tl;dr: I lost over $500k from CeFi yield products.
I lost money in Celsius. I lost money in BlockFi. I lost money in Midas. Here are some lessons learned as well as key points I’ve been repeating on here.
Obviously NYKNYC, but I think this is really only part of the story. I understood this risk already, and I recognized that moving funds into CeFi was a risk. This is why I diversified and more importantly made sure that crypto was money I could afford to lose. I feel the other points are far more important so I will go through them instead.
Greed kills. I actually think this is one of the most important things to remember. If you’re greedy, you will end up losing. It doesn’t matter if you adhere to NYKNYC or not. Trying to earn money/yield/return is inherently risky. Obviously 3% High Yield Savings accounts are far less risky than 8-10% S&P 500 and certainly far less risky than 10% crypto yield. We all want to make money, but for goodness sake, invest ONLY what you can afford to lose. Losing $200 when you only have $5000 hurts, but isn’t the end of the world. Losing $4500 when you only have $5000 will destroy you.
Having your finances in order is a huge help. This $500k stings no doubt, but I have a job that pays the bills. I save into my 401k, my Roth IRA, into a taxable brokerage account. Crypto is just the cherry on top. If I lost all my crypto tomorow, it would be super depressing, but I would still be able to pay my bills. My point isn’t to brag, but instead to suggest that if you’re going to invest into crypto hoping to get rich, then you should only invest AFTER you have your basic finances taken care of. So many people talk about inflation, investing, DCA, compound growth, but do you invest regularly into your 401k or Roth IRA? Do you have a budget? If you’ve never saved a dime and all of a sudden want to get rich from crypto, then you’re going to get hurt.
Diversification and discipline are a must. I started CeFi lending actually reasonably well with assets spread out across 5 or 6 different providers. The problem is as they started going down I started getting careless. When I lost money in Celsius and BlockFi, those were reasonable amounts proportional to the amount of risk I saw in those exchanges. The problem is as I simultaneously cashed out of FTX and Gemini, I snowballed those losses into Midas. What’s worse is I got greedy wanting to try to exit CeFi entirely after hitting a target goal–that happened to be cashing out end of 2022. The problem? Midas’ Trevor beat me to the punch and cashed out my funds for me before I could cash out.
My gut told me to GTFO after Celsius, but I kept a small amount in Midas. Once FTX collapsed, I withdrew everything. But I got greedy. I counted my savings from FTX and Gemini which I also cashed out and calculated that if I did another month or so of Midas, I could land nice numbers. This broke my risk model. I was putting over 2/3rds of my assets into Midas. Had I stuck to my original risk model and the initial funds I put into Midas, I would’ve lost a LOT less. Stupid me but oh well right?
What caused me to fail so badly with Midas?
If you read my posts, I have been beating drums that all CeFi is super risky and that without regulation and seeing actual balance sheets, all these businesses could very well be insolvent. I particularly battled with teh fanboys of Midas who were just as bad as Alex Mashinsky fans and would talk about how transparent and how honest he was and how this was the strongest community. What broke me was when Trevor seemed to answer my complaints and publish a Proof of Liquidity sheet not only showing assets but liabilities as well. I too complained that Binance and other exchanges were not doing enough by showing proof of reserves. After all what good is having $1 billion if you owe $2 billion? What’s worse is a few days before I had been complaining based on FTT and CEL token collapse that native tokens were actually a huge risk. It’s almost as if Trevor knew who I was, made his proof of liquidity calculations to show that MIDAS token isn’t even needed to convince me to stay. These two false assumptions were the factors for me to move more funds (FTX and Gemini savings) into Midas. Looking back that was a pure emotion move, but I justified it by trusting the balance sheet. Ugh.
Where do we go from here?
Cold storage no doubt. I got greedy, I gambled, lost some. I got even greedier to try to make back some of those losses, and lost more. The Midas loss stinks the most because it was just a failure on my part to manage risk. I violated my own rules.
My Message to the community
Stay strong, crypto is here to stay, but crypto is also a super risky asset.
Invest only what you can afford to lose.
Size up risk appropriately. NYKNYC is fine, but understand a total loss IS possible.
CeFi yield without appropriate regulation and transparency is going to be way riskier than traditional finance income schemes.
For the love of God, get some basic financial knowledge. The idiocy spewed here is often laughable.
Crypto should be a PART of your portfolio, not the only thing. If you are saving $1000 / month, then crypto should be in ADDITION to that, or if you really cannot afford MORE, decide what percentage of the $1000 will go to crypto. $50 of that $1000 is reasonable. $900 of that $1000 is NOT.