CELO

Most recent update: [June 26, 2023]

What is CELO? 

One of the biggest barriers to cryptocurrency might be the complications it takes for an average user to get into crypto. Celo is a blockchain protocol that aims to reduce the barriers of crypto asset adoption by streamlining the user experience. To this end, Celo utilizes mobile phone numbers as public keys, rather than the cryptographic hashes normally used in traditional blockchains. One statistic that is often used to highlight its viability is that although it is projected that nearly seven billion people will be using smartphones by 2025, there are currently roughly 100 million people that use cryptocurrency. Celo envisions financial activity to be accessible to anyone globally, and thus allows payments to be sent to and from any phone number in the world. 

In addition to payment transfers, Celo also supports the development of decentralized applications (dApps) on its blockchain. Powering the Celo network is its derivative token, CELO, which is used primarily for governance. Celo also issues stablecoins, including Celo Dollars (cUSD), which mirror the value of the US dollar.  

Who created Celo? 

Celo was founded by a diverse team in 2017, whose co-founders include GoDaddy executives Rene Reinsberg and Marek Olszewski (who also held an executive position at Google), as well as MIT professor Sep Kamvar. The team also comprised of brains from an impressive myriad of major institutions like Stanford, Harvard, Cambridge, and firms like Square, Circle, and Visa, just to name a few.  

How does it work? 

As Celo focuses primarily on smartphone users, it means that is highly suited to regions in which large sections of the population do not have access to the banking sector. These individuals, while effectively cut off from mainstream finances, usually still have access to a smartphone due to their indispensable nature within modern society. Celo aims to bridge the gap between the two technologies while also taking advantage of the benefits of decentralized finance (DeFi) by supporting the development of dApps and smart contracts.  

To facilitate this, Celo users can create a public key using any mobile phone number. All a user would need is the Celo app, which synchronizes with the user’s phone number. It is possible for multiple phone numbers to connect to a single Celo address. The Celo blockchain automatically calculates transaction fees as well as any operating fees (like gas) that powers any given cryptocurrency. 

Celo is built using the Go implementation of Ethereum and, like Ethereum, maintains network integrity by using a Proof-of-Stake (PoS) consensus mechanism. As with most PoS-maintained blockchains, this means that there are nodes and validators that help verify transactions and secure the network.  

To help run the platform, the Celo network relies on three contributors: 

• Light clients: Celo network apps that run on a user’s mobile device, including the Celo mobile wallet. Each time a user makes a payment using the Celo app, the light client selects the cheapest, high latency node in the area to confirm a transaction. 

• Validator nodes: Computers that participate in the network’s PoS consensus mechanism, who validate transactions and produce new blocks. 
• Full nodes: Computers that bridge the gap between validator nodes and mobile wallets; these nodes take requests from the light clients and forward the transactions to the validators. 

Central to the operation of the Celo network is the CELO token, which is used both for governance and to power the PoS consensus mechanism. The network utilizes a theory known as the Byzantine Fault Tolerance (BFT) that keeps the distributed network of computers in sync. In order to achieve BFT, it requires certain criteria to be met before a node can be considered a validator. For one, to participate on the blockchain as a validator as well as governance, a user must first stake a minimum of 10,000 CELO tokens. Validator nodes also need their computers to meet a standard level of hardware requirements. As an incentive to perform the most important tasks on the blockchain, validators earn a portion of the block reward for validating transactions.  

Token holders also have the choice of participating as a full node; the more full nodes that exist on the network, the more efficiently the network will operate. There are no fees or costs for joining the network as a full node, and the hardware requirements are lower. To further incentivize someone to participate as a full node, they are rewarded a portion of transaction fees as payment.  

Currently, there can only be 100 validator nodes active at any given time, and these validators are voted on by the full nodes.  

The CELO Token and tokenomics 

The CELO token has a maximum supply of 1 billion tokens. During the mainnet’s launch, 600 million tokens were initially made available. The remaining 400 million CELO is distributed in the form of epoch rewards to network validators as well as the Community Fund. 

Along with being distributed as a reward for participation in the network, CELO holders can also use their tokens to pay network transactions fees (also known as gas fees, as Celo is built on the Go variation of Ethereum). The minimum gas price is established by the Celo protocol and applies to all network transactions and smart contract executions. A percentage of gas fees, also known as the base, is distributed to the Community Fund as well, which provides funding towards development and upkeep of the network.  

Like other PoS-based networks, CELO tokens are also used towards governance, wherein validators can vote on proposals that influence the direction of the Celo project. As mentioned earlier, a minimum of 10,000 CELO needs to be staked before a user can be validator and subsequently participate in blockchain governance. Celo utilizes a formal on-chain governance mechanism to manage or upgrade parts of the protocol, and this could include things like smart contract functionality or even the types of assets to be added to Celo’s stablecoin repository.  

Security 

Because of the initial overhead required to become a validator, Celo’s PoS consensus mechanism is designed to eliminate tampering or ill-intent by creating a monetary barrier that prevents just anybody from performing crucial activities on the network. Furthermore, CELO holders can use their holdings to participate in elections by voting for groups of validators.   

To ensure integrity of the smart contract functionality, a security audit was performed in April 2020 by OpenZeppelin, a premier cybersecurity firm.  

Drawbacks and Risks 

While the Celo network’s security risks are minimal, one of the most significant limitations an investor might see with CELO is the fact that it runs on Ethereum. While considered a standard in the cryptocurrency industry, the Ethereum blockchain is notorious for its scalability issues, particularly with transaction speed and, most importantly, gas fees. Transacting during high traffic periods could result in costly gas fees, even when taking into account the minimum gas fees proposed by Celo’s on-chain governance. This is exacerbated further as Celo is meant to offer financial accessibility to regions that do not have traditional access to banking; users in developing countries, for example, may be disproportionately affected. 

It should be noted that the introduction of Ethereum 2.0 could mitigate some of these issues with the implementation of scaling solutions that are proposed to reduce transaction fees and decrease transaction times. 

Due Diligence  

Before listing Celo on the VirgoCX Platform, VirgoCX performed due diligence on Celo and determined that Celo is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis includes reviewing publicly available information on the following:  

• The creation, governance, and location of Celo and/or its primary development team; 

• The supply, demand, maturity and liquidity of Celo; and 
• Legal and regulatory risks associated with Celo.  

Statutory Rights under Securities Legislation 

VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision. 

Further reading 

For more information on the unique use case of Celo and its derivative token, take a look at these in-depth resources: 

CELO’s Messari page 

CELO on Kraken 

CELO on CoinDesk 

CELO on CryptoBriefing 

CELO on CoinMarketCap