerful bear. Do you want to navigate your way successfully through the Crypto market? Rid yourself of delusion, and hopium, and begin learning the charts and technical analysis. Ignore everything that cannot be backed by solid data and always remind yourself that emotion is what the market preys upon. I have mentioned this a few times but I will mention it again. It is wise to only allocate 10% to 20% of your portfolio to high-risk strategies. This includes CeFi, DeFi, and staking via third-party platforms. It’s rather strange but shortly before the great washout, I had written a number of articles addressing the fact that true POS is a lot safer than CeFi and DeFi. In another recent article posted after all the casualties began to fall, I confirmed this idea as now actually being proven true.

Designed To Survive

There are a number of really beneficial aspects to a bear market. One of these is that bear markets expose weakness and vulnerability. Being involved with financial markets for more than 15 years, I understand the power of leverage. This has been key in designing my own trading strategies that are built upon the backbone of solid risk management. Recent events have exposed that industry leaders have little to no understanding of how to structure a good financial model that is built upon leverage. I have had many saying that some of my targets or expectations are too low and so on. Do you have insurance? Do you get a return on your monthly premium? No, apart from perhaps a no claim bonus. What happens when calamity strikes? Providing for what is expected places the realm of possibilities within your own head and not reality. I have made provision for even lower levels that I have mentioned. I don’t necessarily think it will go there and probably prefer it not to. If this sounds foolish to you then you have a limited understanding and appreciation of risk management. Imagine if Celsius or any of the other casualties were sitting on a cash reserve that many were previously laughing at? The end result would have been entirely different.

Two sides

The other side of the coin to this recent disaster reveals how powerful this thinking can be. Not only are certain companies over but their reputation is in tatters. On the other hand, those who made provision for calamity, not only survived and bailed others out but also received another benefit. Respect is lost when companies fail due to foolish business models. However, those who built upon good business practices and risk management begin to shine. They grow in approval and as a result gain more strength and market dominance. The respect is not lost but rather reallocated to the wise.

Will The Market Forget?

What remains to be seen now is if the market will ever embrace CeFi again. As I mentioned months ago, staking will secure greater yields than lending in most cases, so why utilize lending services? I saw recently that BlockFi pushed up their rates on BTC from 2% to 2.5%, which to me, doesn’t warrant the risk. Perhaps if regulations are introduced that force these entities to have strong reserves, in time, confidence can be returned. It is also important to note that FTX also offers lending services with very good rates and they were not only unaffected by this fiasco but were a saving grace. Perhaps, certain entities such as FTX and Binance will go on to secure clients in the lending arena, as they have proven to be solid throughout this fiasco. The rebuilding of trust is one of the most difficult endeavors, in any sphere or arena.

Final Thoughts

Obviously, greed plays a large part in this story of financial decimation but there is another consistent thread throughout. The common denominator is without a doubt, poor risk management! Companies are led by those who do not understand the dual objective of investment. I will expound upon this in a future article, but that’s it for now. Thanks for the visit.


First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.

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This article was first published on Sapphire Crypto.

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1 year ago