Network definitely is one of the big ones in in the crypto space joining me now is celsius founder and ceo, alex mashinsky. The core business is to challenge conventional banking, where holders can find decent yield at a time when traditional savings accounts pay almost nothing. How is it that, by doing nothing, i can hold the usd stablecoin and earn close to 10? Let me stop you right. There, you cant, it turns out today were answering all the questions. What is celsius, why is it collapsing and why dont they just convert it to fahrenheit honestly well, im here to answer celsius is a place where you can deposit your cryptocurrencies in exchange for interest payments, and they will turn around and give out loans, uh and charge Interest on that as well, and if that sounds like a bank to you, depositing and lending money, i should clear that part up right away. Celsius says theyre, not a bank, because banks are bad. Banks are not your friends. We all know that, and we decided to create a replacement for the banking system right, something that acts in your best interest, a place where you can actually have your money work for you not just you work for your money and basically, three years since we launched The product weve paid a billion dollars back to the community, wow that guy you just heard speaking, is alex mashinsky and nobody hates banks more than this guy i mean look at his shirt.

How could his company, which lends money and takes deposits, be a bank when he has a shirt that says banks are not your friends, weird foreshadowing? Actually, in fact, before we jump into this whole thing, i need to tell you how much alex hates banks he hates them so much. He says that banking and securities laws shouldnt apply to his company, quote banking and securities laws shouldnt apply to celsius because cryptocurrencies are commodities. This is from a great article by bloomberg and he says quote like a neighbor who borrows a cup of sugar, then later gives back a cup and a tablespoon more thats right. The normal rules shouldnt apply to him. Why would you regulate this humble little sugar lender? Well, i can think of one reason: maybe it has something to do with the 25 billion cups of sugar. That celsius has under management. Wait im, sorry dollars. I got a little confused there and yeah, actually its, not cups of sugar theyre lending. So much as it is digital dollars, which its kind of hard to say that lending digital dollars and lending regular dollars are not pretty similar things again, i think most people would say the rules should apply to them, especially since celsius is now collapsing, and we do Not know yet whether it will survive this crash or what will happen to its 25 billion cups of sugar. But of course the big question is what is causing this collapse.

Well, it turns out, for the past few months, people have been worried about celsiuss ability to repay customers back their withdrawals partially because of the insane yields that they were paying out. For example, if you were to deposit like a dollar at a bank, youd get a fraction of a percent of interest every year. On the other hand, if you deposited one tether or usdc at celsius, they were paying nine percent per year on your money. Thats the same amount of money and celsius is paying out a hundred times the interest rate on that exact same deposit basically, and the question is: how is that possible right? Is this thing too good to be true, and if it is, when is it going to collapse? Well, the founder mashinsky has been telling everyone that its not too good to be true. In actual fact, the reason this is possible is because banks equal bad and celsius, equal, good, hes, quoted as saying its the traditional finance system, thats ripping people off by taking their deposits using them to make money and then claiming it can only pay tiny interest rates. Somebody is lying, mashinsky said either the bank is lying or celsius is lying oof that aged poorly didnt it because, despite him claiming that everything was fine things under the surface, werent actually so great see, at least in theory. The idea of celsius isnt, like totally insane right banks, do give tiny interest rates compared to what they make and celsius was charging fairly high interest rates, to borrow their crypto like to borrow a stablecoin, they would charge 12, which is more than they were paying to Deposit it, but the real problem is that no bank or new age finance company can ever loan out a hundred percent of what they have as deposits.

The reason is that if you lint out every dollar you took in you have nothing left to pay withdrawals back with and so youre left in this sort of conundrum. On the one hand, you want to loan out as much as possible to get the interest to pay your depositors, but on the other hand, you need to keep enough on hand to pay for withdrawal and thats all money that youre not making interest on, which makes This whole thing kind of a weird balancing act, lend too much you cant meet, withdrawals, lend too little youre losing money every month now, perhaps to solve this money problem celsius created their own crypto token called sell, which people could invest. In this token, in theory was supposed to lube the whole system up and make it work smoothly like a finely tuned engine, it could provide liquidity where they needed it. Actually, they literally described the system as a wheel according to machinski a wheel of fortune that keeps on giving. According to him, this was celsiuss main business plan flywheel token economics. He called it issue. Loans collect interest, give it to the people, lend coins collect interest on coins, buy celsius distribute to members. You get the idea. Money goes up forever, well right up until it doesnt, because in case you havent noticed its winter. In june i mean checkmate climate scientists. We are in a crypto winter, okay and markets are all down and all of a sudden people start to get a little worried money.

Doesnt just go up, and so some withdrawals start to begin at first everythings. Fine, the financial times reported a billion dollars flowed out from march to may no big deal right, but, as things continued, things got a little shaky for celsius because all of a sudden, everyone sees luna collapse in may, which was because of unsustainable yields and youre. Looking at celsius like that kind of looks like the same thing, but then worst of all the cell token, which they created, started to plummet now. This is where things get bad, because the cell token is like the grease in this flywheel. Remember it was how they were going to get out of their jam. They could just always sell their little token and get the money to pay back anything. Maybe they had some deposits locked up right, but if their cell token becomes nearly worthless, all of a sudden small jams become much more dangerous, so things are getting worse and compounding this problem. A lot of deposits of theirs are locked up. For example, their ethereum deposits were locked in eth2. Now this part of the story gets a little complicated, so were kind of grazing past some stuff that i may get to in a full postmortem im doing later. But all you need to know for now is that they didnt have enough liquidity and they started to take loans to pay back for withdrawals. This was documented by the crypto researcher dirty bubble, media.

He would track the crypto that flowed into their wallets and started to notice that big exchanges like ftx, started sending 50 million dollars in usdc to celsius all of a sudden, and he would post this for everyone to see and it sort of became a vicious cycle. The more the pressure mounted on celsius, the more celsius, would take out loans or try to find ways to pay for withdrawals. But then people would see that and post it on twitter, which would cause people to panic thinking that celsius was unbacked and as a result, even more withdrawals would come, which would again make them need to go out for loans. I think you get the idea. Sort of the opposite of mashinskys flywheel, and eventually all of this became too much for them officially. On june 12, 2022 celsius paused all withdrawals, swaps and transfers the idea here being. If they can recoup some of the crypto, they have locked up elsewhere. They can actually pay for withdrawals and i get that this may have been necessary, but this is sort of like the pilot in the aircraft saying dont panic but im putting a pause on the engines for a second, i i mean everyones going to immediately panic and The cell token plummeted another 50 in one hour from there. This obviously compounds the solvency issue further, because any cell tokens that they have are even more worthless, not to mention its unclear. Whether celsius has all the money to pay back investors, so maybe theyre just putting a pause on the inevitable.

Meanwhile, people start to crawl around the terms of conditions at this time they signed up to and they found something quite worrying. They found the bankruptcy clause that was in this centralized like bank thats, not a bank and listen to what it says in the event that celsius becomes bankrupt, enters liquidation or is otherwise unable to pay its obligations. Any eligible digital assets used in the earned services or as collateral under the borrow service may not be recoverable, so it turns out that when a bank thats, not a bank, takes your money, the rules dont apply to them. The same way i mean dont, you get it when you were giving them your hard earned crypto, it was more like you were lending them. Some sugar cubes and i dont mean to make light of this or anything, but their position is so clearly silly. Although i want to be clear that celsius, i hope they make it through this, not because they deserve to, but because the investors who have their life savings stuck in there deserve to keep their money. I mean if one thing became very clear to me, while researching the story its, how many people dump their life savings into this once again, coming from the bloomberg article quote as part of a contest in which customers shared their celsius story, many said they entrusted celsius With their life savings, one said he took out home equity and cashed in his work pension and his savings for his kids education to put the money into the company accounts.

I mean this is rough guys. It reminds me a lot of the luna situation where people were just dumping ridiculous amounts of their money into it. Even a pension fund in canada actually participated in a funding round for celsius, so theyre exposed to this whole thing too. It just looks really bad and so for all of those peoples sake. I hope that celsius isnt what it looks like, which is bankrupt, which is a weird thing to say, about something that isnt a bank anyways, that is the story of celsius, ill be giving a full post postmortem coming soon. But i wanted to give some clarity around this subject for those of you who are listening to the news right now, hearing whats going on thanks for watching subscribe.

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