Tech Paper SOLIDITY - Celsius Network
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Tech Paper
SOLIDITYA Membership Platform
Celsius is a new global P2P financial platform
that will seamlessly connect holders of crypto-
assets with borrowers. It will grant members
access to dollar margin loans against their
crypto and, in the future, crypto-holders will
be able to earn fees on their assets in the form
of CEL when their crypto is lent to others.
The platform will also enable margin traders
(hedge funds and crypto funds) to borrow
crypto-assets for: hedging, shorting, deferring
taxes and locking in profits. Celsius will
not take any positions and will not act as a
counterparty to any transactions. Our primary
purpose will be to facilitate transactions
between lenders and borrowers, creating a
liquid order book and maximizing return on
capital on pledged assets.
This is a live document that will change as we build the Celsius prototype and
simulators. We seek and appreciate all comments, please send your feedback to:
dev@celsius.network
Nuke Goldstein, Mališa Pušonja, Ivan Bjelajac, Alex Mashinsky
Version date: February 11, 2018
Celsius Network - Copyright © 2018Content
Abstract 4
Platform Overview 4
System Flow Design 8
Lender 11
Lending Stake Pool 12
Joining the Pool 12
Distribution of Earnings 13
User Experience and Expectations 13
Proof-of-Stake 14
Margin Trader (Borrower) 15
Shorting Overview 17
Shorting Crypto With Fiat 17
A More Efficient Short 18
Safeguards 18
Celsius Platform Services 19
Celsius Trading Service 19
Market Transactions Algorithm 20
Fee Distribution Service 20
Lending Pool Management Service 21
Software Architecture 22
Flow of Capital and Crypto Assets 23
Lender Wallet Activities 24
Dollar Margin Loan Using Crypto as Collateral 24
Borrower Margin Trader Account and Short Selling 25
Celsius Degree Token Funds Flow 26
The Celsius Token Economy 27
Celsius Degree Token Funds Flow 28
Celsius Network - Copyright © 2018Abstract
A Proven Celsius Network is developing a new foundation to drive the
emerging crypto-assets based economy. Members will gain access
Track Record to fiat-currency loans using their crypto coins as collateral. Later
on, Celsius will also provide a new way for crypto-assets holders
(Lenders) to leverage their holdings and get rewarded simply by
transferring their assets under management to the Celsius platform
wallet from their current wallet or cold storage device. Celsius will
generate income for coin holders by allowing hedge funds and
crypto funds, to create short positions on cryptocurrencies using
actual coins borrowed from the Celsius pool of lenders. The top 20
crypto-assets will be accessed and charged fees for the shorting or
purchased for leveraged margin trades.
The system protocols will be optimized to provide the most value
for both lenders and borrowers by utilizing advanced algorithms
to maximize matching of bid and ask contracts and optimizing
profitability for the lender community. Celsius will use a modified
1
Black-Scholes algorithm to generate the amount of deposit required
from borrowers for each coin. The interest paid for each coin will be
produced algorithmically, but borrowers may compete for a better
chance to loan coins by bidding in a reverse auction market.
Celsius plans to open a new liquid market with easy to use agile
trading tools for crypto borrowers which will have a much lower
costs than the proposed futures and options markets planned by
2 3 4
the CME, CBOE and NASDAQ. Celsius will provide a large and robust
crypto-assets pool from lenders allowing borrowers to leverage
margin trades. Celsius aims to offer various incentives for lenders to
keep their assets in the pool. For example, cash surplus will be used
to enable dollar margin loans to lenders against their crypto assets
which helps offset the short only positions opened by borrowers
and lock in coins from leaving the platform.
1 https://en.wikipedia.org/wiki/Black-Scholes_model
2 https://www.ft.com/content/8ed7fe5f-ed2f-3390-a977-2d489f995cd5
3 https://www.investing.com/currencies/cboe-bitcoin-futures
4 https://www.wsj.com/articles/nasdaq-plans-to-launch-bitcoin-futures-in-first-half-2018-1511968313
4
Celsius Network - Copyright © 2018Abstract
Platform The Celsius framework will be composed of personal and framework
hosted accounts placed with trusted custodian organisations,
Overview and is designed to minimize transfer of crypto-assets outside the
environment. This, along with technical measures, will allow for
maximum security and minimum risks from collection, fraud, or
theft, to stakeholders.
When fully developed, the Celsius mobile wallet application will
allow lenders to track and manage their crypto-assets. The app
will provide a clear view of the account status, including: assets
managed, assets hold time, earnings over time, projected future
earnings, debt tracking (in case a margin-loan was made), and more.
The wallet will also allow transfer of crypto-assets in and out of the
Celsius account as in common wallet solutions.
A set of tools used by borrowers (margin traders) will be available in
the form of web-apps, mobile apps, and future API based integration
with third party trading solutions. Borrowers do not need to be
crypto savvy or hold any crypto accounts. They can initiate trades
in any of the top 20 coins by just placing a limit buy or sell order.
Borrowers will have to place dollar deposits with a Celsius custodian
financial institution which will serve as collateral against any
potential losses. Risk analysis algorithms, based on real-time and
historical market analysis, will determine the allowed leverage and
stop limits for positions taken.
The Celsius economy is based on the Celsius Degree Token (CEL),
which is bought by borrowers and used to pay fees to the lender
community and Celsius. CEL tokens will be paid out as membership
reward to crypto lenders daily, based on fees collected from trades.
The Celsius Network system will be a membership organization that
collaborates with existing regulated institutions to comply with all
state and federal laws. The platform will be designed to minimize
risk exposure to lenders, borrowers and itself, as it is a fee driven
platform that mitigates risk using dynamically adjusted thresholds
for margin and cash requirements based on volatility and trading
volumes of each coin. The Celsius AI algorithms will utilize market
fluctuations and trading volumes during operations to minimize
risk to the lender community by adjusting deposit and escrow
requirements or limiting the trading volumes to avoid excessive
5
Celsius Network - Copyright © 2018Abstract
Platform selling or buying pressure on any coin or any exchange. Margin calls,
if they should occur, will be covered by managed borrower dollar
Overview reserves and selling coins collateral.
A Celsius wallet holder may be qualified for a margin loan using
the managed crypto assets as collateral. Such collateral will be
shown on the user’s account as ‘held’, with the loans terms stated,
including: payments schedule and possible penalties. The loans can
be used via debit cards issued on behalf of Celsius or transferred
into holders’ linked bank accounts. If the loan is not paid, Celsius
may sell the collateral to cover the defaulted amount and penalties.
In case of a coin valuation drop, determined to be risky by the
Celsius predictor algorithms, the user will be notified to act by either
covering the loan or adding more coins to the collateral. If the user
fails to act on time, Celsius may sell some of the collateral to cover
the potential loss.
Celsius plans to reward lenders with ETH and BTC payments as well
as Celsius Degree Tokens (CEL) using a customized Proof-of-Stake
5
(PoS) algorithm. Earnings will be allocated daily based on amount
available, seniority, coin market popularity, market volatility, and
Celsius treasury fees. The token earnings will be transferred directly
into the lenders’ wallet. Traders will be obligated to deposit a fee,
in CEL, to initiate the loan of coins and execute their position. As
the CEL token will also trade on open crypto exchange markets, the
Celsius system will generate a continuous cycle, from purchasing
borrowers to lenders and Celsius Treasury, and create new demand
by traders on our platform and speculators using our trading
volumes to predict demand for CEL tokens.
5 https://en.wikipedia.org/wiki/Black-Scholes_model
6
Celsius Network - Copyright © 2018Abstract
Platform Surplus of currency, including the CEL tokens and fiat, will be used as a
base-economy for:
Overview
Enabling lenders to access most fiat currencies as margin loans
against their crypto-asset holdings in Celsius.
Margin buying and selling of the top 20 coins to borrowers (margin traders).
Celsius strictly adheres to all federal rules and regulations. Lending
and borrowing members will be checked for KYC/AML compliance as
required by law. All borrowers have to be accredited investors or SEC
registered funds. Celsius does not intend to sell any coins but only
accept transfers from KYC verified sources such as Coinbase, Gemini
and other exchanges.
Asset Flow Digital Exchanges
Model (GDax, Gemini,...)
Issues $ loans Executes Sell / Buy Orders
Deposit Coins $ Profits / Losses
Coin Holders Traders
(Coin Lenders, $ Borrowers) (Coin Borrowers)
Earn CEL Tokens Pay fees in CEL Tokens
Pay interest in $ or CEL
Diagram 1: Celsius overview
Diagram 1 describes the operation of the Celsius distributed platform. The lenders make their crypto-
assets available to Celsius and get back token interest or a dollar margin-loan. Traders can borrow
from the lended assets in order to short the crypto-asset. Degree tokens are used as a payment and
reward currency, thus creating a supply and demand on crypto exchange markets.
7
Celsius Network - Copyright © 2018Abstract
System To describe the flow design of the Celsius platform, we can track
how the three core currencies - Celsius Degree Token (CEL), crypto-
Flow Design assets (illustrated using ETH), and fiat-currency (illustrated with $
or FIAT), are used between the various elements of the system. The
key players of the Celsius architecture are: lenders (crypto holders),
borrowers (Traders), Celsius (Platform Services), and external
coin exchange markets. An ordered chain of events in the Celsius
platform will look like this:
1. The lenders transfer their ETH to Celsius management. The combined
ETH available to Celsius is considered as a crypto lending reserve
pool. Celsius then deposits such ETH with a custodian.
2. A trader (borrower) deposits FIAT into their Celsius account
managed by a custodian. This account is the base capital for all
trades and risk reserves.
3. A trader (borrower) seeks to short ETH, and makes a request by
placing a limit sell order. The request includes time and price limits,
as well as a minimum (base) fee and a bid for added fee they are
willing to pay to get preferred access to crypto assets. If a trade gets
prolonged, additional fees may be charged.
4. During the trade setup, Celsius checks if there is an adequate
amount of ETH from lenders to perform the order. If not, the amount
available will be indicated.
5. If fees and other parameters are matched and approved by Celsius,
the platform locks the quoted margin loss amount in the Celsius
dollar escrow account with the custodian.
6. Celsius also collects a fee as a percentage of the dollar value of the
order translated to CEL, according to the current CEL token market
value. The percentage is decided using an algorithm that takes into
account the volatility of the coin, trading volume, amount being
shorted and current market conditions.
7. If the sell limit order can be executed, the borrowed ETH is sold
on one or more exchanges and is turned into FIAT and held at a
custodian.
8. The ETH amount is repurchased from the exchanges when time limit
is met, a margin call is made, or when the trader sends a buy to
cover their order.
8
Celsius Network - Copyright © 2018Abstract
System 9. The borrowed amount of ETH is returned to the Celsius lending pool.
Flow Design 10. Any gains due to a drop in the ETH price, plus the held escrow, are
released back to the trader. In case the ETH value went up, the losses
will be deducted from the account and the remainder, if any, will be
released to the trader account.
11. Each day the system will allocate CEL tokens for distribution to
lenders. The total CEL allocated is based on parameters such as
expired trades minus Celsius fees, trade and other exchange fees,
over-time distribution, and surplus management. The distribution
algorithm accounts for amount and lending-age, similar to proof-of-
stake (PoS) mining.
12. The deposited, unlocked, ETH is available to be withdrawn upon
request to lenders external wallet at any time. If they wish to pull
ETH from the pool, lenders will lose seniority rights and be pushed to
the end of the waiting list (lending-age will be reset to 0) when CEL
are rewarded, thus reducing their future daily earnings.
13. The lender may wish to margin-loan FIAT using the managed crypto
assets as collateral. The Celsius algorithms will inform on the
maximum loan amount, interest and fees, and the payments plan.
These will be calculated based on parameters such as: the current
managed assets value, market status analysis, calculated costs and
more. The FIAT loan may arrive to the user either as a debit card or a
direct bank transfer.
14. The lender will be notified when a payment is due. Payments will
be made via a bank transfer/wire or other fiat payment methods.
Celsius will remind and alert the user when a payment is due,
giving ample time to respond. However if late, payments may carry
penalties such as added interest or assets liquidation.
15. In the event that payments are delinquent, Celsius may liquidate
held assets to cover costs.
16. If the market value of the assets held is nearing the value of the
unpaid sum, the system will trigger a margin call in the form of
alerts. The user may elect to cover the remainder of the loan or add
more coins to the account.
17. In case a margin-call was not properly answered, Celsius may liquidate
the assets to cover costs.
9
Celsius Network - Copyright © 2018Abstract
Funds flow overview
Lender Celsius Borrower Market
Lender sends ETH to
Celsius Wallet
Send ETH
Celsius Wallet is a Pool
of all Ethers of all Lenders
Lend me specific amount of ETH?
Celsius decides if there is enough
funds in the Celsius Wallet?
Amount is approved. Pay me fee.
Send $ deposit & Pay Fee
HODL Fee that goes to Lenders converts into CELs
Sell Order(s)
Celsius will sell specified amount of ETHs
in one or multiple actions.
Sold
Buy Order(s)
Celsius will buy back specified amount of ETHs
in one or multiple actions.
ETHs are back
Profits of losses
Calculate and distribute
CEL to each Lender
Send/distribute CEL
Lender can request the deposited
ETH back from Celsius
Request ETH back
Send ETH back
Lender Celsius Borrower Market
Diagram 2:
Funds flow overview
Coin Withdrawals Settle margin traders
Custodians Coin Exchanges Banks & Financial
(itBit...) (GDax, Gemini, Kraken...)
Institutions
(Fidelity, IB,...)
$ Profits
Buy & Sell Trades
Profits
Coin Deposits Escrow Deposits
Deposit Coins Place Trades
Receive $ Profits
ETH & BTC
Payments
Lenders Borrowers
(Coin Holders) (Traders)
10
Celsius Network - Copyright © 2018Lender
A lender is a crypto-assets holder who chooses to participate in
the Celsius lending pool, using the Celsius wallet app. The lender
is offered earnings in return for transferring holdings of any of the
top 20 crypto-assets from their current wallet or storage to Celsius.
The coins remain liquid and available as there will be an option to
withdraw unlocked coins at any time.
However, the system accounts for lending-seniority when allocating
daily interest and a lender who withdraws crypto-assets from the
Celsius account will lose seniority privileges, thus earning lower
daily sums when they return to the platform. Deployed (lent) coins
can also be withdrawn as long as other members undeployed coins
are available to replace the lender’s position in any existing contract
on Celsius.
Each day, the Celsius platform calculates the amount of ETH, BTC
& CEL tokens that are available for distribution. An algorithm will
calculate the amount to be released by borrowers and distributed,
based on Celsius surplus, expenses, market risks and other
parameters. All lenders participating in the pool will receive a pro
rata share of CEL based on the amount of crypto-assets the lender
holds in the pool and the time passed since the contract was
initiated. Each lender also is recorded with an increase or decrease
in seniority from onboarding or last withdraw of any crypto-assets
compared with other lenders.
The lender is also offered a margin dollar loan using the managed
assets as collateral. The system calculates the maximum loan
amount possible, interest, fees, and payments schedule, based on
account status and market conditions. The loan will be available as
a debit card sent to the user or as a direct bank transfer. If the user
is delinquent on payments the system may liquidate assets held to
recover the loss. If the coins market value is projected to drop lower
than the remainder of the loan, a margin call will be triggered. If
the user fails to cover the loan or add more coins the system may
liquidate the assets to cover any possible loss.
The lender’s mobile application provides a clear state of the funds in
any of the crypto-asset pool and its earnings potential. An overview
will be provided of the Celsius financial ecosystem, CEL distribution
over time, and more. The app will also perform as a wallet for CEL
tokens so the tokens can easily be traded with other wallet holders,
or sold on participating coin exchange markets to borrowers,
speculators, or exchanged for other coins.
11
Celsius Network - Copyright © 2018Lender
Lending A Lending Stake Pool is a Celsius managed account that can back
shorting orders from traders when needed. Any Lender may choose
Stake Pool to withdraw unlocked funds at any time, but will lose any gained
seniority rights. Celsius tracks and oversees the funds by owner,
amount, and seniority. Each crypto-asset has its own managed pool
in the Celsius platform, thus the overseeing service maintains a
private cross-asset ledger of all loans. The loans ledger is designed to
support a distribution of funds algorithm that is based on proof-of-
stake (PoS) like scheme where the interest paid is based on the total
funds pledged by the lender, and time passed since the first loan or
last withrow were made.
Celsius will focus on crypto holders that match the coins most in
demand by borrowers. Celsius plans to provide this liquidity pool
to other exchanges to enable their short/borrow operations as well,
which will benefit the Celsius economy and increase rewards to the
lenders.
Joining A user may join the Celsius pool of lenders by committing crypto-
assets to Celsius via the Lending app. A quick registration and KYC/
the Pool AML verification will establish a lender account and a CEL wallet
that collects the profits from interest and allows full use of the CEL
tokens earned. In addition, a lender can withdraw the committed,
unlocked, crypto-assets back to external wallets when desired. Some
of the assets may be ‘locked’ until certain conditions are met. For
example, a fiat loan was taken where the assets are collateral. The
penalty for withdrawing funds from the wallet is losing seniority,
any pending fees, pro rata rights and prefered terms when allocating
the CEL earnings.
Lender Wallet
Lender Wallet Lending Stake Pools
ETH BTC BCH
Lender Wallet LTC XRP
CEL Tokens
Lender Wallet
Diagram 3: Lenders Joining the Celsius Lending Pool Wallets
Diagram 3 illustrates the creation of a Lending Stake Pool by combining crypto-assets from many
lenders into a Celsius managed account. Each crypto-asset type will be internally managed in a
separate account.
12
Celsius Network - Copyright © 2018Lender
Distribution Management of the lenders pool and the distribution of CEL token
rewards among the lenders is performed in the Fee Distribution Service
of Earnings as part of the collection of Celsius Services. When considering the
distribution of CEL tokens among participating lenders, we use the
following assumptions:
• We assume gaussian distribution6 of lended sums where there are
many smaller sum lenders and a few big sum lenders.
• Shorting orders, amounts, and timing relate to market conditions
and sentiments.
• There is no direct market correlation between amounts shorted and
amounts lended.
• Celsius may offer additional future financial services that earn
lenders additional CEL.
User 1. Every lender, regardless of amount or timing, expects to see earnings.
Experience 2. A continuous inflow for CEL with no long pauses is desired - preferably short
intervals.
and
3. Discourage lenders from pulling out assets by providing FIAT margin loans and
Expectations inflict penalties via seniority.
4. Reward lenders for staying in for a longer time by increasing rewards for seniority.
5. Encourage lenders to add more funds to the pool by converting CEL into the most
desired coins and offering bonus on FIAT purchases and friends referrals.
6. Celsius will gradually expand to new tokens, coins, and possibly other future
derivatives and institutional assets.
Sell CEL Tokens
Market
Lender Wallet
Lender Wallet Lending Stake Pools
Crypto Assets
Lender Wallet
CEL Tokens
Lender Wallet
6 https://en.wikipedia.org/wiki/Normal_distribution
13
Celsius Network - Copyright © 2018Lender
Proof- The algorithm for distributing CEL tokens to lenders is a modified
proof-of-stake, where time and amount play a key role. In order
of-Stake to create fairness and continuous participation, the allocated CEL
tokens will be distributed daily in a way that will benefit both small
sum lenders and higher sum participants.
The Celsius system decides daily what amount of CEL tokens
should be distributed. The algorithm regulates the distribution by
considering system costs, market status, and trade orders volume. A
simplified illustration of the daily calculation is as follows:
Calculated average income from trade fees is 100K CEL over the last 30 days
Average costs and fees (e.g. exchange market fees) is 40K CEL over the last 30 days
→
Expecting 60K CEL for distribution in the next 30 days
60,000 CEL
Therefore 2K should be distributed today ( 30 Days )
For illustration purposes assume that the Celsius lender community
is made out of 6 lenders in various seniority levels and amounts. The
simulated pool distribution of the allocated 2K CEL tokens may look
like the following:
Amount (assets dollar value) Seniority (days participating) CEL to receive today
$1000 2 620.83
$1000 99 1211.24
$100 2 62.08
$80 100 97.39
$5 90 5.78
$4 10 2.68
Total: 2000 CEL
Celsius also plans to implement new blockchain technologies, such
as the Casper Protocol for Ethereum, to enable small crypto holders
to aggregate under the Celsius proof-of-stake node to receive Gas
distributions. This additional source of income will be on top of any
interest earned and will be offset against any interest charged from
users for using the dollar margin borrowing function.
14
Celsius Network - Copyright © 2018Margin Trader (Borrower)
A trader is a certified financial trader (accredited US investor or SEC
registered fund or foreign verified entity or person) that seeks to
margin trade on the crypto-assets market using leveraged short
or long positions. A Celsius web dashboard will provide the trader
with tools to review and place the short position using the following
parameters:
• Amount in fiat-currency (e.g. US dollar) to short a crypto-assets (e.g. Ether)
• High stop limit coin value, in dollar value
• Minimum stop limit (buy to cover), in dollar value
• Optional time limit
• Optional target coin value, in dollars, to begin the short
• Additional fee willing to pay in order to get priority access to coins (reverse auction)
• Full or partial order execution and minimum order size
• Margin call cover or draw down cash account or other open trades
• Price change or volume change notification alerts
• Close all position trade option and supervisor override trade option
The trader account in Celsius will need to maintain a minimum sum
of $10K. The trader may increase this amount as needed to enable
larger orders or additional positions. The funds in the account will be
used to cover any potential losses and fees that occur in leveraged
margin trading.
When a trader seeks to place a short, it will be possible to adjust
borrow amount and stop limit values. The Celsius algorithms will
calculate maximum amounts and values based on funds in the
account while considering fees and risks along with availability of
relevant assets in the lending pool.
After the order was initiated the trader can still adjust values such
as low or high stop limits, the system will prevent setting values
that exceed risk allowed by funds available. The trade may add more
funds to alter the position parameters. Celsius will charge fees and
commissions as needed on a daily basis. If the trader’s account lacks
the funds to cover these costs, a margin call will be sent to the trader.
15
Celsius Network - Copyright © 2018Margin Trader (Borrower)
In the event that the Celsius’ market analysis algorithms detect a
nearing margin call, the trader will receive a notification via an alert
such as SMS, popup, or mobile app notification. The trader may
adjust the position or add funds to the account. If the trader fails to
act in time, Celsius may automatically close the position and cover
costs using funds in the trader’s account.
All trader orders are conducted in fiat currency. Fees for margin
trading with leveraged crypto-assets are specified in fiat values.
Traders should not be concerned about the market price of CEL
tokens at any time, as they only need to buy enough value (in FIAT)
to activate each contract. Thus the overall CEL price is dictated by
the balance of supply from the Celsius treasury and holders such as
speculators and lenders. Therefore, a surge in orders to short coins
can result in a very fast increase in price of CEL with no real effect
on the borrowers but could have a big effect on the willingness of
lenders to participate as their payouts increase.
16
Celsius Network - Copyright © 2018Margin Trader (Borrower)
Shorting Shorting Crypto With Fiat
Overview Using the traditional shorting mechanism used with securities, the
Celsius protocol allows implementation of short position 7 using
crypto-currency such as Ether or bitcoin.
Short Selling Repurchasing
Celsius (Lender) Celsius (Lender)
1 Crypto
Lending cost
+fee
Crypto Lending cost 4
Short Seller Short Seller
Current Current
2 Crypto
Market Price
Crypto
Market Price
3
Market Market
Diagram 5: Crypto short selling flow overview
Diagram 5 describes the classic scenario of short selling adapted to digital coins (marked as ‘crypto’)
where the lender is Celsius - based on the pool of crypto available from lenders. For example:
1 Celsius (representing the lenders pool) lends 100 ETH (any crypto-
asset can be used: bitcoin, Ether etc.) for current market value, say
$30,000 plus a fee of $1,500 (5%). Thus the short seller is depositing
$31,500.
2 The coins are immediately sold by the short seller at same market
value. At this point, the short seller owes 100 ETH to the lender, but
has no monetary deficit (excluding the $1,500 fee).
3 After a time the short seller buys 100 ETH to cover his debt to the
lender. However, the ETH market value depreciated to say a total of
$24,000 to buy 100 ETH.
4 The short seller returns the 100 ETH to the lender and receives back
the $30,000, thus pocketing $6,000 (less $1,500 fee).
7
https://financial-dictionary.thefreedictionary.com/short+position
17
Celsius Network - Copyright © 2018Margin Trader (Borrower)
A More To explain how the Celsius shorting service provides an efficient,
flexible, and agile financial tool, we’ll follow the funds balances
Efficient Short using the flow described in diagram 1:
Lender (Celsius) Short Seller Market
Crypto Fiat Crypto Fiat Crypto Fiat
1 -100 +$30,000 +100 -$30,000
2 0 0 +100 -$30,000
3 +100 -$24,000 0 -$6,000
4 0 0 0 +$6,000 0 -$6,000
Celsius can execute market transactions on behalf of the short-seller
and deposit profits to the trader’s account, or charge for any losses
(in case of appreciation in value of the shorted currency). The system
will basically need a buy order and a sell orders from the trader:
Lender (Celsius) Short Seller Market
Crypto Fiat Crypto Fiat Crypto Fiat
Buy -100 +$30,000 +100 -$30,000
Sell 0 +$6,000 0 -$6,000
0 0 0 +$6,000 0 -$6,000
Safeguards Short selling is speculative and risky. In order to protect the trader
and ensure the loss margin is covered, Celsius will ask the short seller
to pre-deposit an amount that covers the potential margin call.
For example, a short seller may ask to short crypto for $200,000
worth, but will ask for a stop in case the currency appreciates by
10% or more. In order to commit the short, the short seller will be
asked to deposit $20,000. In case the coin value appreciates toward
$220,000, the Celsius system will cancel the position and will use
the deposit to cover the loss. In the event of a loss, the seller will
receive the remainder between the deposit and the loss incurred. If
no loss was incurred, the full deposit will return to the seller along
with the profits.
18
Celsius Network - Copyright © 2018Celsius Platform Services
There are a couple of core Celsius services which provide all the
functionality that Celsius offers:
• Celsius Trading Service
• Celsius Fee Distribution Service
• Celsius Pool Management Service
Celsius The Celsius market trading service performs the short selling,
borrow-sell-buy-return operations, on behalf of the trader
Trading (borrower). The parameters of the order, as requested by the
Service trader, are sent to this service to set the short-sell order limits and
safeguards.
Borrower Celsius Trading Service Markets
Send $ deposit & Pay Fee
Fee that goes to Lenders
converts into CELs
Sell Order(s)
Short Selling Service will sell specified amount of ETHs
in one or multiple actions.
Sold
Buy Order(s)
Short Selling Service will buy back specified amount
of ETHs in one or multiple actions.
ETHs are back
Profits or losses
Borrower Celsius Trading Service Markets
19
Celsius Network - Copyright © 2018Celsius Platform Services
Market The Celsius market trading algorithm is designed to reduce risk and
achieve buy/sell orders to get as close as possible to target prices. As
Transactions crypto-asset volatility remains high, fluctuation is a major concern
Algorithm to be addressed. A coin price may appreciate or depreciate within
a short period of time, thus affecting the financial performance of
the service. To mitigate this issue, the trading algorithm breaks large
trading orders into smaller ones, either prior to placing the orders
or using exchange market tools if available. The size of the ‘chunks’
trade orders is decided using a logarithmic descending amounts to
get as close as possible to the value needed.
In case the markets cannot fulfil trading requests, for example due
to low volume, the system may decide to cancel the short-sell or
complete only a partial order, inform the trader, and return the
relative fees and collateral taken.
Fee Degree Fee Calculation and Distribution Flow
Distribution
Service
Fee Calculator Fee Distributor Fee DistributorPat CEL Lender
Calculate CEL to each Lender
Pat this amount to the Lender
Send CEL
Fee Calculator Fee Distributor Fee DistributorPat CEL Lender
20
Celsius Network - Copyright © 2018Celsius Platform Services
Lending Pool Lending Pool withdraw and deposit flow
Management
Service
Lender Celsius Ethereum Node (With Wallet) Celsius Poll Service
Lender sends ETH to
Celsius Wallet for Lending
Send ETH
Event that new funds are in the Wallet
Lender wants ETH back from
Celsius
Get back ETH
Send ETHs to Lender
Send back ETHs
Lender Celsius Ethereum Node (With Wallet) Celsius Poll Service
21
Celsius Network - Copyright © 2018Software Architecture
CELSIUS SERVICES
BLOCKCHAIN LENDER APP 3rd PARTY
NODES Deposit / Withdraw
PROVIDERS
Wallet
Profile
Ethereum Node
SELLER
KYC / AML
Kapellmeister
(Conductor) Wallet
Bitcoin Node (remote)
Executor Tracker
(status of orders)
GDax Adapter
Fiat Account
Logger TRADER (Stripe, PayPal, Bank, etc.)
Gemini Adapter
(log coin exchanges orders) DASHBOARD
Watchdog Profile
COIN EXCHANGE (monitor coin exchanges feeds)
MARKETS
Security Layer / Vault
MARKET Wallet (AWS Cloud HSM)
(remote)
GDax
Monitor Transaction Overseer
Transactions
Gemini BROKER
Notifier
Order Reciever (e.g. AWS SQS / SNS)
Market
Wallet Transaction Desk
(trader wallet manager)
Market Desk User Management
ADMIN
DASHBOARD
CEL REWARDER Cockpit
Command & Control
CEL Calculator CEL Distributor
MISC.
Database Notifier Handler
(MySQL)
Diagram 6: Celsius architecture
Diagram 6 provides a deeper view of the Celsius infrastructure and overall architecture. The Celsius
services provider is designed to service both lenders and traders as well as interact with multiple coin
exchange markets. The server also manages a trusted-wallet using private blockchain nodes. Each
blockchain node handles its associated coins. For example, an Ethereum node will handle Ether as well
as all smart-contract tokens, such as ERC20 7 compliant tokens. Some cryptocurrencies run on different
blockchain infrastructures, therefore as Celsius moves to support additional coins it will extend its
array of hosted private nodes.
7
https://theethereum.wiki/w/index.php/ERC20_Token_Standard
22
Celsius Network - Copyright © 2018Flow of Capital and Crypto Assets
This section describes the flow of funds and cryptographic assets
within the Celsius Network platform. There are three key actors
in the platform: retail individuals who commit crypto-assets
to a lending pool and may request a crypto-backed fiat margin
loan, borrowers who get leveraged margin trading tools, and the
Celsius service which orchestrates the system using sophisticated
algorithms that move crypto and fiat funds as needed and executes
trade orders on several coin exchanges. The Celsius service
maintains both fiat custodian accounts and crypto-asset accounts.
Additionally, funds are managed on multiple coin exchanges in order
to provide a quick response time for trade orders.
The system also creates a supply and demand cycle of the Celsius Degree
Token (CEL). The CEL token is used as a fee for borrowers of crypto assets
and rewarded as interest to lenders contributing their assets.
The following diagram provides an overview on the flow of
funds and assets between the key system components and their
corresponding internal accounts:
Custodian Account ($) Coin Exchange
[BANK]
deposit /
withdraw
Margin Trader funds $ Crypto
(Leveraged Short)
Main Account
Trader Trader
Account Account
margin loan /
installments pay Trader Trader
Account Account
Crypto
transfers Crypto Accounts (BTC, LTC, ETH...)
Crypto Holder [LENDING STAKE POOL]
(Lender)
Warm Wallet Cold Wallet
Diagram 7: Overview of the flow of funds and assets between the key system components and their
corresponding internal accounts
23
Celsius Network - Copyright © 2018Flow of Capital and Crypto Assets
Lender Wallet 1. Crypto asset holder transfers coins from their wallet into a Celsius
wallet (via a mobile app).
Activities
2. User’s crypto assets are stored in Celsius accounts called Lending
Stake Pool.
3. The coins, or part of them, are transferred to several top coin
exchanges.
4. Assets may be transferred to a crypto custodian account as well as
cold storage reserves, depending on assets management algorithms.
5. Daily interest in the form of Celsius Degree Tokens (CEL) is transferred
into the wallet.
6. User may withdraw unlocked crypto, including CEL tokens, at any
time into a trusted exchange or custodian, of your choice (to avoid
any wrongdoing).
01 02 03 04 05
CRYPTO TO LENDING STAKE COIN CEL TOKENS ADDED UNLOCKED COINS
WALLET POOL EXCHANGES TO ACCOUNT WITHDRAW
Dollar Margin 1. User specifies fiat amount to borrow (maximum limit is based on
risk parameters and current value of crypto assets),
Loan Using
2. Some of the user’s crypto is locked and cannot be withdrawn until
Crypto as the loan is repaid.
Collateral
3. User is issued with, and agrees to, a payments installment plan.
4. User receives fiat funds using:
a. debit card.
b. direct transfer from Celsius custodian account
to the user’s bank account.
5. In case of a value drop in crypto Celsius may issue a margin call to
the user asking for:
a. Immediate loan repay.
b. Add crypto to wallet.
24
Celsius Network - Copyright © 2018Flow of Capital and Crypto Assets
6. If the user fails to act and crypto value continues to decline Celsius may
sell crypto in the exchanges to recover dollars and reduce loan amount.
7. User pays interest and loan installment by:
a. Direct payment to Celsius custodian account.
b. Send checks to Celsius → Celsius deposits to custodian
account.
c. Pay via instructions to transfer crypto to Celsius as
payment received.
8. When principal payments are made some of the crypto assets are
unlocked
01 02 03 04
L O C K C RYP TO R E C E I VE D O LL AR MAK E U N L O C K C RYP TO
AS S E T S L OAN PAY M E N T S AS S E T S
Borrower 1. Coin borrower deposits a minimum of $10K into a Celsius custodian
trader account
Margin Trader
Account and 2. Coin borrower places a leveraged short order, where funds are
locked to cover:
Short Selling
a. Margin high stop limit (amount at risk)
b. Fees and commissions
3. Fees and commission are moved to the custodian master account,
some may be used to purchase Celsius Degree Tokens which are
distributed to the lenders daily.
4. If needed, crypto coins from the Lending Stake Pool are transferred
to several top coin exchanges.
5. Celsius issues a sell order of crypto on the exchanges to initiate the
short position on behalf of the borrower (trader).
6. Some of the fiat from the sell order may be transferred from the
exchanges to the custodian master account
25
Celsius Network - Copyright © 2018Flow of Capital and Crypto Assets
7. When the short order is closed, exchanges are ordered to purchase
back the Crypto, where:
a. If the coin value is lower than the purchase price, gains are
transferred back to the custodian’s trader account.
b. If the coin value is higher than the purchase price, funds are
deducted from the custodian trader account and transferred
to the custodian master account to cover the losses.
c. Any uncommitted capital can be withdrawn by the
borrower at any time.
01 02 03 04 05
SET UP DOLLAR OPEN SHORT SELL COINS FROM BUY COINS COVER TRADER
ACCOUNT POSITION LENDING POOL GAINS/LOSSES
Celsius The Celsius Degree Token (CEL) is converted from fees paid by
borrowers (margin traders). This fee, although charged in fiat, is
Degree Token converted to CEL tokens by the Celsius service and distributed to the
Funds Flow lenders’ wallets as a daily interest:
1. A trader that places a margin trade order is required to pay a dollar
fee, in addition a daily commission is charged as long as the position
remains open.
2. Celsius releases CEL tokens from an internal cache according to the
value of the fees and commissions. If needed, CEL tokens may be
purchased on open markets.
3. The Celsius Service distributes to the lenders their CEL token rewards
on a daily base.
4. Lenders may buy/sell CEL tokens on open markets as desired.
01 02 03 04
BO R R OWER PAYS C E LS IUS CONVE RTS CEL DISTRIBU TED LEN DERS SELL CEL TO KE N S
F E E S & COM M I S S IONS THE FIAT TO C E L DAILY TO LEN DERS O N O PEN MARKET
26
Celsius Network - Copyright © 2018The Celsius Token Economy
Celsius has created a separate set of incentives for its lenders, borrowers
and CEL token holders. The Celsius token economics provides unique
continuous demand for CEL tokens from our borrowers.
The token economy cycle is comprised of:
- Lenders looking to earn interest on their crypto holdings,
- Borrowers looking to short the top crypto coins
- Token holders seeking appreciation of the CEL token over time.
Each group has a different set of incentives that drives activity and growth
on our platform.
Unlike many existing coins or tokens on the market the Celsius Token
serves a clear utility on our platform. Borrowers, who are mostly
accredited investors, crypto funds and hedge funds are required to buy CEL
tokens to enable trades. Initially, CEL tokens will only be held by Crowdsale
participants and the Celsius treasury.
Borrowers will need to buy a dollar amount equivalent of the required
interest prepayment on each smart contract transaction. Borrowers
execute trades in dollars and don’t need to see what the price of the
CEL token is, as their goal is to get access to the coins and create a short
position. This demand from the borrower side creates a very unique
economics for the CEL coin.
As more and more contracts are executed, and CEL tokens are released to
the lenders and back to Celsius as fees, the lenders join as CEL sellers in
the Celsius economy. As this cycle propagates, speculators and long term
investors will join in and use the trading volume and size of contracts to
predict the rise and fall of the CEL token.
27
Celsius Network - Copyright © 2018The Celsius Token Economy
Celsius The Celsius Degree Token (CEL) is converted from fees paid by
borrowers (margin traders). This fee, although charged in fiat, is
Degree Token converted to CEL tokens by the Celsius service and distributed to the
lenders’ wallets as a daily interest:
Funds Flow
1. A trader that places a margin trade order is required to pay a dollar
fee, in addition a daily commission is charged as long as the position
remains open.
2. Celsius releases CEL tokens from an internal cache according to the
value of the fees and commissions. If needed, CEL tokens may be
purchased on open markets.
3. The Celsius Service distributes to the lenders their CEL token rewards
on a daily base.
4. Lenders may buy/cell CEL tokens on open markets as desired.
01 02 03 04
BORROWER PAYS CELSIUS CONVERTS CEL DISTRIBUTED LENDERS SELL CEL TOKENS
FEES & COMMISSIONS THE FIAT TO CEL DAILY TO LENDERS ON OPEN MARKET
Funds
Marketing
Token
Sale
Investments
Token Token Metcalife’s Law Users
Investment Price Increase Network Effect
More Tokens
Diagram 7: The tokenized flywheel
Diagram is for illustration purposes and should not be perceived as an investment advice.
28
Celsius Network - Copyright © 2018The Celsius Token Economy
As Celsius expands its members community and the Degree token value
rises, we anticipate a growing dollar and CEL surplus available to support
margin borrowing and P2P lending operations, ensuring the health of the
Celsius network, and will allow us to expand to new growth products such
as options and futures contracts. The surplus of crypto-assets, CEL tokens,
and dollars will be used to further expand the Celsius economy and benefit
users around the world.
Other immediate service we plan to offer are:
1 Margin dollar borrowing for lenders against their deposited or lent coins to
further lock in coins onto our platform, margin lending also helps us hedge
against our borrower open short position and generate healthy interest
income.
2 Peer-to-peer lending inside the lender community to enable coin holders
to create a blockchain-based credit score and credit history.
3 Margin buying and shorting for both lenders and borrowers to expand
their business activities.
4 Enable other exchanges and financial institutions to underwrite options
and futures contracts on top of our platform that can be settled via actual
coin delivery.
We believe that a new, fair and honest, credit system is possible in the
blockchain era. A credit system that will empower people and provide new
hope to honest, hard working people.
29
Celsius Network - Copyright © 2018You can also read
