Reckless – Chapter 17: Celsius

Chapter 17 of the book Reckless: The Story Of Cryptocurrency Interest Rates is published below. The full book is available on Amazon. The book was written before the bankruptcy of FTX and therefore does not include coverage of this event. However, the book does provide useful commentary in the run up to the failure of FTX, which provides context for the eventual calamity.

There is one major earn platform not covered in the previous chapters. One of the earn platforms was managed so poorly and ended in such calamity, that it deserves its own chapter. The company in question is Celsius. Celsius Network launched in 2017 and conducted an initial coin offering (ICO) in March 2018, raising US$50 million for its CEL token. Celsius’ CEO/Chairman and co-founder Alex Mashinsky was also considered somewhat of a darling in parts of the investment community. In an August 2021 fluff piece in the Jerusalem Post, entitled “Meet Alex Mashinsky, everyone’s white knight”, it described Alex as “a man with a mission, a frontline fighter for consumer rights and the ultimate king of innovation”. The article also said.

Mashinsky has a passion for protecting the average Joe against large corporations, controlling industries and monolithic institutions. He asked himself why these businesses should serve as supposedly irreplaceable middlemen when a service can be offered directly to the user at little or no cost.

The article also talked about Mashinsky’s successful background in voice over internet protocol (VOIP) technologies and equipment. After taking on the established telecoms companies, now Mashinsky, famous for wearing a Celsius branded t-shirt with the text “Banks are not your friends”, appeared to have a new mission, taking on the banks. As the article put it: “Depositors put their money in banks to make profits, but it’s the banks that are reaping all the benefits.” Celsius also had a motto with a similar message: “Unbank yourself”. This narrative from Mashinsky is somewhat ironic, given the Celsius business model appeared to be a banking business model. The company took customer deposits and lent them out, just like banks. Celsius never embraced the non-custodial, revolutionary and transparent anti-bank model cryptocurrency can enable. Instead, it seemed to only adopt the anti-bank rhetoric. In August 2021, the Jerusalem Post article claimed Celsius had a balance sheet with an incredible US$20 billion in assets. This made Celsius perhaps the single largest player in the earn space.

In November 2021, Celsius raised US$750 million from investors, valuing the business at US$3.5 billion. The lead investor was Caisse de dépôt et placement du Québec, Quebec’s US$300 billion pension fund manager, who invested US$150 million. At the time, Alex Mashinsky said that he expected the US$3.5 billion valuation to double or triple by 2022.

In November 2021 Mashinsky engaged in a debate on Bitcoin with the well-known Bitcoin sceptic, gold advocate and economist Peter Schiff. The most significant comments in the heated debate are summarised below.

Alex Mashinsky: We have 1.5 million customers and they hold over US$25 billion worth of digital currency, mostly Bitcoin. We don’t see much leverage in the system. 

Alex Mashinsky: A new base [Bitcoin price] is established at US$45,000 to US$50,000 and you are not going to see Bitcoin go below that for a variety of reasons.

Alex Mashinsky: All exchanges disclose all the positions, they tell you how many people are long and how many are short. Part of how Celsius creates yield is by lending to these exchanges and institutions, who are putting on these long and short positions. We know exactly what the leverage is. 

Alex Mashinsky: Bitcoin pays dividends, Peter! Bitcoin pays dividends! Try Celsius. 6.2% dividends.

Peter Schiff: What do you do to generate income on that Bitcoin?

Alex Mashinsky: I am happy to spend an hour with you, educating to you how [we do it]

Peter Schiff: You are trading. You are taking a tremendous amount of risk. Bitcoin itself does not generate yield.

Alex Mashinsky: No. It does.

Peter Schiff: You must be taking a tremendous risk to generate those returns.

Alex Mashinsky: We don’t take tremendous risk. It is an amazing opportunity for people to unbank themselves. Even your own son chose Bitcoin.

Alex Mashinsky: Let’s do this again in a year and take a look and see what happens.

Mashinsky revealed that by November 2021, Celsius had assets worth over US$25 billion. While it is possible Alex may have been exaggerating a bit, Celsius had reached an enormous scale incredibly quickly. In May 2019 the company only had US$200 million of assets. Mashinsky also revealed excessive hubris and arrogance, especially about the Bitcoin price. Like Do Kwon, given the rampant speculation in the space, he appeared to be the right person for the time. In June 2021, the market capitalisation of the CEL token reached almost US$2 billion.

The following chart, which was obtained by extracting data from the eventual bankruptcy filing, shows that in some periods Celsius was consistently attracting over US$20 billion of gross inflows a month. 

Celsius Gross Monthly Client Fund Inflow – US$ Billions

Note: The information in the bankruptcy filing is somewhat unclear, therefore assumptions have been made in producing the above data, which could be incorrect.

The above data may be somewhat misleading, as it could contain flows from large professional counterparties who repeatedly moved money in and out. The next chart shows net monthly client flow and may be more useful. In some periods in 2021, Celsius was able to attract almost US$10 billion of net monthly inflow. Celsius was able to attract such large inflows due to its reckless, but also very attractive, interest rates. For US Dollar stablecoins, in June 2021, Celsius paid international customers 11.21%. In January 2022, the company paid customers a standard rate of 8.5%, which increased to 10.73% for “Platinum level” customers. This was at a time when BlockFi had lowered rates and introduced caps. In January 2022, the company paid Bitcoin deposits 7.81% on the first 0.25 Bitcoin and then 3.83% on balances above this. Celsius had perhaps the highest earn rates in the space.

Celsius Net Monthly Client Fund Flow – US$ Billions


Note: The information in the bankruptcy filing is somewhat unclear, therefore assumptions have been made in producing the above data, which could be incorrect.

Celsius was attracting huge flow, including from many small retail depositors. Celsius attracted so much capital that it appears as if the company was unable to effectively deploy it into solid investments. Celsius was awash with funds and there was not the capacity in the cryptocurrency space to conservatively deploy this volume of money. Therefore, rather than lowering deposit interest rates, the company may have taken inappropriate risks. Given the unrealistic confidence the CEO had shown with his Bitcoin price prediction, it is not that difficult to assume that some of Celsius’ investments may have been a bit reckless.

Badger DAO Hack

In December 2021, Celsius admitted it lost US$120 million, in the BadgerDAO hack. Badger appeared to be a DeFi based yield protocol of some kind, which we will not dig into here. On 2nd December 2021, the Badger smart contract experienced “unauthorised withdrawals”. The next day it was revealed that Celsius was the victim. It is not clear why Celsius engaged with this smaller and less well known DeFi protocol nor was it clear if Celsius had the expertise to do so. This was a potential early warning sign of trouble to come. However, people in the cryptocurrency space have short memories and this incident was quickly forgotten.

Anchor Exposure

In May 2022, as the UST stablecoin failed, some raised concerns that Celsius may be exposed. According to a report from the industry specialist news organisation The Block, in an article published on 13th May 2022, Celsius had significant exposure to Luna. The Block reported the following:

Crypto lending business Celsius had at least half a billion dollars of funds parked in Anchor Protocol but appears to have pulled all of it out over a frantic 24 hour period earlier this week.

On 19th May 2022, Mashinsky addressed the concerns on Twitter. He denied there was significant exposure and accused people who were concerned of “trying to sell you competing services”.

At @CelsiusNetwork we have stated several times publicly that we had minimal exposure to $Luna and $UST. I understand people who are trying to sell you competing services are spreading these rumours but you have to trust our @Twitter posts. Notwithstanding the extreme market volatility, Celsius has not experienced any significant losses and all funds are safe.

Suspension of Withdrawals

A month later, on 12th June 2022, a few days before rumours started circulating that 3AC was insolvent, panic was spreading in the industry and there were concerns raised about Celsius’ solvency. Responding to accusations that Celsius may be in trouble, Mashinsky indicated that these concerns were “misinformation” and that those raising concerns may be taking “tradfi’s” side.

Mike do you know even one person who has a problem withdrawing from Celsius?, why spread FUD and misinformation. If you are paid for this then let everyone know you are picking sides otherwise our job is to fight Tradfi together…

The very next day, on 13th June 2022, Celsius formally announced it was suspending withdrawals. Celsius used that same familiar language of other platforms, blaming “market conditions”.

Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations.

In early July, while customers could not withdraw, Celsius paid down much of its DeFi debt. The company paid back 146 million USDC to AAVE and over 53 million Dai, withdrawing the Ethereum and Bitcoin it had as collateral. The decision to pay back this debt, in the face of such a liquidity crisis, indicated to many that some DeFi platforms had better margining and collateral requirements than many of the centralised counterparties in the space. Had Celsius not done this, they could have been liquidated and perhaps lost more money. The smart contracts could not have treated Celsius any differently if they were insolvent or bankrupt. To many, this highlighted the strength of these DeFi platforms.


A month after the suspension of withdrawals, on 14th July 2022, Celsius filed for bankruptcy protection in a highly revealing 61 page document. The document cited misleading media coverage as one of the reasons for the collapse, rather than focusing on mismanagement of the company.

As Celsius attempted to weather the “cryptopocalypse” storm, it began to receive increased negative media attention—a number of such stories were false and misleading. Immediately after the Luna collapse, social media spread misinformation regarding a commitment by Celsius and others to a possible Luna bailout, followed by statements that Celsius had lost hundreds of millions of dollars on Luna. These rumours made users wary of Celsius’ platform and contributed to accelerated withdrawals of over $1 billion from the platform over five days in May 2022 at a time when distrust of cryptocurrency was at an all-time high

The document also included a balance sheet for the company, which indicated that the situation was worse than many had expected. The disclosure is provided in the following table.

Celsius Network Balance Sheet As At 13 July 2022 – US$m

User Liabilities4,720
CEL Liabilities210
Custody Liabilities180
Total Liabilities5,500
Bank Cash170
Crypto Assets1,750
   Doubtful Accounts(310)
Net Loans620
Mining Assets720
Custody Assets180
CEL Token600
Total Assets4,310


The disclosure shows a deficit of US$1,190 million, on assets of just US$4,310 million. This indicates that the deficit was remarkably high, at 27.6% of the assets. How the company managed to get itself into this devastating situation, so quickly, is quite remarkable. Especially considering the recent raise of US$750 million of equity.

The situation may have been even worse than the provisional balance sheet indicated. Included in the assets were US$600 million of its own CEL token, compared to US$210 million of CEL customer deposits. This US$390 million asset must be very difficult to liquidate. Surely the bankruptcy of the company would reduce the demand for the company’s own token.

Then there was the US$720 million investment into Bitcoin mining. The documents indicated that the company had a very ambitious plans with regards to Bitcoin mining:

Currently Mining owns 80,850 rigs with 43,632 in operation, and prior to the Petition Date, had an investment plan to operate approximately 120,000 rigs by end of 2022.

It seemed likely that much of this investment would also need to be written down, given challenges in the Bitcoin mining industry in 2022. Namely the falling Bitcoin price, rising high energy costs and the record and growing hashrate due to over investment in 2021. Indeed, by this point, the market value of the ASIC mining machines Celsius had invested in were plummeting. On 26th October 2022, the largest Bitcoin miner in America, Core Scientific, of whom Celsius was one of the largest customers, made the following announcement.

The Company’s operating performance and liquidity have been severely impacted by the prolonged decrease in the price of bitcoin, the increase in electricity costs, the increase in the global bitcoin network hash rate and the litigation with Celsius Network. As a result, management has been actively taking steps to decrease monthly costs, delay construction expenses, reduce and delay capital expenditures and increase hosting revenues. In addition, the Board has decided that the Company will not make payments coming due in late October and early November 2022 with respect to several of its equipment and other financings, including its two bridge promissory notes. As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment or taking action with respect to collateral, where applicable. Any such creditor actions may result in events of default under the Company’s other indebtedness agreements.

Given the above, it now seems likely that Celsius may have been somewhat optimistic in valuing its mining business at US$720 million. One can argue that such a large investment in a high-risk long duration asset like Bitcoin mining was not appropriate for a company with on demand deposits like Celsius. Nor is it the type of investments many customers may have wanted.

Further Accusations

In addition to the above, there were other accusations of wrongdoing against Celsius and the CEO Alex Mashinsky. For example, Alex is said to have withdrawn US$10 million from the platform personally, in May 2022, before customer accounts were frozen. In July 2022 a lawsuit was filed against Celsius by a business partner KeyFi.

  • The lawsuit alleges that Celsius had inappropriate internal accounting controls.
  • The document accuses the company of improperly accounting for certain payments owed to customers, resulting in a US$200 million liability the company did not even understand how or why it owed.
  • The lawsuit also alleges that Celsius may have lied about the cryptocurrency hedging strategy, claiming it was hedged when it was not.
  • The lawsuit also appears to imply that Celsius was insolvent before suspending withdrawals, but still continued to offer high interest rates to attract customer deposits, to meet liquidity needs. The document calls this a “ponzi-scheme”.

On 27th September 2022, Celsius’ CEO, Alex Mashinsky, finally put forward his resignation, because his “continued role as CEO has become an increasing distraction.”

US Dollar Tether Connections

Two years before the suspension of withdrawals, in June 2020, Tether invested US$10 million into Celsius at a US$120 million valuation. On 8th July 2022, Tether disclosed that it provided a loan to Celsius, which was over collateralised in Bitcoin. The collateralisation rate was disclosed at 130%. Due to the over collateralisation, Tether indicated it was able to close the position without suffering any losses. The loan was believed to be for US$1 billion and paid an interest rate of 5% to 6%. 

At the time of the 2020 fundraising, Alex Mashinsky said:

The crypto community has only a few great projects and we are excited by the investment from Tether International as it will help us deliver USDt-based services to all our users.

The CFO of Tether, Giancarlo Devasini said:

We have worked with Celsius Network Limited since 2018. We found them to have the same passion and commitment to the crypto community that we have. We look forward to advancing our relationship together.

Tether therefore appeared to have a strong relationship with Celsius, which lasted all the way from 2018 to 2022. Due to this relationship and Celsius’ scale, Celsius may therefore have had the ability to redeem USDT for US Dollars in the banking system faster than some other entities. Some of Celsius’ trading counterparties may then have been able to access Celsius’ superior redemption process. This may explain the professional counterparties who were some of Celsius’ largest creditors at the point of bankruptcy. For example, Pharos (A Lantern Ventures fund), which was the largest creditor and was owed US$81 million.

Customer Information Published

In October 2022, the bankruptcy court published a 14,000 page document, which revealed the identities and transaction histories of all of the creditors, including small retail clients. The one gigabyte database was then processed and the website was launched, which allowed the public to search across the database of all Celsius’ clients.

In addition to losing customer funds, the Celsius calamity became even worse. Customers now experienced a significant degradation in their financial privacy. This is considered by some as antithetical to the values and ethos of Bitcoin and cryptocurrency.

Customer Loss Examples

The bankruptcy court received some written testimony from some of Celsius’ clients. Some of these comments are summarised below.

I have more than US$30,000 of funds with Celsius which have been locked since June 12th 2022 which in turn brought me into [insurmountable] tax complications. I understand that a lot was shared, said and communicated to you already by many affected people regarding the misleading, fraudulent and deceiving business practises and the systemic misinformation and untruthfulness that was deeply rooted in Celsius’ as a company which I can only echo. This, of course is besides Celsius’ fundamental mismanagement and inadequate risk management which led to the loss of millions of dollars for their clients who trusted them with their retirement savings like myself.

I have elderly parents whom I care for and the assets currently held in Celsius [are intended] to help them live out their last years in comfort. I pray I will see my funds returned in full.

I have a mental disorder and I cannot sleep now. I haven’t slept since the account was frozen.

Please jail these people, they are still getting crazy salaries from our money. […] They have zero shame for what they did. They are evil and if you do not stop them, they [are] going to do it again and again to other people.

This has an immense impact on my life. I hope this can have a positive outcome, since a lot of people were victims to the deception of Mr. Mashinsky and his company.

To make things worse, not all the depositors thought they were buying risky cryptocurrency. Many of them just deposited in US Dollars and were not seeking upside exposure to high-risk cryptocurrencies, they just wanted to receive interest payments for US Dollar deposits. Many of these small depositors certainly did not want exposure into the somewhat rotten and hazardous world of the crypto credit system.

Celsius ended in a complete calamity, hundreds of thousands of ordinary people lost huge amounts of money, in many cases funds which were critical to them. These depositors had exposure to extreme risk, which they appeared to have been poorly informed about. Customers also had their privacy violated. The magnitude and consequences of Celsius’ failure was appalling. With marketing and messages about being “for the people” and “against the banks”, ironically, the company appears to have operated in a manner similar to that of the worst behaviour in the banks in the run up to the 2008 global financial crisis. And almost at a scale which matched that too.