Cred: a 4-10% APY on your stablecoins. What could go wrong ?

Cred overview​

“Cred Earn” is a US-based and regulated company with reputable partners & public facing execs (CEO is an ex-Paypal top dog). It’s a similar company to BlockFi, Nexo or Celsius, as it has many well-known partners and uses both Fireblocks and Bitgo for insurance and custody. Cred promises to enable customers to earn interest of 4%-10% on their cryptocurrency holdings. The company explains its business model as making collateralized loans and loaning creditor assets to other lenders that have strong balance sheets.

Sounds good and familiar, right?

Well, Cred filed for bankruptcy in November 2020. $140 million in customer and investor funds are lost or at risk.

Let’s talk about Cred Earn fraud, scam, bankruptcy (name it as you want!).

What happened ?

I can’t actually list everything that happened, and all the red flags. But Coindesk’s article is a great read on it.

In the bankruptcy filings, different factors were enumerated by the CEO. Some of them included a hack, leading to the freezing of customer funds, or the onboarding of a fraudulent asset manager.

Cred co-founder and CEO Dan Schatt, a former PayPal executive (PayPal, modified by CoinDesk). Guess he shat himself.

However, CoinDesk investigated on Cred, and their sources reported that these factors are only a fraction of the story. In the following, I will largely use their findings, which, of course, are not sure yet.

According to CoinDesk, the issues arose much more from the business model of Cred and its central piece: moKredit, a Shanghai-based lending service, and also partially owned by one of Cred’s founders (ding-ding-ding, red flag, but as a customer how could you know that, with the total lack of transparency of our beloved lending platforms?)

Cred would convert depositors’ cryptos to yuan and then lent those funds to moKredit who would use them to finance its own micro-lending activities. Microloans to Chinese borrowers, with it seems, interest rates of over 40%. A good bargain, right?

In 2020, Cred would have lent $39 million to moKredit, for a promised annual interest return of 15%-24% for Cred. However, shit seemed to have hit the fan with the covid-19 market crash of March 2020. Cred would try to call back $10 million from moKredit but the highly leveraged Chinese lender appeared to be unable to repay. The co-founder of Cred and partial owner of moKredit, then apparently renegotiated a repayment schedule that was never approved by Cred’s investment committee.

Another story involves Quantcoin, a fund based in Delaware that was supposed to generate yield for Cred. Cred invested 800BTC into Quantcoin. A few months later, Quantcoin’s manager disappeared. Bad luck, right ? This can happen to anyone after a thorough due diligence!

All of this shady business model is summed up in the animation you can find in this great article.

What can we learn from Cred’s case?

Cred was a centralized cryptocurrency lender. It was founded in 2018 (first important hindsight: such lending platforms can run for some years before crashing, do not use the age of a platform as a proof of security).

Cred promised 4%-10% on their cryptocurrency holdings. (second important hindsight: even non ”crazy high” interest rates platforms can fold).

Cred lent their customer deposits to asset managers, crypto-mining companies, and other third parties. Every three months, customers received interest paid in dollars or stablecoins for which they needed to lock their token for 6 months (third hindsight: it’s purely personal, but I will never use a lock-required platform).

In May 2018, Cred raised $26.4 million worth of ether (ETH) in an initial coin offering (ICO, token LBA), part of their team were several high-profile executives from PayPal (fourth hindsight: a successful ICO and a resume is a necessary but not a sufficient condition).




LBA -4.25%


So, what is the moral of the story here?

Well, it is basically normal to be worried once you put some of your funds in these centralized lending platforms (a.k.a CeFi for centralozed finance). These come with inherent risks and clear lack of transparency.

There is no guarantee that such combo of bad management & security issues won’t happen to Nexo, BlockFi, Celsius… It’s actually their job to convince you that it won’t happen. So again, nothing can guarantee you that your money is safe or even insured for the right risks.

Frankly speaking, we all felt that something was off with Cred Earn since quite some time before the filling for bankruptcy. Just before the filling, there was some drama with Uphold ending their relationship with Cred.  Still, all the other CeFi platforms also have skeletons in their closets: from data breaches, to former pornstar employees with no qualification, or being based in eastern Europe with no clear financial statement.

So again. Crypto is still the far west, Cred is the perfect excuse for increasing regulation needs. Only invest what you are comfy of losing. Don’t go all-in on only one platform. Try to aim for the ones with the fewer skeletons. Don’t use USDT. Have a rabbit’s foot charm. Have a look at my different advices on how to stay safe in DeFi. With all of that, you should decrease your risks.

In case you liked my take on the Cred’s fraud, scam, brankruptcy, learnt interesting things, or want to support me, please feel free to send me a coffee over.

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