Unbank yourself. That was the hook, wasn't it?
I mean, it wasn't just some catchy slogan for
a fintech startup. No, not at all. It was a philosophical
challenge. It was a rallying cry you'd see printed
on T -shirts, you know, slapped on the back of
laptops at every crypto conference from here
to Singapore. Yep, everywhere. If you were anywhere
near the crypto space between, say, 2017 and
2021, you could not escape Celsius Network. They
were just omnipresent. It was incredibly seductive
marketing. You really have to give them that.
And you have to remember the context of the time.
It arrived right at this perfect moment when
people were just feeling so cynical about traditional
finance. You know, we were in that era where
the interest rate on your standard savings account
was... What? Basically zero. Yeah, .01 % if you
were lucky. Exactly. You put $1 ,000 in the bank,
and at the end of the year, you'd have enough
interest to buy, I don't know, a pack of gum.
Maybe. Maybe. And that's if they didn't hit you
with a monthly maintenance fee that wiped it
all out anyway. Of course. Overdraft fees, wire
transfer fees. It just felt like a rigged game.
Yeah. And then suddenly, here comes this company,
Celsius, striding in like a white knight. Totally.
And they're saying the banks are ripping you
off. They're making a fortune on your money and
keeping all of it. Come to us. We're the good
guys. We're the community. That was the word
they used all the time. Community. Yes. They
position themselves as the antidote to Wall Street
greed. the Robin Hood of crypto, if you will.
They promised financial freedom. They promised
safety, which is a key word we're going to have
to circle back on and dissect later. And they
promised yields that made stock market returns
look like pocket change. We're not exaggerating.
I mean, we are talking about advertised rates
of up to 17 % on certain assets. 17%. It sounds
completely insane now, looking back from our
vantage point here in early 2026. But at the
time, people just nodded and said, yeah, that
makes sense. It's crypto. It's blockchain efficiency.
The middlemen are gone. But that slogan, unbank
yourself, it has taken on such a dark, almost
cruel irony now. It really has. Because in a
way, Millions of people did exactly that. They
unbanked themselves. Yeah. They took their life
savings out of the regulated, insured traditional
banking system. And in doing so, they walked
right into a trap that ended up costing them
billions. Billions. Right. And the scale of this
collapse, it's just hard to wrap your head around
the numbers. It really is. At its peak, Celsius
had something like, what, $12 billion in assets
under management? Twelve. Billion dollars. That
is larger than the GDP of some small island nations.
It's a staggering amount of money. And practically
overnight, that entire empire just crumbled,
revealing this $1 .2 billion hole in their balance
sheet. That's the number that always gets me.
The deficit. A $1 .2 billion gap. That is not
a rounding error. It's not a bad quarter where
you missed your earnings targets. No. That is
a catastrophic systemic failure. It means that
for every dollar they supposedly have of their
customers' money. They just didn't have it. It
was gone. And just recently, we finally saw the
legal conclusion to this whole saga. It's February
2026 now. And we're looking back at the sentencing
of the former CEO, Alex Mashinsky. That happened
back in May of 2025. They got 12 years in federal
prison. 12 years. Which is a significant sentence.
It really puts him in the history books alongside
some of the most notorious financial fraudsters
of the 21st century. It's a genuine tragedy.
We aren't just looking at a business failure
today. That's not what this deep dive is about.
We are unpacking a collapse that wiped out the
life savings of regular people, betrayed the
trust of 1 .7 million users and ended with this
man who was once celebrated as a visionary being
led away in handcuffs. So the mission for us
today is to go way beyond the headlines. We're
not just doing. a timeline of a bankruptcy. We
really want to understand the why and the how.
We need to unpack the hubris, the mechanics of
it all, which, by the way, insiders were describing
as Ponzi -like long before the feds ever got
involved. And we need to talk about that dangerous
game of centralization masquerading as decentralization.
That is the core tension, isn't it? The key question
we have to try and answer is, how did a company
with 1 .7 million devoted customers I mean, people
who practically worship the brand go from a $3
billion unicorn valuation to a federal fraud
case. How did so many smart people get fooled?
Exactly. Okay, so let's start at the beginning.
Section one, the golden ticket. Because before
it was a crime scene, Celsius was an absolute
rocket ship. It was founded in 2017. Who were
the architects behind this thing? Well, you had
three main co -founders, Alex Mashinsky, who
is the face of the company, Daniel Leon and Newt
Coldstein. And they set up their headquarters
in, of all places, Hoboken, New Jersey. Which
is such a funny detail, right? It's not Silicon
Valley. It's not Wall Street. It's Hoboken. It
feels almost, I don't know, defiant. It's like
they're saying we're close to the financial capital
of the world, but we are not of it. That's a
great way to put it. They were physically adjacent
to the establishment, but ideologically positioning
themselves as the ultimate outsiders, the revolutionaries.
But they grew fast. Despite that New Jersey HQ,
they had a global footprint very quickly. Oh,
yeah. They opened offices in Israel, Australia,
the UK. They really wanted to project this image
of a massive international financial institution.
But let's be real. The center of gravity, the
whole brand, was always Alex Mashinsky. Mashinsky's
persona was, I think, maybe 80 % of the entire
pitch. He wasn't just a CEO. He was an influencer.
He was a character. Crypto evangelist. Absolutely.
He was not some stuffy guy in a suit hiding in
a boardroom on the 50th floor, you know, releasing
quarterly statements. He cultivated this incredibly
intense, direct connection with his users. Through
the AMAs. The AMAs, yeah. Ask Mashinsky anything
sessions every single week on YouTube. I remember
seeing clips of these. He'd be sitting there,
maybe in his living room or home office. Always
wearing a black Celsius t -shirt with some slogan
on it. Always. It felt so casual. It felt very
intimate, like you were getting direct access
to the visionary. And that was entirely the point.
It was designed to create a parasocial relationship.
He wasn't some distant authority figure. He was
Alex. He was your friend. He was the guy on your
side, fighting for you. And he would spend...
Hours. Yeah. Answering questions directly from
the chat. Hours. And he would rant. He'd go on
these long tirades about how greedy the big banks
were. He'd name drop JP Morgan or Wells Fargo
and basically paint them as the enemies of the
people. The villains in this story. And he told
a story that people really, really wanted to
believe. The core narrative was so simple. It
was. There is plenty of profit to go around.
The banks are making huge returns on your money,
but they are hoarding it all for executive bonuses
and shareholder dividends. Celsius is different.
We make the same money, he'd say, but we give
80 % of it back to you, the community. That 80
% figure, he repeated it like a mantra. It was
a constant talking point. And it was brilliant
because it made users feel like they weren't
just customers, they were partners. There were
stakeholders. It turned the customer base into
this army of evangelists. You weren't just using
a financial app. You were part of a movement
to unbank the world. So let's talk about the
product itself, because for the average user,
it was just incredibly simple. That was part
of the genius. How did it actually work? It was
frictionless. That was key to the user experience.
You take your cryptocurrency, your Bitcoin, your
Ethereum, USDC, whatever you had, and you just
deposit it into the Celsius app on your phone.
And that was it. That was basically it. You didn't
have to lock it up for years. Usually you just
put it there. And then every Monday, like clockwork,
you'd get an email with the subject line, you've
earned interest. And we're not talking about
0 .5 % interest. We are talking about numbers
that would make a traditional financial advisor
literally faint. Right. We are talking up to
6 .2 % on Bitcoin. Now stop and think about that
for a second. Bitcoin is already this volatile
asset that people are hoping will appreciate
in value. To get a guaranteed or what felt like
a guaranteed 6 % yield on top of that potential
appreciation, that's the holy grail of investing.
It's unheard of. And what about for stable coins,
the ones pegged to the dollar? That's where it
got even crazier. They were offering yields as
high as 17 % annually at certain times. Yeah.
17 % on your dollars. If a guy in a street corner
came up to you and offered you a 17 % return
on your cash. You would assume he's running a
scam or selling something illegal. Of course.
But in crypto in that 2019 to 2021 window, that
skepticism was just suspended. People thought,
well, this is the new technology. This is just
how efficient the blockchain is. The middlemen
are gone. So all that profit comes directly to
me. That was the dangerous assumption people
made. They conflated technological innovation
with financial magic. And Mashinsky was a master
at selling the idea that this incredible yield
was risk free or at least very. very low risk
because it was coming from this superior technologically
advanced business model okay and then there was
the flywheel this is where the tokenomics come
in and where things start to get a little more
let's say engineered tell us about the cel token
so celsius created their own cryptocurrency their
own token called cel it was an erc20 token on
the ethereum network and they built this whole
system to incentivize you to want it, to hold
it, and most importantly, to never, ever sell
it. It was basically like a loyalty program on
steroids, right? Like airline miles, but you
could trade them on an open market. That's a
perfect analogy. Here was the pitch. If you chose
to get your weekly interest paid out in CEL tokens
instead of in Bitcoin or dollars, you got a higher
rate, a bonus. So instead of 5%, maybe you'd
get 6%. Exactly. And then there was another layer.
If you held a certain percentage of your total
portfolio in CEL tokens, you leveled up your
account status. You could become a platinum user.
Ah, gamification. Pure gamification. And being
a platinum user had perks. You had the absolute
highest yields on all your deposits, and you
got the lowest interest rates if you wanted to
take out a crypto -backed loan from them. So
the theory here, the flywheel they sold to everyone,
was this. If more users join the platform, more
people will want to become Platinum users to
get the best rates. That means more people will
be buying the CEL token from the market. If more
people buy the token, the price goes up. If the
price of CEL goes up, everyone holding it gets
richer on paper. And that rising price attracts
even more users who see the games and want in.
It's a positive feedback loop. As long as the
user base is growing and new money is flowing
in, the token price goes up, which attracts more
users, which drives the price up further. It
looks like a perpetual motion machine of wealth
creation. And for a while, I mean, it worked.
The growth was absolutely explosive. They did
an initial coin offering, an ICO way back in
March of 2018. Right. And they raised $50 million.
That gave them their initial war chest to start
this whole thing. And by late 2021, the numbers
were just staggering. The valuation explosion
was real. In October 2021, they closed a massive
funding round. It was, what, $400 million? $400
million. And this is the part that gave them
so much credibility because this wasn't just,
you know, crypto whales or retail investors throwing
money at them. No, this is the part that made
everyone think it was safe. Who was leading that
round? This is so crucial to the story. The round
was co -led by a company called WestCap and CDPQ.
Which is? A pension fund. That is the definition
of smart money. That is teachers and firefighters'
retirement money. That is public sector workers'
nest eggs. Precisely. And... When a massive conservative
institution like a pension fund invests in something,
the market assumes, OK, the adults are finally
in the room. They must have done a forensic audit.
They must have gone through the books with a
fine tooth comb. This thing must be legit. It
gave Celsius this incredible veneer of institutional
safety that was just invaluable for their marketing.
It allowed Mashinsky to go on CNBC and say, look,
we are not a gamble. We are backed by the biggest,
most respected institutions in the world. And
with that investment, they were valued. at $3
billion, a unicorn three times over. They were
flying so high they were even acquiring other
companies. They bought an Israeli cybersecurity
firm called GK8 for $115 million. So to the outside
observer, this looked like an unstoppable juggernaut
that was genuinely too big to fail. But as we
so often find in these deep dives, the view from
the outside. The press releases, the unicorn
valuations, the glitzy conferences, and the view
from the inside are two very, very different
things. All right, so let's pop the hood. This
brings us to section two of our discussion today.
Under the hood, the business model versus reality.
Because on paper, the business model they sold
to everyone was simple enough. Very simple. We
take your deposits, we lend them out to big institutions
who need crypto for their trading, we collect
a high interest rate from them, and we split
the profits with you. That was the safe version
of the story. Lending. The idea was that there
are these big market makers and crypto hedge
funds who need to borrow Bitcoin or Ethereum
to facilitate their trading or arbitrage strategies.
Celsius lends to them, takes them collateral
and collects a fee. And if that's all they were
doing, it would have been a pretty boring, low
margin business. Exactly. Boring businesses do
not pay out 17 percent yield. It just doesn't
happen. The math doesn't work. So to generate
those double digit yields, standard over collateralized
lending isn't going to cut it. Not even close.
So Celsius had to go much, much further out on
the risk curve. They were engaged in a lot of
other activities they didn't really advertise.
They were doing their own Bitcoin mining operations,
which is incredibly capital intensive and risky.
And they were doing something they called discretionary
trading. Discretionary trading. That sounds like
a very fancy way of saying gambling. It basically
is. It means their internal trading desk was
taking pooled user funds and actively betting
on the direction of the market. They were acting
like a hedge fund, but without ever telling the
users that their safe deposits were actually
being used as the capital for a high -risk hedge
fund. But there's a specific term that came up
again and again in the investigation after the
collapse that sounds absolutely terrifying. Rehypothecation.
Can you break this down for us? Because it sounds
complicated, but I have a feeling the core concept
is actually pretty simple and incredibly dangerous.
It is the widowmaker of finance. It's what brought
down Lehman Brothers. Okay, let's use a simple
analogy. Imagine you have a very expensive, rare
watch. You need some cash, so you bring the watch
to me. I'm a lender. You give me the watch as
collateral, and I give you a loan. Okay, simple
enough. You're holding my watch in your safe.
If I pay you back the loan, I get my watch back.
In a normal custody arrangement, yes. But if
our agreement allows for rehypothecation, I don't
just put the watch in a safe. I take your watch
and I walk down the street to another guy and
I say, hey, look at this nice watch I have. Can
you lend me some money against it? Whoa, wait.
So now I owe you money and you owe this other
guy money, but there's only one watch supporting
both loans. Correct. And what if that guy then
takes the watch and lends it to a fourth guy?
Now you have this long chain of debt and leverage
all supported by that single original asset.
That sounds incredibly fragile. It works great
when prices are going up and everyone is happy
and solvent. It creates liquidity in the system.
But what happens if you come back to me and say,
OK, here's your cash. Give me my watch back.
You have to go get it from the other guy. Right.
But what if the other guy doesn't have it anymore?
Or what if the market has crashed and the wash
was sold off to cover his own losses? The entire
chain just snaps. You suddenly realize that the
asset you thought was safe in a vault wasn't
really there at all. And Celsius was doing this
with customer crypto. aggressively. In fact,
there is a massive smoking gun here regarding
a company called Prime Trust. Prime Trust was
a crypto custodian, a company whose entire job
is to keep crypto assets safe in cold storage.
Celsius was using them to store customer funds.
But in June of 2021, a full year before the collapse,
Prime Trust abruptly cut ties with Celsius. A
custodian fired a massive client. That almost
never happens. They live on the fees. Exactly.
But the internal risk team at Prime Trust looked
at what Celsius was doing with the assets and
they completely freaked out. They said Celsius
was endlessly rehypothecating assets. They were
just lending the same assets over and over and
over again to juice the yields. Endlessly. That's
a chilling word to use. The founder of Prime
Trust. a guy named Scott Purcell, was quoted
later saying he knew their model was destined
for failure and that it was ridiculously leveraged.
He saw it coming a mile away and got his company
out of there. So the safe yield that everyone
was getting wasn't from some genius algorithm.
It was coming from massive hidden leverage that
could blow up at any moment. And that wasn't
even the only fundamental structural flaw. We
have to go back to the CEL token. We talked about
the flywheel. But it turns out that Flywheel
had a secret motor attached to it. A motor that
Celsius was powering with customer cash. What
do you mean by that? Well, normally if the price
of a token goes up, it's because the open market
values it. There are more buyers than sellers.
But it turns out the single biggest buyer of
this CEL token was Celsius itself. Wait, wait.
They were buying their own token? With what money?
With customer deposits. On a massive scale. According
to on -chain data from Arkham Intelligence, Celsius
spent roughly $350 million buying CEL tokens
on the open market, starting back in 2019. Why?
Why would they do that? Two critical reasons.
One, to prop up the price. If the price of CEL
starts to drop, their own balance sheet looks
terrible, the flywheel stops spinning, and people
start to lose faith in the whole system. Two,
they literally needed the tokens to pay out the
weekly interest rewards to all those customers
who had elected to earn in CEL. OK, let me see
if I can wrap my head around the circular logic.
They take my Bitcoin deposit. They use the value
of my actual Bitcoin to go on to an exchange
and buy their own CEL tokens, which keeps the
price of CEL artificially high. And then they
pay me my weekly interest. in the very same CEL
tokens that they just artificially propped up
using my money. You've got it. It's the definition
of a house of cards. They were burning through
actual valuable blue chip assets like Bitcoin
and Ethereum and stable coins to inflate the
value of their own proprietary illiquid token.
It is like eating your own tail to survive. As
long as new money from new customers kept flowing
in the front door, they could keep the scheme
running. That sounds, well, there's a word for
that kind of business model. It starts with a
P. And that word started appearing in their own
internal documents. This is the part of the story
that just makes your jaw drop. There was a coin
deployment specialist working at Celsius named
Dean Tappan. In an internal memo or a chat log
that was later released during the bankruptcy
proceedings, he literally wrote that his job
title should be Ponzi consultant. No way. He
wrote that down in a company chat. Ponzi consultant.
He did. Now, it was likely meant as a dark joke
among colleagues, but it reveals that on some
level, they knew exactly what the mechanics of
their operation looked like. The black humor
of people who know they're on a sinking ship.
It wasn't just him. Later, after the bankruptcy,
the court -appointed independent examiner's report
cited another insider who explicitly described
aspects of the business as being very Ponzi -like.
So it's incredible. People inside knew what was
going on. I mean, there was even a public lawsuit
before the final collapse, right? The Jason Stan
case. Yes. In July 2022, right around the time
everything imploded, a former investment manager
named Jason Stone sued them. But his allegations
covered the period long before that. He alleged
it was a Ponzi scheme and specifically cited
a massive trading loss, $350 million, due to
what he called improper trading protocols. So
he was basically claiming Celsius had no idea
how to hedge their risks. They were just gambling,
losing hundreds of millions of dollars and covering
up the hole with new customer deposit. That was
the allegation. So you have internal jokes about
being a Ponzi consultant. You have your own custodians
firing you for being recklessly leveraged. You
have hundreds of millions in trading losses being
covered up. Right. But on YouTube, Alex Mashinsky
is looking into the camera and telling everyone
that the banks are the enemy and Celsius is safer
than a vault. The disconnect between the public
image and the private reality was just, it was
a canyon. And that brings us to section three,
red flags and regulatory heat. Because it wasn't
just, you know, incompetence or a flawed business
model. There was active deception going on. Starting
at the very top. We're talking about insider
selling. Correct. The mantra of the crypto community,
and one Mashinsky repeated constantly, is ocho
deal. Hold on for dear life. Diamond hands. Never
sell. He would tweet about how the founders were
buying more CL, how they believed in the project,
how they were not sellers. I remember one tweet
specifically. It was December 2021, right before
things really started to get shaky in the market.
He tweeted very clearly that the founders are
not sellers of the token. He was trying to calm
the market down. But the blockchain doesn't lie.
Public, on -chain data tells a completely different
story. We know Mashinsky sold half a million
dollars worth of CEL in a single transaction
as early as October 2020. And in total, Arkham
Intelligence was able to trace wallets and estimates.
He personally sold about $44 million worth of
CEL. So he's on YouTube telling his 1 .7 million
followers to buy and hold because Celsius is
the future, while he is quietly on the side cashing
out $44 million to secure his own future. That's
not just a red flag. as a blaring siren with
flashing lights. It's the absolute definition
of bad faith. He was using his loyal followers
as his exit liquidity. And the regulators were
starting to hear that siren too. We often think
of crypto as this wild west where there are no
sheriffs, but in this case, the sheriffs were
actually watching. They were. In September of
2021, authorities in three different states,
Texas, New Jersey, and Kentucky, all made moves
on the same day. New Jersey issued a full cease
and desist order. Texas filed a notice. The core
argument from all of them was the same. Which
was what? That these earn accounts, the product
where you deposit your crypto and get interest,
were actually unregistered securities. Meaning
they were selling financial investment products
to the public without following the laws designed
to protect investors, like providing disclosures
and registering with the SEC. Exactly. The Howey
test is the legal standard in the U .S. for what
constitutes a security. If you invest money in
a common enterprise with the expectation of profit
derived primarily from the efforts of others,
that's a security. Celsius's earned product fit
that description perfectly. How did Mashinsky
respond to these states coming after him? Was
he conciliatory? Not at all. He was completely
defiant. He went on the offensive. He claimed
he was very confident their products weren't
securities. He tried to frame it as regulators
who just didn't understand the new technology
or as an attack on innovation. But looking back.
That was the clear beginning of the end. The
legal pressure was mounting from all sides. And
at the same time, the executive team was becoming
a revolving door. That's always a bad sign at
a company. It's a huge red flag. In November
2021, they had to suspend a senior employee because
he was the focus of an Israeli police probe related
to a previous job he had. But more tellingly,
you had the CFO, the chief financial officer,
Rod Bolger. He was appointed in late 2021 and
had resigned by June 2022. When the CFO walks
out the door right before a massive financial
crisis hits, that is usually a pretty good sign
that they looked at the books and did not like
what they saw. It is the ultimate canary in the
coal mine. So all the cracks are visible, at
least for anyone looking closely. It's late 2021,
early 2022. The crypto market is starting to
get shaky. And then we get to the main event,
Section 4. The crash. The summer of 2022. The
prelude to the Celsius crash was the collapse
of another massive crypto project, Terra and
its stablecoin Luna, in May of 2022. Right. A
total death spiral. A death spiral that wiped
out tens of billions of dollars of value in a
matter of days. That sent these huge shockwaves
through the entire market. Everyone was suddenly
very, very nervous. Investors were looking at
their portfolios and asking, is my money actually
safe anywhere? And immediately, rumors started
swirling that Celsius had taken a huge financial
hit in the Linux collapse. And what was the response
from Celsius? Deny, deny, deny. On June 7th,
2022, they published this infamous blog post.
The title says it all. Damn the torpedoes, full
speed ahead. Damn the torpedoes. It sounds so
defiant, almost heroic, like a captain going
down with his ship. There's pure hubris. In the
post, they dismissed the widespread rumors of
insolvency as misinformation being spread by
vocal actors. They basically claimed it was all
FUD fear, uncertainty, and doubt being spread
by shadowy competitors who wanted to hurt the
community. They told everyone to stay calm. and
HODL. And Mashinsky kept up the AMAs right until
the bitter end. Oh, yeah. June 10th, 2022. That's
just three days before they froze withdrawals.
He goes on YouTube for his weekly session. He
looks straight into the camera and says, and
I'm quoting here, Celsius has billions in liquidity,
right? And we provide immediate access to everybody.
He accused critics of being paid by competitors
to spread lies. Immediate access to everybody.
He said that on a Friday. You did. And then came
Monday morning. June 13th. The day the music
died for 1 .7 million people. I remember it so
vividly. An abrupt announcement just drops out
of nowhere. A short memo on their blog. Celsius
is pausing all withdrawals, all swaps, and all
transfers between accounts. And the reason they
cited? Extreme market conditions. Imagine waking
up to that email. You have your life savings
in this app. You try to log in to get your money
out just in case, and the withdraw button is
just. It's grayed out. Unbank yourself suddenly
became you cannot access your bank. The irony
was just so thick you could cut it with a knife.
The defining feature of a failing traditional
bank is that you go to the teller and they say,
sorry, we don't have your money right now. And
that is exactly what happened here. But unlike
with a bank, there was no FDIC insurance. There
was no government backstop. There was just nothing.
What was the immediate market reaction to that
freeze? Panic. Absolute unadulterated panic.
Bitcoin and Ethereum dropped 12 to 14 percent
almost instantly because the market realized
that one of the biggest players was totally insolvent
and would have to start liquidating assets. In
the CEL token. It crashed by a third in minutes,
dropping to around $0 .21. Remember, it had been
nearly $7 a year prior. And for the customers,
that month of silence after the freeze must have
been excruciating, just waiting. It was a full
month of total uncertainty. People were holding
out hope. Maybe it's temporary. Maybe it's just
a liquidity crunch, not an insolvency problem.
But then on July 13th, 2022. Exactly one month
to the day after the freeze, Celsius officially
filed for Chapter 11 bankruptcy protection. And
that court filing finally revealed the ugly truth
that Mashinsky had been hiding for so long. The
numbers were horrific. They officially had that
$1 .2 billion deficit on their balance sheet.
They had only $167 million in cash on hand to
deal with $5 .5 billion in total liabilities.
And of that... They owed their own customers
$4 .7 billion. So for every dollar they owed
their customers, they had, what, like three and
a half cents in cash available? Something like
that. The filing explicitly admitted that the
deficit was caused by a modern bank run. But
again, let's be really clear about this. A bank
run only destroys a company if that company doesn't
actually have the assets to back up the deposits.
Right. If they'd really been doing what they
claimed, safe over collateralized lending, they
could have simply recalled their loans, gotten
their crypto back and paid everyone. They couldn't
do that because the money was gone. It had been
lost in bad trades and risky bets. This brings
us to what might be the most important part of
this whole story. Section five. The human cost.
Because when we talk about liabilities and unsecured
creditors, it sounds so sterile. It's just accounting
language. But these were real people. And there's
a specific legal distinction that ended up ruining
thousands of lives. This is the most painful
lesson of the entire 2022 crypto winter. And
it's one that I hope every single listener really
internalizes. When you put your money in a bank
legally. That money is a liability of the bank,
but you have a very strong claim to it. And more
importantly, the government insures it up to
$250 ,000 through the FDIC. But with Celsius,
it was different. Very different. When users
signed Celsius's terms of use, which, let's be
honest, almost nobody actually reads, they clicked
agree to something very specific and very dangerous.
What did they agree to? The terms stated that
any assets deposited into the earned program
transferred legal ownership and title of those
assets to Celsius. You weren't depositing your
crypto into a vault for safekeeping. You were
giving an unsecured loan to the Celsius Corporation.
So the Bitcoin and Ethereum in people's accounts,
it didn't legally belong to them anymore. Legally,
no. At the moment of the bankruptcy filing, it
belonged to the estate of Celsius Network. The
users were legally classified as unsecured creditors.
And in a bankruptcy proceeding. Where does an
unsecured creditor sit in the pecking order to
get paid back? At the absolute back of the line.
The secured creditors get paid, people who have
collateral backing their loans. Then the lawyers
and the bankruptcy consultants and the accountants
get paid their enormous fees. And trust me, they
made hundreds of millions of dollars in fees
from this case. Of course they did. Then, and
only then, if there are any scraps of money left
over, the unsecured creditors get to split what
remains. So the customers, the very community
that Mashinsky claimed to love and serve, were
the absolute last people to get paid. Exactly.
And the stories that came out in the court filings.
Molly White, a researcher who does incredible
work documenting crypto disasters, compiled a
long thread of letters that customers wrote and
sent to the bankruptcy judge. They are just heartbreaking
to read. I remember reading about one. A customer
actually sent a photo of a baby ultrasound to
the judge. Yes. Begging the judge for relief.
Saying things like, I need this money for my
child who is on the way. This was our entire
savings for the baby. There were stories of people
losing their entire life savings, people who
could no longer pay their mortgage, people who
couldn't afford to buy food. These weren't just
millionaire speculators gambling with play money.
These were regular people, teachers, nurses,
grandparents, who genuinely believed the pitch
that Celsius was a safer, better savings account.
And to add a final, cruel insult to injury, there
was the privacy issue. This was the final twist
of the knife. The court process in the U .S.
demands transparency. Celsius's lawyers argued
that their customer list was valuable intellectual
property and should be kept private, but the
court overruled them. They were forced to publish
a massive document listing the names of their
customers and their financial details, how much
they had on the platform. So not only did you
lose all your money. But now your neighbor, your
boss, your ex -wife can go online and see exactly
how much you lost. The humiliation on top of
the financial ruin. Someone even created a searchable
website called Celsius Net Worth that scraped
all that data. It went viral. It revealed that
the top three individual losers had lost $40
.5 million, $38 .2 million, and $26 .4 million,
respectively. Staggering sums. But the real tragedy
is often felt most acutely by the person who
lost $10 ,000, because that might have been everything
they had in the entire world. So the company
is bankrupt. The money is gone. Mashinsky is
out. Let's look at the long road to resolution.
This is Section 6. It's taken years to sort this
mess out from the side. Summer of 2022, all the
way to where we are now in 2026. It was an incredibly
messy and expensive bankruptcy process. Mashinsky
resigned in September 2022, effectively washing
his hands of the cleanup. Then came the long,
slow process of trying to sell off whatever assets
were left to pay people back something. They
sold that cybersecurity company they had bought,
GK8. Right, they sold GK8 to Galaxy Digital,
which is Mike Novogratz's company. But the big
question was what to do with the remaining crypto
assets and, importantly, their mass... Bitcoin
mining operation. There was a bidding war for
the scraps, wasn't there? There was. You had
a consortium called NovaWolf. You had another
group called Fahrenheit. Fahrenheit was backed
by some heavy hitters in the crypto space like
Michael Arrington and seemingly had ties to some
Coinbase alumni. Eventually, a complex restructuring
plan was approved by the court in late 2023.
And this plan birthed a new company. This is
kind of a unique solution to a crypto bankruptcy,
isn't it? It is, yeah. Instead of just liquidating
everything for pennies on the dollar, they created
a new entity called Ionic Digital. This is the
core of the resolution. The creditors, the former
customers of Celsius, effectively became the
new owners of a standalone Bitcoin mining company.
So the logic was, look, we can't pay you back
fully in cash or crypto right now because we
lost most of it. But we do own all this valuable
mining equipment. So here, have some equity in
a new mining operation. If the price of Bitcoin
goes up and if we can run this operation profitably,
maybe the stock becomes valuable one day and
you get made whole eventually. Correct. It's
a bit of a Hail Mary pass. Yeah. It was seen
as a better option than immediate liquidation
for next to nothing. So in January of 2024, they
began the actual distributions. Over $3 billion
in liquid crypto and fiat was returned to the
creditors. How much did people actually get back?
It varied, but it wasn't 100 % of what they lost.
Not even close. Most people got back something
in the range of 50 to 70 cents on the dollar
of their claims value at the time of the bankruptcy.
It was something, but it was still a devastating
loss. And the Celsius app. The tool that started
this whole mess was finally shut down for good
on February 29, 2024. A digital ghost town. But
we can't wrap this up without talking about the
justice aspect, the civil and criminal penalties
that came down. The Federal Trade Commission,
the FTC, stepped in with a massive civil settlement,
$4 .7 billion. But the real headline, the one
everyone was waiting for, was the criminal case
against Alex Mashinsky himself. He was arrested
and charged with fraud, conspiracy, and market
manipulation. And for a while, he fought it.
He maintained his innocence, claimed it was all
just a business failure. But the evidence against
him was just overwhelming. The internal chats,
the falsified records, the documented insider
selling. In December of 2024, he finally changed
his plea. He pleaded guilty to two counts of
fraud. He also agreed to forfeit $48 million.
And then came the sentence, May 2025. The final
judgment. 12 years in federal prison. It's a
very significant sentence. It sends a clear message
that you cannot simply play fast and loose with
billions of dollars of other people's money,
call it disruptive innovation, and then walk
away when the whole thing inevitably collapses.
It's such a stark contrast to the unbank yourself
days. The FTC also banned Celsius, the company,
from ever handling consumer assets again. Which
brings the entire irony full circle, doesn't
it? The company that set out to replace the banks
has been legally and permanently prohibited from
ever acting like one again. So as we close out
this deep dive, what is the big overriding lesson
here? What's the takeaway? For me, it's really
about the fundamental definitions of risk and
trust. Celsius sold people a fantasy. They told
them they could have the high, high rewards of
crypto with the safety and security of a traditional
bank. That combination does not exist. It has
never existed. If you are being offered a 17
% yield, you are taking on 17 % worth of risk.
There is no free lunch in finance. And there's
the critical issue of centralization. Precisely.
The whole point of crypto, the reason Bitcoin
was invented, was to remove the need for trusted
middleman. Bitcoin trustless. You don't need
to trust a CEO or a board of directors for the
Bitcoin network to work. Code is law. Celsius
was the complete opposite of that. It was a black
box. You had to trust Alex Mashinsky. You had
to trust their secret trading desk. You had to
trust their reckless rehypothecation strategies.
DeFi in name, CeFi in reality. Exactly. It was
CeFi centralized finance, but without any of
the protections, without regulation, without
FDIC insurance, without transparency. It's just
a casino where the house holds all the cards
and can change the rules at any time. It's a
very sobering lesson. You know, they always said
banks aren't your friends, and maybe they aren't.
Banks are businesses out to make a profit. But
at least when a bank fails, the government steps
in to protect depositors. When Celsius failed,
the only thing that was guaranteed was the silence.
And as we sit here, looking back from 2026, I
have to wonder if the industry has really learned
that lesson. Are users today actually demanding
proof of reserves and transparency from the platforms
they use? Or are we all just waiting for the
next charismatic leader to show up and promise
us 20 % yields? That is the question to end on,
isn't it? If someone offers you a return that
looks too good to be true, it almost certainly
is. Unbank yourself, but do it at your own risk.
Indeed. Because if you don't hold the private
keys, it's not your crypto. And if you don't
know where the yield is coming from, you are
the yield. You are the yield. That's a chilling
thought. Thanks for listening to The Deep Dive.
Stay skeptical, stay curious, and we'll see you
on the next one.