Like everyone else, we learned with amazement last week that Celsius Network, the latest darling of our Caisse de depot et placement du Québec (CDPQ), was placed under the protection of American bankruptcy law.
Posted July 19
This prolific cryptocurrency investment platform enjoyed the blind trust of 1.7 million investors and borrowers until the cryptocurrency market crashed last winter. Which is cyclical, moreover, in the world of cryptocurrencies.
Celsius Network no longer having the necessary assets to support its promises of return, our woolen stocking of Quebecers risks losing 150 million US dollars.
And yet, it was predictable…
In our view, such an outcome was foreseeable. Why ? Because the CDPQ has chosen to bet on easy gains, but in a structural model weakened by human faults: centralized finance for cryptocurrencies (or “CeFi”, for Centralized Finance).
In its press release dated October 12, 2021, the CDPQ gave us this statement from Alexandre Synnett, Senior Vice-President and Chief Technology Officer at the CDPQ, launched 8 months earlier: “Celsius is the world’s leading cryptocurrency lender and has a strong management team that places transparency and customer protection at the heart of its activities. »
When the time comes to analyze the risk on an investment in a company or a digital project – and well beyond looking at its level of return – it is necessary to understand its business model, its technological architecture , its place in the ecosystem, its relationship with the competition and its potential disruptors.
Feeling reassured by a “strong management team” and the promise of “transparency” is hardly a guarantee of absolute success. Because to err is human. Because the desire to always want more is certainly one of the great flaws of contemporary man.
That said, transparency, traceability, neutrality, infalsifiability, immutability are also – if not much more – characteristics belonging to the world of code, programming, distributed technologies, such as the open blockchain. The code is a form of law, followed to the letter by computers.
As a metaphor, the principle of “decentralized” (or “distributed”) technology could be compared to a car, propelled by a nuclear reactor, running for eternity, which could not be stopped because it was locked from the inside, with the keys still in the ignition.
With these new technologies come new possibilities. And this is how DeFi was born around 2017, then became popular in 2020. In this universe of DeFi, everything is programmed in advance. Algorithms, yields and governance rules. In an unalterable and immutable way, except in the event of a desire supported by the community to change things, democratically.
There is therefore no possibility that opportunism or greed will tempt anyone to risk more of other people’s money; to lend more than cash allows…
Thus, in opposition to the unpunished acts of Wall Street that we observed in 2008, DeFi proposes as a solution a world structurally sheltered from human temptation and, consequently, from possible payment defaults.
However, last year at this time, while these emerging decentralized technologies were taking the lead all over the planet, the Caisse de dépôt chose to bet on centralized finance based on cryptocurrencies, ignoring DeFi; by embracing the same good old human logics that darkly triumphed, in 2008, with this debacle of derivative products where nothing was backed by anything. A crisis that has also been paid for by taxpayers, by money printing. Still…
This ignorance is costing us dearly
So, in your opinion, why did the Caisse de depot et placement du Québec take the hyper-risky gamble of investing in the centralized model (CeFi) of Celsius Network?
Most likely out of simple ignorance of the growing existence of the world of decentralized finance (DeFi), in the cryptocurrency community. The CeFi antagonist.
Those who follow the “puck” in the cryptocurrency universe know that CeFi in this sector is more threatened than ever by DeFi. This new model, it should be noted, has performed very well in the turbulent waters of the past few months, while the difficulties are increasing for CeFi platforms similar to Celsius (BlockFi, Voyager, Nexo, etc.).
Education is the key
We therefore believe that our society is in great need of education on this subject. More than ever, it will become important to teach our next generation about distributed technologies and the fundamental impact of cryptocurrencies on the economy of tomorrow. The future leaders of our decision-making institutions will also need to be properly educated to guide us in this revolution.
Because this future is based on much more than the financial speculation presented by the media and policy makers; this profound paradigm shift is unavoidable and above all unstoppable.
As Alexandre Synnett argued last October in a press release, “blockchain technology has disruptive potential for several sectors of the traditional economy”.
It is therefore imperative to master the universe of the blockchain, decentralized applications and cryptocurrencies. Since ignorantly betting on a bad horse, vulnerable and fallible moreover, will always cost us too much, collectively.
* Co-signatories: Jean-Sébastien Brault-Labbé and Olivier Chevrier, investors concerned about the woolen stockings of Quebecers and early users of distributed technologies