Celo (CELO) is a blockchain dedicated to mobile payment built around its CELO token and the stablecoins of its ecosystem, such as the Celo Dollar (cUSD). With 6 billion smartphone users worldwide, but less than 100 million using cryptocurrencies, the Celo Foundation aims to fix that with its accessibility-focused solutions. Overview of a project whose ambition is to increase the adoption of cryptocurrency payments.
What is Celo (CELO)?
Celo (CELO) is a blockchain offering a mobile payment solution. The project was born in April 2020 in the United States and was developed and designed by the startup cLabs and the Celo Foundation.
Cryptocurrencies offer several advantages as a means of payment over fiat currencies. However, for Celo’s team, there remain several barriers to the mass adoption of cryptocurrencies as such.
The first concerns price volatility due to the deterministic supply of assets and unpredictable demand. Many individuals, therefore, use cryptocurrencies as a store of value or speculative instrument rather than as a means of payment.
For those wishing to use them as a means of on-chain payment, they need to manipulate wallet addresses (and therefore know the public key of the recipient), which can be complex for the most neophyte.
Research carried out in emerging and developing countries such as Colombia, the Philippines, Tanzania, and Kenya has enabled the Celo team to have a global image of the problem and thus develop a blockchain on mobile with a suite of financial tools available to anyone with a smartphone.
In order to provide a successful and efficient payment system, making a payment with cryptocurrency should be accessible to everyone, and the volatility of the asset should be minimal. Naturally, the Celo protocol went in this direction in an attempt to solve this problem.
Celo introduces its solution with an encrypted address to send money directly to its contacts instead of using public keys. As for the volatility of the asset used during payments, the Celo protocol introduces algorithmic stablecoins stabilized by an elastic monetary policy, all backed by a reserve of CELO tokens and other cryptocurrencies.
In order to accomplish this goal, the ecosystem developers created Celo Wallet and Valora. These are smartphone-centric payment systems. Celo (CELO) is the native asset of the protocol, while Celo Dollar (cUSD) is the most widely used stablecoin, which tracks the price of the US dollar. There are others, such as the Celo Euro (cEUR) and the Celo Real (cREAL).
Logo of Celo (CELO)
Through this EVM compatibility, Celo, therefore, benefits from a very complete decentralized finance (DeFi) ecosystem as well as native interoperability with blockchains compatible with Ethereum.
A Proof of Stake (PoS) Blockchain
Using the Proof of Stake consensus, the Celo blockchain is governed by validators who play a crucial role in it. These validate transactions and produce new blocks. They are also responsible for overseeing attestation requests in Celo’s public database.
Figure 1: Overview of the number of validators on the Celo blockchain (May 2022)
The Celo community votes for groups of validators by staking their CELO tokens. These groups can be composed of a maximum of 5 validators. Elections are held daily, so each Validator must be re-elected each day. CELO token stakers are rewarded for this, but it is worth pointing out that there is a 3-day period to unstake their tokens following a vote.
There is also an on-chain governance system, where proposals submitted by CELO token holders may be eligible for a vote. It is necessary to lock tokens in order to submit a proposal. Then, each day, the three proposals with the most votes go through the approval phase.
During this phase, a multi-signature address of 9 individuals selected by the Celo Foundation votes for or against these proposals. It takes a minimum of 3 approvals out of the 9 to pass this phase. In the future, a Decentralized Autonomous Organization (DAO) will take on this role.
Finally, the proposal goes through the final phase: the referendum. The community can simply vote yes or no, and the weight of the vote is proportional to the amount of CELO tokens staked. The proposal will then be implemented according to the result.
Use a Phone Number as a Public Key
Celo does not allow direct use of phone numbers as a public key. Instead, users’ public and private keys are generated in the conventional way.
The latter can then register their public key in a public database which stores the association of the public key with a telephone number.
It is a decentralized database for which no entity is responsible for its maintenance. Anyone can verify the content by becoming a network validator since these addresses are attested by a peer-to-peer network.
Figure 2: Diagram of an attestation request on Celo
To send an attestation request, i.e. to match their public key to a phone number, a user must pay an attestation fee (about 0.05 cUSD); this is to prevent malicious users from overloading the network with numerous requests.
Network validators are then randomly selected to send a message to the user to sign. The latter signs the message with his private key and sends it to an attestation smart contract.
Finally, the smart contract verifies that the validator has indeed sent the message and that the signature corresponds to the public key. Other validators will verify by consensus that the validator sending the message to be signed has done its job correctly and is not trying to serve its own interests.
It’s possible to match his public key to anything, although a phone number is usually used. Another cool feature is the ability to map an address to multiple public keys for separate uses.
Obviously, the addresses in the database are encrypted to prevent them from being clearly visible in the database and thus prevent malicious actors from collecting the telephone numbers therein.
Plumo and Celo’s Light Client
Celo network applications can obviously be used on smartphones. This is possible thanks to a light client and Plumo, a system based on zk-SNARK technology allowing smartphones using the Celo network to synchronize with the Celo blockchain in a faster way and with less data.
This is a unique feature of Celo since one of its priorities is the inclusion of users from countries with relatively old smartphones (poor performance) and relatively limited internet data.
The Practicality of Celo’s Solutions
The Celo protocol allows individuals to send funds to other individuals directly using a telephone number, for example, even without them having wallets, provided that they have registered their number in the database.
Figure 3: Overview of Valora, an application developed by cLabs
Valora, an application developed by cLabs, allows you to send cUSD directly to your contact list for extremely low fees and exemplary speed of execution.
How is Celo Stablecoins Stabilized?
The other barrier defined by the Celo team comes from asset volatility. To solve this problem, Celo is introducing its own framework for stablecoins based on elastic supply to stabilize the value of these by adjusting the supply.
Celo has a stability algorithm which is powered by an automatic market maker (AMM) titled Mento. The main mechanism of Mento lies in the adjustment of the supply of the CELO token to stabilize the price of the stablecoin. We will focus here on the Celo Dollar (cUSD) for our explanations.
Thus, if the price of the cUSD deviates from its parity with the American dollar (1 cUSD must be equal to 1 dollar), an arbitration mechanism will allow it to return to parity. Therefore, if the price of the cUSD goes above 1 dollar, anyone can carry out an arbitrage by exchanging the equivalent of 1 dollar in CELO token against 1 newly issued cUSD to sell it on the market, which will allow the cUSD to return to its parity.
The CELO tokens thus exchanged will be sent to the reserve. Conversely, if the price of the cUSD deviates below 1 dollar, an arbitrage consisting of the purchase of cUSD tokens to exchange it on the protocol against the equivalent of 1 dollar in CELO tokens is possible to raise the price.
The CELO tokens thus received are taken out of the reserve, and the sent cUSD tokens are burned by the protocol. These arbitrages act as a natural incentive economic mechanism since, by doing so, the people making an arbitrage realize profits.
This relationship between the two tokens is reminiscent of the algorithmic stablecoin Terra USD (UST) and its token LUNA. We are thus issuing a warning on this subject in complete transparency with the setbacks of the LUNA token and its stablecoin UST having taken place in May 2022.
However, it should be clarified that besides the elastic monetary policy and the system of two cryptocurrencies that come together, the Celo protocol differs from the Terra protocol in many respects.
Celo has a mechanism called Granda Mento to exchange a large number of CELO for cUSD tokens and vice versa. Indeed, Mento is not very suitable for large-scale exchanges since it could, like what happened with the LUNA, cause significant slippage during important exchanges.
Granda Mento makes it possible to mitigate this type of undesirable event by processing a large number of exchanges with a minimum of slippage. For example, exchanging 50,000 cUSD there only causes a slippage of 2%. It is thus possible to provide strong liquidity for these exchanges.
However, these exchanges are not instantaneous, unlike Mento. Indeed, with Granda Mento, the tokens will be exchanged over several days in order to guarantee the minimum movement on the course of the stablecoin. There is, therefore, a necessary waiting period during which the tokens are locked in the protocol.
The Celo protocol also relies on an oracle to determine the correct 1:1 exchange rate between the cUSD and the US dollar.
Celo’s Cryptocurrency Reserve
Celo has a reserve in order to stabilize its stablecoins. It is a smart contract in which there is a basket of securely stored cryptocurrencies. As of this writing, this reserve is made up of CELO, BTC, ETH, DAI, and MCO2. These assets are chosen by the governance of Celo.
Figure 4: Composition of the Celo reserve as of May 12, 2022
This reserve can be viewed transparently at any time on Celo Reserve. The reserve ratio can be observed, thereby comparing the dollar amount of the total reserves and the value of the stablecoins of the Celo protocol.
This ratio is 2.76 at the time of writing these lines, meaning that the reserve makes it possible to cover 2.76 times the value of all the stablecoins on Celo.
Only the CELO token can be exchanged for stablecoins under the arbitration mechanism to stabilize their prices. The other reserve cryptocurrencies, present at approximately 50%, are held only to mitigate the volatility of the CELO token.
This is an interesting and unique mechanism since CELO tokens are not burned during an exchange, as tokens collateralizing algorithmic stablecoins traditionally are. Instead, they are simply held in the reserve, and the more the demand for stablecoins from the Celo ecosystem increases, the more CELO tokens the reserve will have.
This also means that Celo will have to gradually replenish its reserves from other assets (supposed to make up 50% of the reserve) as demand increases for its stablecoins.
What are the Roles of the CELO Token?
As we have seen, CELO is a token with three main roles. His first role is in relation to the governance of the Celo blockchain. It allows you to submit a proposal or vote on it by staking CELO tokens beforehand. Becoming a validator also requires locking CELO tokens.
Its second role is to stabilize the price of stablecoins in the CELO ecosystem, such as the Celo Dollar and the Celo Euro, through the mechanisms of expansion and reduction of its supply.
Finally, the CELO token can be used as a means of payment alongside other cryptocurrencies on the Valora or Celo Wallet applications.
Celo Fundraising and Tokenomics
The Celo project benefited from three successive fundraisers totaling $46.5 million:
- $6.5 million in a first private sale in June 2018, for $0.18 per CELO token;
- $30 million in a second private sale in February 2019, for $0.75 or $1 per CELO token, depending on the chosen vesting period;
- $10 million in a public sale on Coinlist in 2020 for $1 per CELO token.
Many investors have notably participated in these private sales, such as Coinbase, Polychain and Andreessen Horowitz (a16z).
There are 445 million CELO tokens in circulation at the time of writing (June 2022). By 2050, there should be 1 billion, which will be the maximum supply.
Of this 445 million in circulation, 40% will be issued gradually as Epoch rewards: this refers to the mint and the distribution of new CELO tokens with each new block produced.
These will therefore be distributed to validators, and stakers of CELO tokens up to 30% of the maximum supply, i.e. 300 million CELO tokens. These rewards are also used to subsidize the community (bounties, protocol development, etc.) up to 10% of the maximum supply, i.e. 100 million tokens, of which 2 million are allocated to a fund for the carbon neutrality of the project.
CELO Team and Partners
The Celo Foundation is a non-profit organization that supports the growth and development of the Celo blockchain. It helps to push the adoption of the project. cLabs is a company contracted by the Celo Foundation to develop and improve the protocol and products of the Celo ecosystem.
Three individuals are notably behind the Celo project:
- Rene Reinsberg: co-founder of cLabs and president of the Celo Foundation;
- Sep Kamvar: co-founder and partner of cLabs;
- Marek Olszewski: co-founder and CTO of cLabs.
- Find the cLabs and Celo Foundation team on LinkedIn.
Celo has many partners and founded the Celo “Alliance for Prosperity”. Its members are all committed to supporting the Celo ecosystem by developing the ecosystem’s use cases and technologies.
Figure 6: The Celo Alliance (2020)
Here is a non-exhaustive list of the members of this alliance:
- Deutsche Telekom;
The partners are numerous since the Celo Alliance has more than 100 members at the time of writing these lines (May 2022). They can integrate Celo’s cryptocurrencies into their projects or, like Klaytn, extend the interoperability between its blockchain and that of Celo.
How to Buy CELO Tokens
CELO is available on many exchanges such as Binance, Coinbase, KuCoin, Gate.io, or OKX.
Explanations for buying CELO on Binance
- Register on Binance;
- You will receive an email and need to click on a link to verify your account;
- Deposit funds on the platform;
- Click on the Market menu and look for the CELO/USDT pair;
- All you have to do is buy CELO for the amount of your choice;
- Congratulations, you are now in possession of CELO tokens.
Our Opinion on Celo and its Stablecoins
Celo is a very interesting protocol in its dedicated approach to cryptocurrency payments and decentralized stablecoins. The Celo Foundation offers a solution allowing everyone to make mobile payments in cryptocurrencies in a simple way by removing the barriers relating to volatility and complexity of use.
Using phone numbers as a public key and native stablecoins like Celo Dollar (cUSD) and Celo Euro (cEUR), Celo successfully accomplishes this goal.
Its native compatibility with the Ethereum blockchain and its applications also allows the Celo blockchain to benefit from a solid ecosystem and be interoperable with many blockchains.
The CELO token plays a central role in the collateralization of the algorithmic stablecoins of the Celo blockchain. These are over-collateralized by the CELO token at around 50%, but also by other cryptocurrencies such as Bitcoin (BTC), Ether (ETH) or even Dai (DAI).
However, these are all cryptocurrencies, so if their values drop sharply, Celo’s stablecoins are potentially at risk. Decentralization comes at a cost and more so for algorithmic stablecoins, but the mechanisms behind Celo seem robust.
The Celo Foundation seems to have been more conservative in the design of its blockchain compared to other players operating algorithmic stablecoins since CELO tokens are not burned during an exchange with the reserve to mint new cUSD tokens for example. The maximum supply of CELO tokens will not change; it is also fixed.
Anyway, Celo is a serious project, and the many renowned partners of the Celo “Alliance for Prosperity” prove it. Celo seems to succeed where Facebook failed with its Libra project. Like Klaytn in South Korea with its governance board, Celo is a very well-supported project.
When these lines are written (May 2022), the project, however, lacks adoption, and the future will tell us if it will be able to convince and will be used by the greatest number for mobile payments in particular.
Given the fate of Terra’s UST, another collapsing algorithmic stablecoin, it remains to be hoped that Celo’s stablecoins will not suffer the same fate as adoption grows.