Yesterday’s press release by Cake DeFi was very interesting and got me thinking. The release by Cake DeFi was issued in the aftermath of the Celsius meltdown. It is a crypto-lending platform that suspended withdrawals and may be completely insolvent.

. @CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Our top priority is to act in the best interests of our community. We will continue our operations and share information with the community. More here: https://t.co/CvjORUICs2

— Celsius (@CelsiusNetwork) June 13, 2022

Contagion

Titled: “What Sets Us Apart from Our Competitors? Why Cake DeFi Is Built on Transparency”, Cake DeFi’s blog confirms that the Celsius spiral won’t cause any harm to Cake. It also highlights the differences between these models. This is a clever move by Cake that I believe many firms could benefit from copying.

The potential spread of the Celsius scandal could be devastating. This will make crypto investors nervous, regardless of which tokens or protocols they are exposed to. Celsius had $12 billion of customer funds and is currently clinging (desperately) onto a position on MakerDAO with half a billion worth of Bitcoin. At time of writing, a 25% drop in Bitcoin’s price would mean a total liquidation of the position and all that Bitcoin flooding the market, only adding to the contagion.

Of course, Bitcoin itself has plunged from up around $30,000 to $22,300 amid this crisis, and the very crisis itself was likely caused by contagion effects from the UST spiral last month, as Celsius were invested in the Anchor Protocol via the now-collapsed UST. Cake DeFi has now released and confirmed that “first and foremost” the market conditions are not affecting Cake’s day-to-day business. As usual, we are processing 99% of all withdrawals within 24 hours” is a very smart and reassuring move.

This will allay any fears that Cake might be infected by the spread of the industry’s contagion and allow customers to maintain their liquidity in the protocol in a more tranquil state of mind.

Different Business Models

The post did more than just reassure. It proved that Celsius is not the type of business they do.

“As an international fintech company, we must ensure clear asset segregation. Customers’ assets should be kept apart from the company’s operational accounts. The post stated that users have complete control over, full ownership, and full authority over their funds.

This is a far cry from Celsius, where the model was built upon the centralised company investing the assets at will in the market, a strategy which worked wonderfully in 2020 and 2021 as the bull market ripped upwards, but has since come tumbling down. Celsius faces a crisis because its liquid assets do not match its liabilities due to increasing withdrawals.

Cake DeFi offers something completely different. It offers users a “safe passage” or access decentralized finance (DeFi), services. These services are all on blockchain and can be accessed by anyone. These transactions can be made on the blockchain by customers. Cake DeFi is a platform that allows people to access all of these services from one place, with community and customer support.

Transparency

Cake makes the point by pointing out the “limited transparency / or control” of centralised platforms like Celsius. The post continues: “As such users wouldn’t be able to have clarity and information on things like where yields are being derive from or – even worse – if funds are being commingled together with operational funds”.

In summary, this release focuses on two key points: transparency and communication. These are both crucial factors that Celsius customers will appreciate. Understanding what you’re investing in is key. Many Celsius customers will soon realize that they didn’t have any control over how Celsius was using their funds.

Celsius was plagued by a fatal flaw. This is what happens when there is a panic and everyone runs for their lives. This flaw has been exposed and Cake DeFi is clarifying that they are not following the same model. This is a smart move that other companies, unaffected by the crisis, would be wise to adopt. Customers will hopefully be more concerned about transparency in the future.