WEBVTT 00:00:00.000 --> 00:00:03.279 Unbank yourself. That was the hook, wasn't it? 00:00:03.379 --> 00:00:06.160 I mean, it wasn't just some catchy slogan for 00:00:06.160 --> 00:00:09.599 a fintech startup. No, not at all. It was a philosophical 00:00:09.599 --> 00:00:12.599 challenge. It was a rallying cry you'd see printed 00:00:12.599 --> 00:00:14.919 on T -shirts, you know, slapped on the back of 00:00:14.919 --> 00:00:16.960 laptops at every crypto conference from here 00:00:16.960 --> 00:00:20.120 to Singapore. Yep, everywhere. If you were anywhere 00:00:20.120 --> 00:00:24.559 near the crypto space between, say, 2017 and 00:00:24.559 --> 00:00:28.579 2021, you could not escape Celsius Network. They 00:00:28.579 --> 00:00:31.280 were just omnipresent. It was incredibly seductive 00:00:31.280 --> 00:00:32.960 marketing. You really have to give them that. 00:00:33.039 --> 00:00:35.119 And you have to remember the context of the time. 00:00:35.240 --> 00:00:37.859 It arrived right at this perfect moment when 00:00:37.859 --> 00:00:40.619 people were just feeling so cynical about traditional 00:00:40.619 --> 00:00:43.520 finance. You know, we were in that era where 00:00:43.520 --> 00:00:46.259 the interest rate on your standard savings account 00:00:46.259 --> 00:00:50.179 was... What? Basically zero. Yeah, .01 % if you 00:00:50.179 --> 00:00:52.840 were lucky. Exactly. You put $1 ,000 in the bank, 00:00:52.920 --> 00:00:54.539 and at the end of the year, you'd have enough 00:00:54.539 --> 00:00:56.979 interest to buy, I don't know, a pack of gum. 00:00:57.579 --> 00:01:00.119 Maybe. Maybe. And that's if they didn't hit you 00:01:00.119 --> 00:01:01.840 with a monthly maintenance fee that wiped it 00:01:01.840 --> 00:01:05.000 all out anyway. Of course. Overdraft fees, wire 00:01:05.000 --> 00:01:06.959 transfer fees. It just felt like a rigged game. 00:01:07.159 --> 00:01:10.780 Yeah. And then suddenly, here comes this company, 00:01:10.959 --> 00:01:14.810 Celsius, striding in like a white knight. Totally. 00:01:14.890 --> 00:01:16.769 And they're saying the banks are ripping you 00:01:16.769 --> 00:01:19.109 off. They're making a fortune on your money and 00:01:19.109 --> 00:01:22.409 keeping all of it. Come to us. We're the good 00:01:22.409 --> 00:01:24.689 guys. We're the community. That was the word 00:01:24.689 --> 00:01:27.790 they used all the time. Community. Yes. They 00:01:27.790 --> 00:01:31.829 position themselves as the antidote to Wall Street 00:01:31.829 --> 00:01:34.900 greed. the Robin Hood of crypto, if you will. 00:01:35.000 --> 00:01:37.140 They promised financial freedom. They promised 00:01:37.140 --> 00:01:39.040 safety, which is a key word we're going to have 00:01:39.040 --> 00:01:41.439 to circle back on and dissect later. And they 00:01:41.439 --> 00:01:43.599 promised yields that made stock market returns 00:01:43.599 --> 00:01:46.670 look like pocket change. We're not exaggerating. 00:01:46.670 --> 00:01:48.269 I mean, we are talking about advertised rates 00:01:48.269 --> 00:01:52.670 of up to 17 % on certain assets. 17%. It sounds 00:01:52.670 --> 00:01:54.969 completely insane now, looking back from our 00:01:54.969 --> 00:01:58.109 vantage point here in early 2026. But at the 00:01:58.109 --> 00:01:59.989 time, people just nodded and said, yeah, that 00:01:59.989 --> 00:02:01.790 makes sense. It's crypto. It's blockchain efficiency. 00:02:01.950 --> 00:02:04.609 The middlemen are gone. But that slogan, unbank 00:02:04.609 --> 00:02:07.609 yourself, it has taken on such a dark, almost 00:02:07.609 --> 00:02:11.009 cruel irony now. It really has. Because in a 00:02:11.009 --> 00:02:14.180 way, Millions of people did exactly that. They 00:02:14.180 --> 00:02:16.479 unbanked themselves. Yeah. They took their life 00:02:16.479 --> 00:02:18.900 savings out of the regulated, insured traditional 00:02:18.900 --> 00:02:20.979 banking system. And in doing so, they walked 00:02:20.979 --> 00:02:22.960 right into a trap that ended up costing them 00:02:22.960 --> 00:02:25.699 billions. Billions. Right. And the scale of this 00:02:25.699 --> 00:02:27.639 collapse, it's just hard to wrap your head around 00:02:27.639 --> 00:02:30.180 the numbers. It really is. At its peak, Celsius 00:02:30.180 --> 00:02:32.919 had something like, what, $12 billion in assets 00:02:32.919 --> 00:02:35.500 under management? Twelve. Billion dollars. That 00:02:35.500 --> 00:02:38.080 is larger than the GDP of some small island nations. 00:02:38.300 --> 00:02:40.599 It's a staggering amount of money. And practically 00:02:40.599 --> 00:02:43.199 overnight, that entire empire just crumbled, 00:02:43.240 --> 00:02:47.340 revealing this $1 .2 billion hole in their balance 00:02:47.340 --> 00:02:49.340 sheet. That's the number that always gets me. 00:02:49.460 --> 00:02:53.219 The deficit. A $1 .2 billion gap. That is not 00:02:53.219 --> 00:02:55.400 a rounding error. It's not a bad quarter where 00:02:55.400 --> 00:02:57.520 you missed your earnings targets. No. That is 00:02:57.520 --> 00:03:00.180 a catastrophic systemic failure. It means that 00:03:00.180 --> 00:03:02.560 for every dollar they supposedly have of their 00:03:02.560 --> 00:03:05.740 customers' money. They just didn't have it. It 00:03:05.740 --> 00:03:08.800 was gone. And just recently, we finally saw the 00:03:08.800 --> 00:03:11.780 legal conclusion to this whole saga. It's February 00:03:11.780 --> 00:03:15.280 2026 now. And we're looking back at the sentencing 00:03:15.280 --> 00:03:17.960 of the former CEO, Alex Mashinsky. That happened 00:03:17.960 --> 00:03:20.919 back in May of 2025. They got 12 years in federal 00:03:20.919 --> 00:03:24.080 prison. 12 years. Which is a significant sentence. 00:03:24.139 --> 00:03:26.020 It really puts him in the history books alongside 00:03:26.020 --> 00:03:29.539 some of the most notorious financial fraudsters 00:03:29.539 --> 00:03:31.620 of the 21st century. It's a genuine tragedy. 00:03:32.180 --> 00:03:33.960 We aren't just looking at a business failure 00:03:33.960 --> 00:03:36.259 today. That's not what this deep dive is about. 00:03:36.379 --> 00:03:38.860 We are unpacking a collapse that wiped out the 00:03:38.860 --> 00:03:41.319 life savings of regular people, betrayed the 00:03:41.319 --> 00:03:44.699 trust of 1 .7 million users and ended with this 00:03:44.699 --> 00:03:47.520 man who was once celebrated as a visionary being 00:03:47.520 --> 00:03:49.740 led away in handcuffs. So the mission for us 00:03:49.740 --> 00:03:51.620 today is to go way beyond the headlines. We're 00:03:51.620 --> 00:03:53.629 not just doing. a timeline of a bankruptcy. We 00:03:53.629 --> 00:03:55.750 really want to understand the why and the how. 00:03:55.949 --> 00:03:58.870 We need to unpack the hubris, the mechanics of 00:03:58.870 --> 00:04:00.889 it all, which, by the way, insiders were describing 00:04:00.889 --> 00:04:03.250 as Ponzi -like long before the feds ever got 00:04:03.250 --> 00:04:05.870 involved. And we need to talk about that dangerous 00:04:05.870 --> 00:04:09.110 game of centralization masquerading as decentralization. 00:04:09.370 --> 00:04:12.069 That is the core tension, isn't it? The key question 00:04:12.069 --> 00:04:14.909 we have to try and answer is, how did a company 00:04:14.909 --> 00:04:18.860 with 1 .7 million devoted customers I mean, people 00:04:18.860 --> 00:04:22.480 who practically worship the brand go from a $3 00:04:22.480 --> 00:04:25.379 billion unicorn valuation to a federal fraud 00:04:25.379 --> 00:04:27.699 case. How did so many smart people get fooled? 00:04:28.100 --> 00:04:30.259 Exactly. Okay, so let's start at the beginning. 00:04:30.360 --> 00:04:33.680 Section one, the golden ticket. Because before 00:04:33.680 --> 00:04:36.600 it was a crime scene, Celsius was an absolute 00:04:36.600 --> 00:04:40.139 rocket ship. It was founded in 2017. Who were 00:04:40.139 --> 00:04:42.370 the architects behind this thing? Well, you had 00:04:42.370 --> 00:04:44.930 three main co -founders, Alex Mashinsky, who 00:04:44.930 --> 00:04:47.310 is the face of the company, Daniel Leon and Newt 00:04:47.310 --> 00:04:49.649 Coldstein. And they set up their headquarters 00:04:49.649 --> 00:04:52.910 in, of all places, Hoboken, New Jersey. Which 00:04:52.910 --> 00:04:54.769 is such a funny detail, right? It's not Silicon 00:04:54.769 --> 00:04:56.910 Valley. It's not Wall Street. It's Hoboken. It 00:04:56.910 --> 00:04:59.290 feels almost, I don't know, defiant. It's like 00:04:59.290 --> 00:05:01.529 they're saying we're close to the financial capital 00:05:01.529 --> 00:05:03.720 of the world, but we are not of it. That's a 00:05:03.720 --> 00:05:05.779 great way to put it. They were physically adjacent 00:05:05.779 --> 00:05:08.779 to the establishment, but ideologically positioning 00:05:08.779 --> 00:05:11.699 themselves as the ultimate outsiders, the revolutionaries. 00:05:11.839 --> 00:05:14.959 But they grew fast. Despite that New Jersey HQ, 00:05:15.420 --> 00:05:18.079 they had a global footprint very quickly. Oh, 00:05:18.079 --> 00:05:20.779 yeah. They opened offices in Israel, Australia, 00:05:21.120 --> 00:05:24.120 the UK. They really wanted to project this image 00:05:24.120 --> 00:05:27.980 of a massive international financial institution. 00:05:28.300 --> 00:05:30.300 But let's be real. The center of gravity, the 00:05:30.300 --> 00:05:33.949 whole brand, was always Alex Mashinsky. Mashinsky's 00:05:33.949 --> 00:05:37.069 persona was, I think, maybe 80 % of the entire 00:05:37.069 --> 00:05:39.970 pitch. He wasn't just a CEO. He was an influencer. 00:05:40.149 --> 00:05:42.930 He was a character. Crypto evangelist. Absolutely. 00:05:43.230 --> 00:05:45.930 He was not some stuffy guy in a suit hiding in 00:05:45.930 --> 00:05:47.850 a boardroom on the 50th floor, you know, releasing 00:05:47.850 --> 00:05:50.589 quarterly statements. He cultivated this incredibly 00:05:50.589 --> 00:05:53.069 intense, direct connection with his users. Through 00:05:53.069 --> 00:05:55.829 the AMAs. The AMAs, yeah. Ask Mashinsky anything 00:05:55.829 --> 00:05:58.689 sessions every single week on YouTube. I remember 00:05:58.689 --> 00:06:00.449 seeing clips of these. He'd be sitting there, 00:06:00.509 --> 00:06:02.759 maybe in his living room or home office. Always 00:06:02.759 --> 00:06:04.920 wearing a black Celsius t -shirt with some slogan 00:06:04.920 --> 00:06:07.660 on it. Always. It felt so casual. It felt very 00:06:07.660 --> 00:06:09.360 intimate, like you were getting direct access 00:06:09.360 --> 00:06:11.779 to the visionary. And that was entirely the point. 00:06:12.040 --> 00:06:14.420 It was designed to create a parasocial relationship. 00:06:14.920 --> 00:06:17.579 He wasn't some distant authority figure. He was 00:06:17.579 --> 00:06:19.899 Alex. He was your friend. He was the guy on your 00:06:19.899 --> 00:06:22.519 side, fighting for you. And he would spend... 00:06:23.009 --> 00:06:25.829 Hours. Yeah. Answering questions directly from 00:06:25.829 --> 00:06:28.490 the chat. Hours. And he would rant. He'd go on 00:06:28.490 --> 00:06:30.910 these long tirades about how greedy the big banks 00:06:30.910 --> 00:06:33.910 were. He'd name drop JP Morgan or Wells Fargo 00:06:33.910 --> 00:06:36.389 and basically paint them as the enemies of the 00:06:36.389 --> 00:06:39.189 people. The villains in this story. And he told 00:06:39.189 --> 00:06:41.970 a story that people really, really wanted to 00:06:41.970 --> 00:06:45.620 believe. The core narrative was so simple. It 00:06:45.620 --> 00:06:48.160 was. There is plenty of profit to go around. 00:06:48.319 --> 00:06:50.560 The banks are making huge returns on your money, 00:06:50.660 --> 00:06:52.879 but they are hoarding it all for executive bonuses 00:06:52.879 --> 00:06:55.139 and shareholder dividends. Celsius is different. 00:06:55.420 --> 00:06:58.079 We make the same money, he'd say, but we give 00:06:58.079 --> 00:07:01.319 80 % of it back to you, the community. That 80 00:07:01.319 --> 00:07:04.560 % figure, he repeated it like a mantra. It was 00:07:04.560 --> 00:07:07.259 a constant talking point. And it was brilliant 00:07:07.259 --> 00:07:09.680 because it made users feel like they weren't 00:07:09.680 --> 00:07:12.279 just customers, they were partners. There were 00:07:12.279 --> 00:07:15.300 stakeholders. It turned the customer base into 00:07:15.300 --> 00:07:18.220 this army of evangelists. You weren't just using 00:07:18.220 --> 00:07:20.240 a financial app. You were part of a movement 00:07:20.240 --> 00:07:22.779 to unbank the world. So let's talk about the 00:07:22.779 --> 00:07:24.720 product itself, because for the average user, 00:07:24.819 --> 00:07:26.860 it was just incredibly simple. That was part 00:07:26.860 --> 00:07:29.620 of the genius. How did it actually work? It was 00:07:29.620 --> 00:07:32.500 frictionless. That was key to the user experience. 00:07:33.160 --> 00:07:35.819 You take your cryptocurrency, your Bitcoin, your 00:07:35.819 --> 00:07:39.279 Ethereum, USDC, whatever you had, and you just 00:07:39.279 --> 00:07:41.519 deposit it into the Celsius app on your phone. 00:07:41.800 --> 00:07:43.800 And that was it. That was basically it. You didn't 00:07:43.800 --> 00:07:45.379 have to lock it up for years. Usually you just 00:07:45.379 --> 00:07:47.759 put it there. And then every Monday, like clockwork, 00:07:47.839 --> 00:07:49.920 you'd get an email with the subject line, you've 00:07:49.920 --> 00:07:51.939 earned interest. And we're not talking about 00:07:51.939 --> 00:07:54.339 0 .5 % interest. We are talking about numbers 00:07:54.339 --> 00:07:56.339 that would make a traditional financial advisor 00:07:56.339 --> 00:07:59.500 literally faint. Right. We are talking up to 00:07:59.500 --> 00:08:02.600 6 .2 % on Bitcoin. Now stop and think about that 00:08:02.600 --> 00:08:05.480 for a second. Bitcoin is already this volatile 00:08:05.480 --> 00:08:07.560 asset that people are hoping will appreciate 00:08:07.560 --> 00:08:10.939 in value. To get a guaranteed or what felt like 00:08:10.939 --> 00:08:13.879 a guaranteed 6 % yield on top of that potential 00:08:13.879 --> 00:08:16.879 appreciation, that's the holy grail of investing. 00:08:17.139 --> 00:08:19.399 It's unheard of. And what about for stable coins, 00:08:19.600 --> 00:08:21.259 the ones pegged to the dollar? That's where it 00:08:21.259 --> 00:08:23.319 got even crazier. They were offering yields as 00:08:23.319 --> 00:08:26.459 high as 17 % annually at certain times. Yeah. 00:08:26.560 --> 00:08:29.199 17 % on your dollars. If a guy in a street corner 00:08:29.199 --> 00:08:31.579 came up to you and offered you a 17 % return 00:08:31.579 --> 00:08:34.019 on your cash. You would assume he's running a 00:08:34.019 --> 00:08:36.059 scam or selling something illegal. Of course. 00:08:36.220 --> 00:08:40.220 But in crypto in that 2019 to 2021 window, that 00:08:40.220 --> 00:08:42.820 skepticism was just suspended. People thought, 00:08:42.879 --> 00:08:44.779 well, this is the new technology. This is just 00:08:44.779 --> 00:08:46.519 how efficient the blockchain is. The middlemen 00:08:46.519 --> 00:08:48.639 are gone. So all that profit comes directly to 00:08:48.639 --> 00:08:50.519 me. That was the dangerous assumption people 00:08:50.519 --> 00:08:53.120 made. They conflated technological innovation 00:08:53.120 --> 00:08:57.419 with financial magic. And Mashinsky was a master 00:08:57.419 --> 00:09:00.100 at selling the idea that this incredible yield 00:09:00.100 --> 00:09:02.690 was risk free or at least very. very low risk 00:09:02.690 --> 00:09:05.429 because it was coming from this superior technologically 00:09:05.429 --> 00:09:07.970 advanced business model okay and then there was 00:09:07.970 --> 00:09:10.110 the flywheel this is where the tokenomics come 00:09:10.110 --> 00:09:11.809 in and where things start to get a little more 00:09:11.809 --> 00:09:15.629 let's say engineered tell us about the cel token 00:09:15.629 --> 00:09:18.649 so celsius created their own cryptocurrency their 00:09:18.649 --> 00:09:21.909 own token called cel it was an erc20 token on 00:09:21.909 --> 00:09:24.429 the ethereum network and they built this whole 00:09:24.429 --> 00:09:27.610 system to incentivize you to want it, to hold 00:09:27.610 --> 00:09:29.870 it, and most importantly, to never, ever sell 00:09:29.870 --> 00:09:32.049 it. It was basically like a loyalty program on 00:09:32.049 --> 00:09:34.330 steroids, right? Like airline miles, but you 00:09:34.330 --> 00:09:36.009 could trade them on an open market. That's a 00:09:36.009 --> 00:09:39.230 perfect analogy. Here was the pitch. If you chose 00:09:39.230 --> 00:09:41.669 to get your weekly interest paid out in CEL tokens 00:09:41.669 --> 00:09:44.549 instead of in Bitcoin or dollars, you got a higher 00:09:44.549 --> 00:09:47.509 rate, a bonus. So instead of 5%, maybe you'd 00:09:47.509 --> 00:09:50.519 get 6%. Exactly. And then there was another layer. 00:09:50.620 --> 00:09:52.700 If you held a certain percentage of your total 00:09:52.700 --> 00:09:55.740 portfolio in CEL tokens, you leveled up your 00:09:55.740 --> 00:09:58.059 account status. You could become a platinum user. 00:09:58.299 --> 00:10:01.679 Ah, gamification. Pure gamification. And being 00:10:01.679 --> 00:10:04.279 a platinum user had perks. You had the absolute 00:10:04.279 --> 00:10:06.480 highest yields on all your deposits, and you 00:10:06.480 --> 00:10:08.399 got the lowest interest rates if you wanted to 00:10:08.399 --> 00:10:10.679 take out a crypto -backed loan from them. So 00:10:10.679 --> 00:10:13.440 the theory here, the flywheel they sold to everyone, 00:10:13.539 --> 00:10:17.750 was this. If more users join the platform, more 00:10:17.750 --> 00:10:19.929 people will want to become Platinum users to 00:10:19.929 --> 00:10:22.669 get the best rates. That means more people will 00:10:22.669 --> 00:10:25.509 be buying the CEL token from the market. If more 00:10:25.509 --> 00:10:28.529 people buy the token, the price goes up. If the 00:10:28.529 --> 00:10:31.350 price of CEL goes up, everyone holding it gets 00:10:31.350 --> 00:10:34.610 richer on paper. And that rising price attracts 00:10:34.610 --> 00:10:37.429 even more users who see the games and want in. 00:10:37.870 --> 00:10:40.230 It's a positive feedback loop. As long as the 00:10:40.230 --> 00:10:42.250 user base is growing and new money is flowing 00:10:42.250 --> 00:10:44.570 in, the token price goes up, which attracts more 00:10:44.570 --> 00:10:47.250 users, which drives the price up further. It 00:10:47.250 --> 00:10:49.330 looks like a perpetual motion machine of wealth 00:10:49.330 --> 00:10:51.429 creation. And for a while, I mean, it worked. 00:10:51.490 --> 00:10:53.990 The growth was absolutely explosive. They did 00:10:53.990 --> 00:10:57.590 an initial coin offering, an ICO way back in 00:10:57.590 --> 00:11:00.350 March of 2018. Right. And they raised $50 million. 00:11:00.970 --> 00:11:03.549 That gave them their initial war chest to start 00:11:03.549 --> 00:11:06.519 this whole thing. And by late 2021, the numbers 00:11:06.519 --> 00:11:08.679 were just staggering. The valuation explosion 00:11:08.679 --> 00:11:13.059 was real. In October 2021, they closed a massive 00:11:13.059 --> 00:11:15.679 funding round. It was, what, $400 million? $400 00:11:15.679 --> 00:11:17.580 million. And this is the part that gave them 00:11:17.580 --> 00:11:20.080 so much credibility because this wasn't just, 00:11:20.139 --> 00:11:23.759 you know, crypto whales or retail investors throwing 00:11:23.759 --> 00:11:25.580 money at them. No, this is the part that made 00:11:25.580 --> 00:11:27.500 everyone think it was safe. Who was leading that 00:11:27.500 --> 00:11:30.039 round? This is so crucial to the story. The round 00:11:30.039 --> 00:11:33.460 was co -led by a company called WestCap and CDPQ. 00:11:37.150 --> 00:11:42.429 Which is? A pension fund. That is the definition 00:11:42.429 --> 00:11:45.230 of smart money. That is teachers and firefighters' 00:11:45.509 --> 00:11:48.029 retirement money. That is public sector workers' 00:11:48.289 --> 00:11:52.799 nest eggs. Precisely. And... When a massive conservative 00:11:52.799 --> 00:11:55.340 institution like a pension fund invests in something, 00:11:55.480 --> 00:11:58.039 the market assumes, OK, the adults are finally 00:11:58.039 --> 00:12:00.159 in the room. They must have done a forensic audit. 00:12:00.320 --> 00:12:01.919 They must have gone through the books with a 00:12:01.919 --> 00:12:04.659 fine tooth comb. This thing must be legit. It 00:12:04.659 --> 00:12:07.779 gave Celsius this incredible veneer of institutional 00:12:07.779 --> 00:12:11.000 safety that was just invaluable for their marketing. 00:12:11.120 --> 00:12:13.700 It allowed Mashinsky to go on CNBC and say, look, 00:12:13.799 --> 00:12:16.500 we are not a gamble. We are backed by the biggest, 00:12:16.620 --> 00:12:19.279 most respected institutions in the world. And 00:12:19.279 --> 00:12:20.990 with that investment, they were valued. at $3 00:12:20.990 --> 00:12:25.070 billion, a unicorn three times over. They were 00:12:25.070 --> 00:12:27.289 flying so high they were even acquiring other 00:12:27.289 --> 00:12:29.429 companies. They bought an Israeli cybersecurity 00:12:29.429 --> 00:12:33.870 firm called GK8 for $115 million. So to the outside 00:12:33.870 --> 00:12:36.049 observer, this looked like an unstoppable juggernaut 00:12:36.049 --> 00:12:38.289 that was genuinely too big to fail. But as we 00:12:38.289 --> 00:12:40.750 so often find in these deep dives, the view from 00:12:40.750 --> 00:12:43.139 the outside. The press releases, the unicorn 00:12:43.139 --> 00:12:45.980 valuations, the glitzy conferences, and the view 00:12:45.980 --> 00:12:48.059 from the inside are two very, very different 00:12:48.059 --> 00:12:50.700 things. All right, so let's pop the hood. This 00:12:50.700 --> 00:12:53.000 brings us to section two of our discussion today. 00:12:53.419 --> 00:12:56.320 Under the hood, the business model versus reality. 00:12:57.480 --> 00:13:00.059 Because on paper, the business model they sold 00:13:00.059 --> 00:13:03.039 to everyone was simple enough. Very simple. We 00:13:03.039 --> 00:13:05.539 take your deposits, we lend them out to big institutions 00:13:05.539 --> 00:13:07.940 who need crypto for their trading, we collect 00:13:07.940 --> 00:13:10.000 a high interest rate from them, and we split 00:13:10.000 --> 00:13:12.379 the profits with you. That was the safe version 00:13:12.379 --> 00:13:15.399 of the story. Lending. The idea was that there 00:13:15.399 --> 00:13:17.820 are these big market makers and crypto hedge 00:13:17.820 --> 00:13:20.759 funds who need to borrow Bitcoin or Ethereum 00:13:20.759 --> 00:13:24.080 to facilitate their trading or arbitrage strategies. 00:13:24.700 --> 00:13:27.080 Celsius lends to them, takes them collateral 00:13:27.080 --> 00:13:29.379 and collects a fee. And if that's all they were 00:13:29.379 --> 00:13:31.279 doing, it would have been a pretty boring, low 00:13:31.279 --> 00:13:33.960 margin business. Exactly. Boring businesses do 00:13:33.960 --> 00:13:36.820 not pay out 17 percent yield. It just doesn't 00:13:36.820 --> 00:13:38.759 happen. The math doesn't work. So to generate 00:13:38.759 --> 00:13:41.600 those double digit yields, standard over collateralized 00:13:41.600 --> 00:13:44.179 lending isn't going to cut it. Not even close. 00:13:44.720 --> 00:13:47.879 So Celsius had to go much, much further out on 00:13:47.879 --> 00:13:50.179 the risk curve. They were engaged in a lot of 00:13:50.179 --> 00:13:51.799 other activities they didn't really advertise. 00:13:52.120 --> 00:13:54.659 They were doing their own Bitcoin mining operations, 00:13:54.840 --> 00:13:57.360 which is incredibly capital intensive and risky. 00:13:57.519 --> 00:14:00.080 And they were doing something they called discretionary 00:14:00.080 --> 00:14:03.019 trading. Discretionary trading. That sounds like 00:14:03.019 --> 00:14:05.519 a very fancy way of saying gambling. It basically 00:14:05.519 --> 00:14:08.259 is. It means their internal trading desk was 00:14:08.259 --> 00:14:11.259 taking pooled user funds and actively betting 00:14:11.259 --> 00:14:13.759 on the direction of the market. They were acting 00:14:13.759 --> 00:14:16.100 like a hedge fund, but without ever telling the 00:14:16.100 --> 00:14:18.539 users that their safe deposits were actually 00:14:18.539 --> 00:14:21.080 being used as the capital for a high -risk hedge 00:14:21.080 --> 00:14:23.360 fund. But there's a specific term that came up 00:14:23.360 --> 00:14:25.440 again and again in the investigation after the 00:14:25.440 --> 00:14:28.860 collapse that sounds absolutely terrifying. Rehypothecation. 00:14:29.279 --> 00:14:31.620 Can you break this down for us? Because it sounds 00:14:31.620 --> 00:14:33.820 complicated, but I have a feeling the core concept 00:14:33.820 --> 00:14:36.179 is actually pretty simple and incredibly dangerous. 00:14:36.559 --> 00:14:39.399 It is the widowmaker of finance. It's what brought 00:14:39.399 --> 00:14:41.879 down Lehman Brothers. Okay, let's use a simple 00:14:41.879 --> 00:14:45.460 analogy. Imagine you have a very expensive, rare 00:14:45.460 --> 00:14:48.960 watch. You need some cash, so you bring the watch 00:14:48.960 --> 00:14:51.179 to me. I'm a lender. You give me the watch as 00:14:51.179 --> 00:14:53.500 collateral, and I give you a loan. Okay, simple 00:14:53.500 --> 00:14:55.919 enough. You're holding my watch in your safe. 00:14:56.059 --> 00:14:58.519 If I pay you back the loan, I get my watch back. 00:14:58.799 --> 00:15:02.320 In a normal custody arrangement, yes. But if 00:15:02.320 --> 00:15:05.539 our agreement allows for rehypothecation, I don't 00:15:05.539 --> 00:15:08.450 just put the watch in a safe. I take your watch 00:15:08.450 --> 00:15:10.549 and I walk down the street to another guy and 00:15:10.549 --> 00:15:12.669 I say, hey, look at this nice watch I have. Can 00:15:12.669 --> 00:15:14.370 you lend me some money against it? Whoa, wait. 00:15:14.450 --> 00:15:16.870 So now I owe you money and you owe this other 00:15:16.870 --> 00:15:19.169 guy money, but there's only one watch supporting 00:15:19.169 --> 00:15:21.990 both loans. Correct. And what if that guy then 00:15:21.990 --> 00:15:23.690 takes the watch and lends it to a fourth guy? 00:15:23.809 --> 00:15:26.649 Now you have this long chain of debt and leverage 00:15:26.649 --> 00:15:29.149 all supported by that single original asset. 00:15:29.350 --> 00:15:31.970 That sounds incredibly fragile. It works great 00:15:31.970 --> 00:15:34.149 when prices are going up and everyone is happy 00:15:34.149 --> 00:15:36.350 and solvent. It creates liquidity in the system. 00:15:36.809 --> 00:15:38.750 But what happens if you come back to me and say, 00:15:38.830 --> 00:15:40.889 OK, here's your cash. Give me my watch back. 00:15:41.070 --> 00:15:43.370 You have to go get it from the other guy. Right. 00:15:43.590 --> 00:15:45.450 But what if the other guy doesn't have it anymore? 00:15:45.750 --> 00:15:48.210 Or what if the market has crashed and the wash 00:15:48.210 --> 00:15:50.710 was sold off to cover his own losses? The entire 00:15:50.710 --> 00:15:53.490 chain just snaps. You suddenly realize that the 00:15:53.490 --> 00:15:55.830 asset you thought was safe in a vault wasn't 00:15:55.830 --> 00:15:58.309 really there at all. And Celsius was doing this 00:15:58.309 --> 00:16:01.330 with customer crypto. aggressively. In fact, 00:16:01.389 --> 00:16:03.889 there is a massive smoking gun here regarding 00:16:03.889 --> 00:16:07.110 a company called Prime Trust. Prime Trust was 00:16:07.110 --> 00:16:10.169 a crypto custodian, a company whose entire job 00:16:10.169 --> 00:16:12.769 is to keep crypto assets safe in cold storage. 00:16:13.309 --> 00:16:16.090 Celsius was using them to store customer funds. 00:16:16.450 --> 00:16:20.049 But in June of 2021, a full year before the collapse, 00:16:20.350 --> 00:16:23.490 Prime Trust abruptly cut ties with Celsius. A 00:16:23.490 --> 00:16:25.870 custodian fired a massive client. That almost 00:16:25.870 --> 00:16:28.269 never happens. They live on the fees. Exactly. 00:16:28.409 --> 00:16:30.970 But the internal risk team at Prime Trust looked 00:16:30.970 --> 00:16:33.049 at what Celsius was doing with the assets and 00:16:33.049 --> 00:16:35.289 they completely freaked out. They said Celsius 00:16:35.289 --> 00:16:38.330 was endlessly rehypothecating assets. They were 00:16:38.330 --> 00:16:40.210 just lending the same assets over and over and 00:16:40.210 --> 00:16:43.309 over again to juice the yields. Endlessly. That's 00:16:43.309 --> 00:16:45.190 a chilling word to use. The founder of Prime 00:16:45.190 --> 00:16:47.820 Trust. a guy named Scott Purcell, was quoted 00:16:47.820 --> 00:16:50.120 later saying he knew their model was destined 00:16:50.120 --> 00:16:53.200 for failure and that it was ridiculously leveraged. 00:16:53.700 --> 00:16:56.559 He saw it coming a mile away and got his company 00:16:56.559 --> 00:16:58.539 out of there. So the safe yield that everyone 00:16:58.539 --> 00:17:00.600 was getting wasn't from some genius algorithm. 00:17:00.779 --> 00:17:03.299 It was coming from massive hidden leverage that 00:17:03.299 --> 00:17:05.740 could blow up at any moment. And that wasn't 00:17:05.740 --> 00:17:08.460 even the only fundamental structural flaw. We 00:17:08.460 --> 00:17:11.019 have to go back to the CEL token. We talked about 00:17:11.019 --> 00:17:13.170 the flywheel. But it turns out that Flywheel 00:17:13.170 --> 00:17:15.970 had a secret motor attached to it. A motor that 00:17:15.970 --> 00:17:18.750 Celsius was powering with customer cash. What 00:17:18.750 --> 00:17:21.029 do you mean by that? Well, normally if the price 00:17:21.029 --> 00:17:22.990 of a token goes up, it's because the open market 00:17:22.990 --> 00:17:24.990 values it. There are more buyers than sellers. 00:17:25.470 --> 00:17:28.089 But it turns out the single biggest buyer of 00:17:28.089 --> 00:17:32.069 this CEL token was Celsius itself. Wait, wait. 00:17:32.150 --> 00:17:34.849 They were buying their own token? With what money? 00:17:35.009 --> 00:17:38.559 With customer deposits. On a massive scale. According 00:17:38.559 --> 00:17:41.279 to on -chain data from Arkham Intelligence, Celsius 00:17:41.279 --> 00:17:44.500 spent roughly $350 million buying CEL tokens 00:17:44.500 --> 00:17:47.619 on the open market, starting back in 2019. Why? 00:17:47.819 --> 00:17:50.319 Why would they do that? Two critical reasons. 00:17:50.619 --> 00:17:54.079 One, to prop up the price. If the price of CEL 00:17:54.079 --> 00:17:56.039 starts to drop, their own balance sheet looks 00:17:56.039 --> 00:17:58.880 terrible, the flywheel stops spinning, and people 00:17:58.880 --> 00:18:01.730 start to lose faith in the whole system. Two, 00:18:01.730 --> 00:18:04.369 they literally needed the tokens to pay out the 00:18:04.369 --> 00:18:06.609 weekly interest rewards to all those customers 00:18:06.609 --> 00:18:09.250 who had elected to earn in CEL. OK, let me see 00:18:09.250 --> 00:18:10.789 if I can wrap my head around the circular logic. 00:18:11.170 --> 00:18:14.309 They take my Bitcoin deposit. They use the value 00:18:14.309 --> 00:18:16.569 of my actual Bitcoin to go on to an exchange 00:18:16.569 --> 00:18:19.470 and buy their own CEL tokens, which keeps the 00:18:19.470 --> 00:18:22.990 price of CEL artificially high. And then they 00:18:22.990 --> 00:18:25.940 pay me my weekly interest. in the very same CEL 00:18:25.940 --> 00:18:28.220 tokens that they just artificially propped up 00:18:28.220 --> 00:18:30.220 using my money. You've got it. It's the definition 00:18:30.220 --> 00:18:32.880 of a house of cards. They were burning through 00:18:32.880 --> 00:18:36.099 actual valuable blue chip assets like Bitcoin 00:18:36.099 --> 00:18:38.920 and Ethereum and stable coins to inflate the 00:18:38.920 --> 00:18:41.440 value of their own proprietary illiquid token. 00:18:41.779 --> 00:18:45.039 It is like eating your own tail to survive. As 00:18:45.039 --> 00:18:47.400 long as new money from new customers kept flowing 00:18:47.400 --> 00:18:48.980 in the front door, they could keep the scheme 00:18:48.980 --> 00:18:51.180 running. That sounds, well, there's a word for 00:18:51.180 --> 00:18:52.720 that kind of business model. It starts with a 00:18:52.720 --> 00:18:55.230 P. And that word started appearing in their own 00:18:55.230 --> 00:18:57.809 internal documents. This is the part of the story 00:18:57.809 --> 00:19:00.529 that just makes your jaw drop. There was a coin 00:19:00.529 --> 00:19:02.869 deployment specialist working at Celsius named 00:19:02.869 --> 00:19:06.670 Dean Tappan. In an internal memo or a chat log 00:19:06.670 --> 00:19:08.329 that was later released during the bankruptcy 00:19:08.329 --> 00:19:11.690 proceedings, he literally wrote that his job 00:19:11.690 --> 00:19:14.910 title should be Ponzi consultant. No way. He 00:19:14.910 --> 00:19:18.150 wrote that down in a company chat. Ponzi consultant. 00:19:18.490 --> 00:19:21.769 He did. Now, it was likely meant as a dark joke 00:19:21.769 --> 00:19:24.369 among colleagues, but it reveals that on some 00:19:24.369 --> 00:19:26.789 level, they knew exactly what the mechanics of 00:19:26.789 --> 00:19:28.650 their operation looked like. The black humor 00:19:28.650 --> 00:19:30.690 of people who know they're on a sinking ship. 00:19:30.910 --> 00:19:33.829 It wasn't just him. Later, after the bankruptcy, 00:19:34.230 --> 00:19:36.589 the court -appointed independent examiner's report 00:19:36.589 --> 00:19:39.890 cited another insider who explicitly described 00:19:39.890 --> 00:19:43.319 aspects of the business as being very Ponzi -like. 00:19:43.420 --> 00:19:45.539 So it's incredible. People inside knew what was 00:19:45.539 --> 00:19:47.240 going on. I mean, there was even a public lawsuit 00:19:47.240 --> 00:19:49.539 before the final collapse, right? The Jason Stan 00:19:49.539 --> 00:19:53.220 case. Yes. In July 2022, right around the time 00:19:53.220 --> 00:19:55.839 everything imploded, a former investment manager 00:19:55.839 --> 00:19:59.220 named Jason Stone sued them. But his allegations 00:19:59.220 --> 00:20:02.160 covered the period long before that. He alleged 00:20:02.160 --> 00:20:04.740 it was a Ponzi scheme and specifically cited 00:20:04.740 --> 00:20:09.400 a massive trading loss, $350 million, due to 00:20:09.400 --> 00:20:12.670 what he called improper trading protocols. So 00:20:12.670 --> 00:20:14.990 he was basically claiming Celsius had no idea 00:20:14.990 --> 00:20:16.990 how to hedge their risks. They were just gambling, 00:20:17.150 --> 00:20:19.609 losing hundreds of millions of dollars and covering 00:20:19.609 --> 00:20:22.109 up the hole with new customer deposit. That was 00:20:22.109 --> 00:20:24.329 the allegation. So you have internal jokes about 00:20:24.329 --> 00:20:26.609 being a Ponzi consultant. You have your own custodians 00:20:26.609 --> 00:20:29.089 firing you for being recklessly leveraged. You 00:20:29.089 --> 00:20:31.049 have hundreds of millions in trading losses being 00:20:31.049 --> 00:20:33.690 covered up. Right. But on YouTube, Alex Mashinsky 00:20:33.690 --> 00:20:35.349 is looking into the camera and telling everyone 00:20:35.349 --> 00:20:37.630 that the banks are the enemy and Celsius is safer 00:20:37.630 --> 00:20:39.859 than a vault. The disconnect between the public 00:20:39.859 --> 00:20:42.759 image and the private reality was just, it was 00:20:42.759 --> 00:20:45.779 a canyon. And that brings us to section three, 00:20:46.000 --> 00:20:49.160 red flags and regulatory heat. Because it wasn't 00:20:49.160 --> 00:20:51.460 just, you know, incompetence or a flawed business 00:20:51.460 --> 00:20:54.140 model. There was active deception going on. Starting 00:20:54.140 --> 00:20:55.880 at the very top. We're talking about insider 00:20:55.880 --> 00:20:59.019 selling. Correct. The mantra of the crypto community, 00:20:59.240 --> 00:21:03.059 and one Mashinsky repeated constantly, is ocho 00:21:03.059 --> 00:21:07.099 deal. Hold on for dear life. Diamond hands. Never 00:21:07.099 --> 00:21:09.869 sell. He would tweet about how the founders were 00:21:09.869 --> 00:21:12.410 buying more CL, how they believed in the project, 00:21:12.529 --> 00:21:14.529 how they were not sellers. I remember one tweet 00:21:14.529 --> 00:21:16.990 specifically. It was December 2021, right before 00:21:16.990 --> 00:21:18.910 things really started to get shaky in the market. 00:21:19.049 --> 00:21:21.769 He tweeted very clearly that the founders are 00:21:21.769 --> 00:21:24.349 not sellers of the token. He was trying to calm 00:21:24.349 --> 00:21:26.529 the market down. But the blockchain doesn't lie. 00:21:27.049 --> 00:21:29.609 Public, on -chain data tells a completely different 00:21:29.609 --> 00:21:32.430 story. We know Mashinsky sold half a million 00:21:32.430 --> 00:21:34.630 dollars worth of CEL in a single transaction 00:21:34.630 --> 00:21:38.250 as early as October 2020. And in total, Arkham 00:21:38.250 --> 00:21:40.289 Intelligence was able to trace wallets and estimates. 00:21:40.470 --> 00:21:43.289 He personally sold about $44 million worth of 00:21:43.289 --> 00:21:46.089 CEL. So he's on YouTube telling his 1 .7 million 00:21:46.089 --> 00:21:48.890 followers to buy and hold because Celsius is 00:21:48.890 --> 00:21:51.849 the future, while he is quietly on the side cashing 00:21:51.849 --> 00:21:55.269 out $44 million to secure his own future. That's 00:21:55.269 --> 00:21:57.859 not just a red flag. as a blaring siren with 00:21:57.859 --> 00:21:59.579 flashing lights. It's the absolute definition 00:21:59.579 --> 00:22:02.000 of bad faith. He was using his loyal followers 00:22:02.000 --> 00:22:04.460 as his exit liquidity. And the regulators were 00:22:04.460 --> 00:22:06.980 starting to hear that siren too. We often think 00:22:06.980 --> 00:22:09.000 of crypto as this wild west where there are no 00:22:09.000 --> 00:22:10.900 sheriffs, but in this case, the sheriffs were 00:22:10.900 --> 00:22:13.440 actually watching. They were. In September of 00:22:13.440 --> 00:22:15.920 2021, authorities in three different states, 00:22:16.079 --> 00:22:18.960 Texas, New Jersey, and Kentucky, all made moves 00:22:18.960 --> 00:22:22.359 on the same day. New Jersey issued a full cease 00:22:22.359 --> 00:22:26.019 and desist order. Texas filed a notice. The core 00:22:26.019 --> 00:22:28.119 argument from all of them was the same. Which 00:22:28.119 --> 00:22:31.519 was what? That these earn accounts, the product 00:22:31.519 --> 00:22:33.519 where you deposit your crypto and get interest, 00:22:33.720 --> 00:22:36.779 were actually unregistered securities. Meaning 00:22:36.779 --> 00:22:38.799 they were selling financial investment products 00:22:38.799 --> 00:22:40.799 to the public without following the laws designed 00:22:40.799 --> 00:22:43.480 to protect investors, like providing disclosures 00:22:43.480 --> 00:22:46.599 and registering with the SEC. Exactly. The Howey 00:22:46.599 --> 00:22:48.960 test is the legal standard in the U .S. for what 00:22:48.960 --> 00:22:51.819 constitutes a security. If you invest money in 00:22:51.819 --> 00:22:54.599 a common enterprise with the expectation of profit 00:22:54.599 --> 00:22:56.519 derived primarily from the efforts of others, 00:22:56.660 --> 00:23:00.180 that's a security. Celsius's earned product fit 00:23:00.180 --> 00:23:02.279 that description perfectly. How did Mashinsky 00:23:02.279 --> 00:23:04.660 respond to these states coming after him? Was 00:23:04.660 --> 00:23:07.099 he conciliatory? Not at all. He was completely 00:23:07.099 --> 00:23:09.779 defiant. He went on the offensive. He claimed 00:23:09.779 --> 00:23:11.819 he was very confident their products weren't 00:23:11.819 --> 00:23:14.119 securities. He tried to frame it as regulators 00:23:14.119 --> 00:23:16.279 who just didn't understand the new technology 00:23:16.279 --> 00:23:19.500 or as an attack on innovation. But looking back. 00:23:19.900 --> 00:23:22.140 That was the clear beginning of the end. The 00:23:22.140 --> 00:23:24.980 legal pressure was mounting from all sides. And 00:23:24.980 --> 00:23:27.240 at the same time, the executive team was becoming 00:23:27.240 --> 00:23:30.000 a revolving door. That's always a bad sign at 00:23:30.000 --> 00:23:32.819 a company. It's a huge red flag. In November 00:23:32.819 --> 00:23:35.680 2021, they had to suspend a senior employee because 00:23:35.680 --> 00:23:38.940 he was the focus of an Israeli police probe related 00:23:38.940 --> 00:23:41.930 to a previous job he had. But more tellingly, 00:23:41.950 --> 00:23:44.470 you had the CFO, the chief financial officer, 00:23:44.690 --> 00:23:48.009 Rod Bolger. He was appointed in late 2021 and 00:23:48.009 --> 00:23:51.369 had resigned by June 2022. When the CFO walks 00:23:51.369 --> 00:23:53.450 out the door right before a massive financial 00:23:53.450 --> 00:23:55.609 crisis hits, that is usually a pretty good sign 00:23:55.609 --> 00:23:57.289 that they looked at the books and did not like 00:23:57.289 --> 00:23:59.150 what they saw. It is the ultimate canary in the 00:23:59.150 --> 00:24:01.269 coal mine. So all the cracks are visible, at 00:24:01.269 --> 00:24:03.289 least for anyone looking closely. It's late 2021, 00:24:03.549 --> 00:24:06.309 early 2022. The crypto market is starting to 00:24:06.309 --> 00:24:08.630 get shaky. And then we get to the main event, 00:24:08.750 --> 00:24:13.759 Section 4. The crash. The summer of 2022. The 00:24:13.759 --> 00:24:16.319 prelude to the Celsius crash was the collapse 00:24:16.319 --> 00:24:19.420 of another massive crypto project, Terra and 00:24:19.420 --> 00:24:22.759 its stablecoin Luna, in May of 2022. Right. A 00:24:22.759 --> 00:24:25.200 total death spiral. A death spiral that wiped 00:24:25.200 --> 00:24:27.599 out tens of billions of dollars of value in a 00:24:27.599 --> 00:24:30.900 matter of days. That sent these huge shockwaves 00:24:30.900 --> 00:24:32.900 through the entire market. Everyone was suddenly 00:24:32.900 --> 00:24:35.400 very, very nervous. Investors were looking at 00:24:35.400 --> 00:24:37.380 their portfolios and asking, is my money actually 00:24:37.380 --> 00:24:40.279 safe anywhere? And immediately, rumors started 00:24:40.279 --> 00:24:42.559 swirling that Celsius had taken a huge financial 00:24:42.559 --> 00:24:44.980 hit in the Linux collapse. And what was the response 00:24:44.980 --> 00:24:48.279 from Celsius? Deny, deny, deny. On June 7th, 00:24:48.279 --> 00:24:50.779 2022, they published this infamous blog post. 00:24:50.920 --> 00:24:53.940 The title says it all. Damn the torpedoes, full 00:24:53.940 --> 00:24:56.859 speed ahead. Damn the torpedoes. It sounds so 00:24:56.859 --> 00:24:59.180 defiant, almost heroic, like a captain going 00:24:59.180 --> 00:25:01.799 down with his ship. There's pure hubris. In the 00:25:01.799 --> 00:25:04.099 post, they dismissed the widespread rumors of 00:25:04.099 --> 00:25:06.880 insolvency as misinformation being spread by 00:25:06.880 --> 00:25:09.059 vocal actors. They basically claimed it was all 00:25:09.059 --> 00:25:11.779 FUD fear, uncertainty, and doubt being spread 00:25:11.779 --> 00:25:13.640 by shadowy competitors who wanted to hurt the 00:25:13.640 --> 00:25:16.430 community. They told everyone to stay calm. and 00:25:16.430 --> 00:25:19.349 HODL. And Mashinsky kept up the AMAs right until 00:25:19.349 --> 00:25:23.470 the bitter end. Oh, yeah. June 10th, 2022. That's 00:25:23.470 --> 00:25:25.410 just three days before they froze withdrawals. 00:25:25.809 --> 00:25:28.609 He goes on YouTube for his weekly session. He 00:25:28.609 --> 00:25:30.569 looks straight into the camera and says, and 00:25:30.569 --> 00:25:33.670 I'm quoting here, Celsius has billions in liquidity, 00:25:33.890 --> 00:25:36.130 right? And we provide immediate access to everybody. 00:25:36.630 --> 00:25:38.890 He accused critics of being paid by competitors 00:25:38.890 --> 00:25:40.970 to spread lies. Immediate access to everybody. 00:25:41.049 --> 00:25:43.230 He said that on a Friday. You did. And then came 00:25:43.230 --> 00:25:46.940 Monday morning. June 13th. The day the music 00:25:46.940 --> 00:25:49.799 died for 1 .7 million people. I remember it so 00:25:49.799 --> 00:25:52.539 vividly. An abrupt announcement just drops out 00:25:52.539 --> 00:25:56.000 of nowhere. A short memo on their blog. Celsius 00:25:56.000 --> 00:25:58.940 is pausing all withdrawals, all swaps, and all 00:25:58.940 --> 00:26:00.940 transfers between accounts. And the reason they 00:26:00.940 --> 00:26:03.279 cited? Extreme market conditions. Imagine waking 00:26:03.279 --> 00:26:05.420 up to that email. You have your life savings 00:26:05.420 --> 00:26:07.140 in this app. You try to log in to get your money 00:26:07.140 --> 00:26:09.019 out just in case, and the withdraw button is 00:26:09.019 --> 00:26:12.039 just. It's grayed out. Unbank yourself suddenly 00:26:12.039 --> 00:26:14.500 became you cannot access your bank. The irony 00:26:14.500 --> 00:26:16.160 was just so thick you could cut it with a knife. 00:26:16.740 --> 00:26:18.900 The defining feature of a failing traditional 00:26:18.900 --> 00:26:21.359 bank is that you go to the teller and they say, 00:26:21.500 --> 00:26:24.180 sorry, we don't have your money right now. And 00:26:24.180 --> 00:26:26.259 that is exactly what happened here. But unlike 00:26:26.259 --> 00:26:28.940 with a bank, there was no FDIC insurance. There 00:26:28.940 --> 00:26:31.940 was no government backstop. There was just nothing. 00:26:32.240 --> 00:26:34.980 What was the immediate market reaction to that 00:26:34.980 --> 00:26:38.380 freeze? Panic. Absolute unadulterated panic. 00:26:38.559 --> 00:26:41.279 Bitcoin and Ethereum dropped 12 to 14 percent 00:26:41.279 --> 00:26:43.940 almost instantly because the market realized 00:26:43.940 --> 00:26:46.720 that one of the biggest players was totally insolvent 00:26:46.720 --> 00:26:48.960 and would have to start liquidating assets. In 00:26:48.960 --> 00:26:52.289 the CEL token. It crashed by a third in minutes, 00:26:52.470 --> 00:26:55.430 dropping to around $0 .21. Remember, it had been 00:26:55.430 --> 00:26:57.930 nearly $7 a year prior. And for the customers, 00:26:58.109 --> 00:27:00.569 that month of silence after the freeze must have 00:27:00.569 --> 00:27:02.910 been excruciating, just waiting. It was a full 00:27:02.910 --> 00:27:04.809 month of total uncertainty. People were holding 00:27:04.809 --> 00:27:07.329 out hope. Maybe it's temporary. Maybe it's just 00:27:07.329 --> 00:27:09.349 a liquidity crunch, not an insolvency problem. 00:27:09.549 --> 00:27:13.869 But then on July 13th, 2022. Exactly one month 00:27:13.869 --> 00:27:16.289 to the day after the freeze, Celsius officially 00:27:16.289 --> 00:27:19.150 filed for Chapter 11 bankruptcy protection. And 00:27:19.150 --> 00:27:21.789 that court filing finally revealed the ugly truth 00:27:21.789 --> 00:27:24.210 that Mashinsky had been hiding for so long. The 00:27:24.210 --> 00:27:26.829 numbers were horrific. They officially had that 00:27:26.829 --> 00:27:29.369 $1 .2 billion deficit on their balance sheet. 00:27:29.509 --> 00:27:33.650 They had only $167 million in cash on hand to 00:27:33.650 --> 00:27:36.430 deal with $5 .5 billion in total liabilities. 00:27:36.789 --> 00:27:39.690 And of that... They owed their own customers 00:27:39.690 --> 00:27:42.730 $4 .7 billion. So for every dollar they owed 00:27:42.730 --> 00:27:44.349 their customers, they had, what, like three and 00:27:44.349 --> 00:27:46.230 a half cents in cash available? Something like 00:27:46.230 --> 00:27:49.410 that. The filing explicitly admitted that the 00:27:49.410 --> 00:27:52.109 deficit was caused by a modern bank run. But 00:27:52.109 --> 00:27:55.019 again, let's be really clear about this. A bank 00:27:55.019 --> 00:27:58.380 run only destroys a company if that company doesn't 00:27:58.380 --> 00:28:00.740 actually have the assets to back up the deposits. 00:28:00.980 --> 00:28:02.940 Right. If they'd really been doing what they 00:28:02.940 --> 00:28:05.680 claimed, safe over collateralized lending, they 00:28:05.680 --> 00:28:07.259 could have simply recalled their loans, gotten 00:28:07.259 --> 00:28:09.319 their crypto back and paid everyone. They couldn't 00:28:09.319 --> 00:28:11.220 do that because the money was gone. It had been 00:28:11.220 --> 00:28:13.839 lost in bad trades and risky bets. This brings 00:28:13.839 --> 00:28:15.880 us to what might be the most important part of 00:28:15.880 --> 00:28:19.240 this whole story. Section five. The human cost. 00:28:19.619 --> 00:28:22.279 Because when we talk about liabilities and unsecured 00:28:22.279 --> 00:28:24.700 creditors, it sounds so sterile. It's just accounting 00:28:24.700 --> 00:28:28.259 language. But these were real people. And there's 00:28:28.259 --> 00:28:30.980 a specific legal distinction that ended up ruining 00:28:30.980 --> 00:28:34.099 thousands of lives. This is the most painful 00:28:34.099 --> 00:28:37.640 lesson of the entire 2022 crypto winter. And 00:28:37.640 --> 00:28:39.720 it's one that I hope every single listener really 00:28:39.720 --> 00:28:42.039 internalizes. When you put your money in a bank 00:28:42.039 --> 00:28:44.640 legally. That money is a liability of the bank, 00:28:44.740 --> 00:28:46.779 but you have a very strong claim to it. And more 00:28:46.779 --> 00:28:48.920 importantly, the government insures it up to 00:28:48.920 --> 00:28:52.359 $250 ,000 through the FDIC. But with Celsius, 00:28:52.640 --> 00:28:54.559 it was different. Very different. When users 00:28:54.559 --> 00:28:57.539 signed Celsius's terms of use, which, let's be 00:28:57.539 --> 00:29:00.180 honest, almost nobody actually reads, they clicked 00:29:00.180 --> 00:29:02.700 agree to something very specific and very dangerous. 00:29:02.900 --> 00:29:05.200 What did they agree to? The terms stated that 00:29:05.200 --> 00:29:07.299 any assets deposited into the earned program 00:29:07.299 --> 00:29:09.539 transferred legal ownership and title of those 00:29:09.539 --> 00:29:12.730 assets to Celsius. You weren't depositing your 00:29:12.730 --> 00:29:15.089 crypto into a vault for safekeeping. You were 00:29:15.089 --> 00:29:17.410 giving an unsecured loan to the Celsius Corporation. 00:29:17.910 --> 00:29:21.049 So the Bitcoin and Ethereum in people's accounts, 00:29:21.269 --> 00:29:24.890 it didn't legally belong to them anymore. Legally, 00:29:24.910 --> 00:29:27.589 no. At the moment of the bankruptcy filing, it 00:29:27.589 --> 00:29:30.450 belonged to the estate of Celsius Network. The 00:29:30.450 --> 00:29:34.089 users were legally classified as unsecured creditors. 00:29:34.190 --> 00:29:36.930 And in a bankruptcy proceeding. Where does an 00:29:36.930 --> 00:29:39.589 unsecured creditor sit in the pecking order to 00:29:39.589 --> 00:29:42.150 get paid back? At the absolute back of the line. 00:29:43.289 --> 00:29:45.589 The secured creditors get paid, people who have 00:29:45.589 --> 00:29:48.009 collateral backing their loans. Then the lawyers 00:29:48.009 --> 00:29:49.930 and the bankruptcy consultants and the accountants 00:29:49.930 --> 00:29:53.089 get paid their enormous fees. And trust me, they 00:29:53.089 --> 00:29:54.950 made hundreds of millions of dollars in fees 00:29:54.950 --> 00:29:57.289 from this case. Of course they did. Then, and 00:29:57.289 --> 00:29:59.730 only then, if there are any scraps of money left 00:29:59.730 --> 00:30:02.349 over, the unsecured creditors get to split what 00:30:02.349 --> 00:30:04.750 remains. So the customers, the very community 00:30:04.750 --> 00:30:07.289 that Mashinsky claimed to love and serve, were 00:30:07.289 --> 00:30:09.329 the absolute last people to get paid. Exactly. 00:30:09.710 --> 00:30:11.930 And the stories that came out in the court filings. 00:30:12.569 --> 00:30:14.930 Molly White, a researcher who does incredible 00:30:14.930 --> 00:30:17.829 work documenting crypto disasters, compiled a 00:30:17.829 --> 00:30:20.369 long thread of letters that customers wrote and 00:30:20.369 --> 00:30:23.210 sent to the bankruptcy judge. They are just heartbreaking 00:30:23.210 --> 00:30:26.609 to read. I remember reading about one. A customer 00:30:26.609 --> 00:30:30.230 actually sent a photo of a baby ultrasound to 00:30:30.230 --> 00:30:33.490 the judge. Yes. Begging the judge for relief. 00:30:33.730 --> 00:30:36.069 Saying things like, I need this money for my 00:30:36.069 --> 00:30:37.930 child who is on the way. This was our entire 00:30:37.930 --> 00:30:40.640 savings for the baby. There were stories of people 00:30:40.640 --> 00:30:42.779 losing their entire life savings, people who 00:30:42.779 --> 00:30:44.559 could no longer pay their mortgage, people who 00:30:44.559 --> 00:30:46.720 couldn't afford to buy food. These weren't just 00:30:46.720 --> 00:30:48.579 millionaire speculators gambling with play money. 00:30:48.740 --> 00:30:51.339 These were regular people, teachers, nurses, 00:30:51.559 --> 00:30:54.240 grandparents, who genuinely believed the pitch 00:30:54.240 --> 00:30:57.099 that Celsius was a safer, better savings account. 00:30:57.359 --> 00:31:01.180 And to add a final, cruel insult to injury, there 00:31:01.180 --> 00:31:03.779 was the privacy issue. This was the final twist 00:31:03.779 --> 00:31:06.490 of the knife. The court process in the U .S. 00:31:06.509 --> 00:31:09.390 demands transparency. Celsius's lawyers argued 00:31:09.390 --> 00:31:11.170 that their customer list was valuable intellectual 00:31:11.170 --> 00:31:13.349 property and should be kept private, but the 00:31:13.349 --> 00:31:15.369 court overruled them. They were forced to publish 00:31:15.369 --> 00:31:17.569 a massive document listing the names of their 00:31:17.569 --> 00:31:19.990 customers and their financial details, how much 00:31:19.990 --> 00:31:21.769 they had on the platform. So not only did you 00:31:21.769 --> 00:31:23.730 lose all your money. But now your neighbor, your 00:31:23.730 --> 00:31:26.230 boss, your ex -wife can go online and see exactly 00:31:26.230 --> 00:31:29.349 how much you lost. The humiliation on top of 00:31:29.349 --> 00:31:32.109 the financial ruin. Someone even created a searchable 00:31:32.109 --> 00:31:34.430 website called Celsius Net Worth that scraped 00:31:34.430 --> 00:31:37.269 all that data. It went viral. It revealed that 00:31:37.269 --> 00:31:39.450 the top three individual losers had lost $40 00:31:39.450 --> 00:31:43.670 .5 million, $38 .2 million, and $26 .4 million, 00:31:43.849 --> 00:31:47.690 respectively. Staggering sums. But the real tragedy 00:31:47.690 --> 00:31:50.670 is often felt most acutely by the person who 00:31:50.670 --> 00:31:53.130 lost $10 ,000, because that might have been everything 00:31:53.130 --> 00:31:55.450 they had in the entire world. So the company 00:31:55.450 --> 00:31:58.230 is bankrupt. The money is gone. Mashinsky is 00:31:58.230 --> 00:32:00.190 out. Let's look at the long road to resolution. 00:32:00.490 --> 00:32:03.690 This is Section 6. It's taken years to sort this 00:32:03.690 --> 00:32:06.119 mess out from the side. Summer of 2022, all the 00:32:06.119 --> 00:32:08.940 way to where we are now in 2026. It was an incredibly 00:32:08.940 --> 00:32:12.099 messy and expensive bankruptcy process. Mashinsky 00:32:12.099 --> 00:32:14.759 resigned in September 2022, effectively washing 00:32:14.759 --> 00:32:17.160 his hands of the cleanup. Then came the long, 00:32:17.160 --> 00:32:19.559 slow process of trying to sell off whatever assets 00:32:19.559 --> 00:32:21.319 were left to pay people back something. They 00:32:21.319 --> 00:32:23.259 sold that cybersecurity company they had bought, 00:32:23.420 --> 00:32:26.519 GK8. Right, they sold GK8 to Galaxy Digital, 00:32:26.700 --> 00:32:29.039 which is Mike Novogratz's company. But the big 00:32:29.039 --> 00:32:30.799 question was what to do with the remaining crypto 00:32:30.799 --> 00:32:34.140 assets and, importantly, their mass... Bitcoin 00:32:34.140 --> 00:32:36.799 mining operation. There was a bidding war for 00:32:36.799 --> 00:32:38.960 the scraps, wasn't there? There was. You had 00:32:38.960 --> 00:32:40.700 a consortium called NovaWolf. You had another 00:32:40.700 --> 00:32:42.819 group called Fahrenheit. Fahrenheit was backed 00:32:42.819 --> 00:32:44.519 by some heavy hitters in the crypto space like 00:32:44.519 --> 00:32:47.299 Michael Arrington and seemingly had ties to some 00:32:47.299 --> 00:32:50.759 Coinbase alumni. Eventually, a complex restructuring 00:32:50.759 --> 00:32:53.039 plan was approved by the court in late 2023. 00:32:53.789 --> 00:32:56.289 And this plan birthed a new company. This is 00:32:56.289 --> 00:32:58.490 kind of a unique solution to a crypto bankruptcy, 00:32:58.750 --> 00:33:01.210 isn't it? It is, yeah. Instead of just liquidating 00:33:01.210 --> 00:33:03.710 everything for pennies on the dollar, they created 00:33:03.710 --> 00:33:06.750 a new entity called Ionic Digital. This is the 00:33:06.750 --> 00:33:09.650 core of the resolution. The creditors, the former 00:33:09.650 --> 00:33:12.329 customers of Celsius, effectively became the 00:33:12.329 --> 00:33:15.069 new owners of a standalone Bitcoin mining company. 00:33:15.289 --> 00:33:17.470 So the logic was, look, we can't pay you back 00:33:17.470 --> 00:33:19.630 fully in cash or crypto right now because we 00:33:19.630 --> 00:33:22.309 lost most of it. But we do own all this valuable 00:33:22.309 --> 00:33:25.150 mining equipment. So here, have some equity in 00:33:25.150 --> 00:33:27.170 a new mining operation. If the price of Bitcoin 00:33:27.170 --> 00:33:30.170 goes up and if we can run this operation profitably, 00:33:30.309 --> 00:33:32.630 maybe the stock becomes valuable one day and 00:33:32.630 --> 00:33:34.569 you get made whole eventually. Correct. It's 00:33:34.569 --> 00:33:37.440 a bit of a Hail Mary pass. Yeah. It was seen 00:33:37.440 --> 00:33:39.640 as a better option than immediate liquidation 00:33:39.640 --> 00:33:43.200 for next to nothing. So in January of 2024, they 00:33:43.200 --> 00:33:46.359 began the actual distributions. Over $3 billion 00:33:46.359 --> 00:33:49.039 in liquid crypto and fiat was returned to the 00:33:49.039 --> 00:33:51.460 creditors. How much did people actually get back? 00:33:51.759 --> 00:33:54.420 It varied, but it wasn't 100 % of what they lost. 00:33:54.619 --> 00:33:57.200 Not even close. Most people got back something 00:33:57.200 --> 00:33:59.539 in the range of 50 to 70 cents on the dollar 00:33:59.539 --> 00:34:01.319 of their claims value at the time of the bankruptcy. 00:34:01.559 --> 00:34:03.740 It was something, but it was still a devastating 00:34:03.740 --> 00:34:06.539 loss. And the Celsius app. The tool that started 00:34:06.539 --> 00:34:08.639 this whole mess was finally shut down for good 00:34:08.639 --> 00:34:12.280 on February 29, 2024. A digital ghost town. But 00:34:12.280 --> 00:34:13.820 we can't wrap this up without talking about the 00:34:13.820 --> 00:34:15.880 justice aspect, the civil and criminal penalties 00:34:15.880 --> 00:34:17.800 that came down. The Federal Trade Commission, 00:34:18.059 --> 00:34:20.960 the FTC, stepped in with a massive civil settlement, 00:34:21.159 --> 00:34:25.260 $4 .7 billion. But the real headline, the one 00:34:25.260 --> 00:34:27.539 everyone was waiting for, was the criminal case 00:34:27.539 --> 00:34:30.320 against Alex Mashinsky himself. He was arrested 00:34:30.320 --> 00:34:32.800 and charged with fraud, conspiracy, and market 00:34:32.800 --> 00:34:34.739 manipulation. And for a while, he fought it. 00:34:35.050 --> 00:34:37.570 He maintained his innocence, claimed it was all 00:34:37.570 --> 00:34:40.230 just a business failure. But the evidence against 00:34:40.230 --> 00:34:42.510 him was just overwhelming. The internal chats, 00:34:42.750 --> 00:34:45.429 the falsified records, the documented insider 00:34:45.429 --> 00:34:49.030 selling. In December of 2024, he finally changed 00:34:49.030 --> 00:34:51.590 his plea. He pleaded guilty to two counts of 00:34:51.590 --> 00:34:54.750 fraud. He also agreed to forfeit $48 million. 00:34:55.269 --> 00:34:59.519 And then came the sentence, May 2025. The final 00:34:59.519 --> 00:35:01.920 judgment. 12 years in federal prison. It's a 00:35:01.920 --> 00:35:04.099 very significant sentence. It sends a clear message 00:35:04.099 --> 00:35:06.480 that you cannot simply play fast and loose with 00:35:06.480 --> 00:35:08.059 billions of dollars of other people's money, 00:35:08.139 --> 00:35:10.360 call it disruptive innovation, and then walk 00:35:10.360 --> 00:35:11.840 away when the whole thing inevitably collapses. 00:35:12.199 --> 00:35:14.619 It's such a stark contrast to the unbank yourself 00:35:14.619 --> 00:35:17.800 days. The FTC also banned Celsius, the company, 00:35:17.960 --> 00:35:20.420 from ever handling consumer assets again. Which 00:35:20.420 --> 00:35:22.480 brings the entire irony full circle, doesn't 00:35:22.480 --> 00:35:24.809 it? The company that set out to replace the banks 00:35:24.809 --> 00:35:27.530 has been legally and permanently prohibited from 00:35:27.530 --> 00:35:30.130 ever acting like one again. So as we close out 00:35:30.130 --> 00:35:33.010 this deep dive, what is the big overriding lesson 00:35:33.010 --> 00:35:35.409 here? What's the takeaway? For me, it's really 00:35:35.409 --> 00:35:37.269 about the fundamental definitions of risk and 00:35:37.269 --> 00:35:40.989 trust. Celsius sold people a fantasy. They told 00:35:40.989 --> 00:35:43.230 them they could have the high, high rewards of 00:35:43.230 --> 00:35:45.730 crypto with the safety and security of a traditional 00:35:45.730 --> 00:35:49.190 bank. That combination does not exist. It has 00:35:49.190 --> 00:35:51.590 never existed. If you are being offered a 17 00:35:51.590 --> 00:35:55.030 % yield, you are taking on 17 % worth of risk. 00:35:55.150 --> 00:35:57.469 There is no free lunch in finance. And there's 00:35:57.469 --> 00:36:00.210 the critical issue of centralization. Precisely. 00:36:00.210 --> 00:36:02.130 The whole point of crypto, the reason Bitcoin 00:36:02.130 --> 00:36:04.929 was invented, was to remove the need for trusted 00:36:04.929 --> 00:36:07.929 middleman. Bitcoin trustless. You don't need 00:36:07.929 --> 00:36:10.150 to trust a CEO or a board of directors for the 00:36:10.150 --> 00:36:13.440 Bitcoin network to work. Code is law. Celsius 00:36:13.440 --> 00:36:15.440 was the complete opposite of that. It was a black 00:36:15.440 --> 00:36:18.179 box. You had to trust Alex Mashinsky. You had 00:36:18.179 --> 00:36:20.400 to trust their secret trading desk. You had to 00:36:20.400 --> 00:36:22.659 trust their reckless rehypothecation strategies. 00:36:23.019 --> 00:36:26.860 DeFi in name, CeFi in reality. Exactly. It was 00:36:26.860 --> 00:36:29.960 CeFi centralized finance, but without any of 00:36:29.960 --> 00:36:32.440 the protections, without regulation, without 00:36:32.440 --> 00:36:35.420 FDIC insurance, without transparency. It's just 00:36:35.420 --> 00:36:37.880 a casino where the house holds all the cards 00:36:37.880 --> 00:36:40.019 and can change the rules at any time. It's a 00:36:40.019 --> 00:36:42.059 very sobering lesson. You know, they always said 00:36:42.059 --> 00:36:43.920 banks aren't your friends, and maybe they aren't. 00:36:43.920 --> 00:36:46.219 Banks are businesses out to make a profit. But 00:36:46.219 --> 00:36:48.139 at least when a bank fails, the government steps 00:36:48.139 --> 00:36:51.039 in to protect depositors. When Celsius failed, 00:36:51.199 --> 00:36:53.420 the only thing that was guaranteed was the silence. 00:36:54.139 --> 00:36:58.159 And as we sit here, looking back from 2026, I 00:36:58.159 --> 00:37:00.159 have to wonder if the industry has really learned 00:37:00.159 --> 00:37:02.619 that lesson. Are users today actually demanding 00:37:02.619 --> 00:37:05.679 proof of reserves and transparency from the platforms 00:37:05.679 --> 00:37:08.019 they use? Or are we all just waiting for the 00:37:08.019 --> 00:37:10.239 next charismatic leader to show up and promise 00:37:10.239 --> 00:37:13.739 us 20 % yields? That is the question to end on, 00:37:13.780 --> 00:37:15.800 isn't it? If someone offers you a return that 00:37:15.800 --> 00:37:18.619 looks too good to be true, it almost certainly 00:37:18.619 --> 00:37:22.139 is. Unbank yourself, but do it at your own risk. 00:37:22.360 --> 00:37:24.400 Indeed. Because if you don't hold the private 00:37:24.400 --> 00:37:27.199 keys, it's not your crypto. And if you don't 00:37:27.199 --> 00:37:28.739 know where the yield is coming from, you are 00:37:28.739 --> 00:37:31.719 the yield. You are the yield. That's a chilling 00:37:31.719 --> 00:37:33.800 thought. Thanks for listening to The Deep Dive. 00:37:33.820 --> 00:37:36.400 Stay skeptical, stay curious, and we'll see you 00:37:36.400 --> 00:37:36.880 on the next one.