I want you to picture a specific image. It's
a photo from a crypto conference a few years
back. You have Alex Mashinsky, the CEO of Celsius
Network, standing on stage. Oh, I know the one.
He's wearing a black T -shirt and on that T -shirt
are two words in bold white text. Unbank yourself.
It is an iconic image in the industry. And, you
know, at the time, for a lot of people, that
wasn't just a marketing slogan. No, not at all.
It felt like a battle cry. It was this promise
that you could finally, finally opt out of what
felt like a rigged financial system, stop letting
Wall Street eat your lunch, and get paid what
your money was actually worth. And that right
there is the deep tragedy of the story we are
diving into today. Because for a brief shining
moment, Celsius Network wasn't just another fintech
company. It was, for all intents and purposes,
a movement. They promised safety. They promised
a community -first approach. And, I mean, most
importantly, they promised yields that made traditional
banks look like highway robbers. 17 % APY. That
was the number. That was the headline number
that got everyone through the door. Exactly.
17%. And so today, we are doing a forensic accounting
of how that incredible promise turned into a
$1 .2 billion hole in the ground. Yeah. We are
looking at the detailed history from the Wikipedia
archives, which is incredibly thorough, but we're
also pulling threads from the bankruptcy filings,
the independent examiner's report, and the DOJ
indictments. All the primary sources. All of
them, because we need to answer one specific
question. How did a company that literally claimed
to be safer than a bank end up wiping out the
life savings of 1 .7 million people? And the
answer isn't just, oh, crypto is volatile. That's
the easy answer. Right. That's a cop out. It
is. The real answer is about a very specific
business model that when you peel back the marketing
veneer, looks a lot less like a revolutionary
bang and a lot more like a classic Ponzi scheme.
Just, you know, wrapped in a very sophisticated
tech stack. So let's go back to the start. The
year is 2017. The crypto bull run is just starting
to heat up. Bitcoin is entering the mainstream
consciousness for really the first time. And
into this moment step Alex Mashinsky, Daniel
Leon and Newt Goldstein. Now Mashinsky is the
gravitational center here. He wasn't some anonymous
coder in a basement. No. And that is absolutely
crucial to the initial trust. Mashinsky was an
entrepreneur with a serious. or at least a seemingly
serious track record. He claimed to be one of
the inventors of voiceover IP, VoIP. The technology
that lets us make calls over the internet. The
very same. Yeah. He'd had successful exits from
companies before. So he had this aura of a technical
visionary who is now turning his sights on the
deep inefficiencies of traditional finance. And
the pitch was so seductive because it was so
simple. If I have money in a savings account
at, say, Chase or Wells Fargo, what are they
paying me? Maybe 0 .01%. If you are lucky, I
mean, back in 2017, interest rates were effectively
zero. You were basically paying the bank to hold
your money when you factored in inflation. Right.
And Mashinsky's argument was simple. The bank
takes my money. They lend it out at 5 % or 10
% for mortgages, for credit cards. They keep
all the profit and they give me the crumbs. Yeah.
Celsius said, give us your crypto. We'll lend
it out to institutions, to hedge funds. We'll
give you 80 % of the revenue. That 80 % figure?
was the cornerstone of their marketing. It was
brilliant, really. It created this immediate
moral distinction. The narrative was banks are
greedy. Celsius is altruistic. It's a community.
It's a community. They call their users Celsius.
It wasn't a customer base. It was a tribe. It
fostered this very powerful us versus them mentality
that works so, so well in the crypto space. And
the growth was just. It was absolute rocket fuel.
They do an initial coin offering, an ICO, in
March of 2018. They raised $50 million right
out of the gate. And that was just the seed money.
By the peak, which was around May of 2022, they
had $12 billion. That's billion with a B in assets
under management. $12 billion. They had lent
out $8 billion to clients. And crucially, in
late 2021, they raised $400 million in a Series
B funding round. And this wasn't just crypto
money anymore. This round was led by WestCap
and... CDPQ. And CDPQ is the caisse de dépôt
et placement de Québec. That is the second largest
pension fund in Canada. Exactly. A massive, conservative,
institutional player. That is a huge signal to
the retail market. I mean, if a pension fund,
arguably the most conservative, risk -averse
money on the entire planet, writes a check for
your company, you just assume the due diligence
has been done. Of course. You assume the adults
are in the room and they have looked at the books
and kicked the tires. And that assumption was...
Well, it was fatal for a lot of people. Because
underneath the hood, the engine was not running
smoothly at all. It was redlining. The due diligence,
as we all found out much, much later, missed
some absolutely glaring structural issues. OK,
let's talk about that engine. Because the public
pitch, we lend it to institutions, sounds safe.
It sounds like standard prime brokerage. But
how on earth do you generate 17 percent yield
in a zero interest rate world? Who is paying
that much to borrow Bitcoin? And that is the
multi -billion dollar question, isn't it? Yeah.
This is where we get into the weeds of CeFi or
centralized finance. Theoretically, the model
was this. Celsius takes your Bitcoin. They lend
it to, say, market makers or hedge funds who
need that inventory for arbitrage or for other
trading strategies. Okay. And these firms, they're
willing to pay a premium for that kind of liquidity.
Okay, but 17%. That seems incredibly high, even
for sophisticated hedge funds. It is extremely
high. Yeah. And that's where the math just completely
breaks down. The documents that were released
during the bankruptcy proceedings show very clearly
that Celsius couldn't actually find enough safe,
high -yield institutional borrowers to cover
the interest they owed their depositors. So they
have a liability, the 17 % interest they promised
me, but they don't have a corresponding asset,
like a borrower paying them 18 % or 19%. Exactly.
They were operating at a structural deficit from
very early on. So to fill that hole, They had
to get creative. And by creative, I mean they
started taking riskier and riskier bets with
customer money. What kind of bets? They started
engaging in what's colloquially known in the
industry as defy Deegan strategies. Deegan as
in? Degenerate gambler. Yes. That is the industry
turn of art. They were dumping customer funds
into extremely high risk, decentralized finance
protocols, just chasing yield wherever they could
find it, no matter how sketchy. They were effectively
acting like a reckless, unregulated hedge fund
using customer deposits as their personal bankroll.
They even got into Bitcoin mining, spending hundreds
and hundreds of millions on equipment, desperately
hoping the mining rewards would be enough to
pay the interest they owed. So they weren't just
a lender. They were a gambler. They were gambling
with customer deposits to pay the interest on
other customer deposits. Correct. And when even
that wasn't enough to fill the gap, they utilize
a mechanism that is really the smoking gun of
this entire collapse, the CEL token. OK, we need
to spend some real time on this because the CEL
token seems to be the core mechanism that allowed
the alleged fraud to scale. This wasn't just
a loyalty point, was it? It was central to their
entire balance sheet. It was the flywheel. It
was the engine of the whole thing. Here's how
it worked. Celsius created its own cryptocurrency,
CEL. They held a massive amount of it in their
treasury, billions of tokens. Then they went
to their users, the Celsius, and said, look,
if you choose to get paid your weekly rewards
in our CEL token instead of in Bitcoin or dollars,
we'll give you a higher interest rate, a bonus.
So they're creating artificial demand for their
own essentially printed money. Take our monopoly
money and we'll give you more of it. Right. But
it gets much, much darker than that. Celsius
itself was the primary buyer of the CEL token
in the open market. Wait, what do you mean? They
were taking user deposits, your Bitcoin, your
Ethereum, the hard assets with real value. And
they were using that real money to go on to exchanges
and buy up their own CEL tokens to prop up the
price. Hold on. So they are using my Bitcoin
deposit to pump the price of their coin? Yes.
The blockchain analytics firm Arkham Intelligence
estimated they spent about $350 million of customer
funds doing this. But why? What was the point?
Because as the price of CEL went up, the value
of the billions of CEL tokens sitting on their
own balance sheet went up. It was an accounting
trick. It made the company look incredibly solvent
and valuable on paper when in reality. It was
bleeding cash. It's accounting alchemy. You print
a token out of thin air. You use customer money
to pump the price. And then you point to your
balance sheet and tell investors, look, we're
worth billions of dollars. Precisely. It is a
perfectly circular economy. And it works beautifully
as long as new money from new depositors keeps
flowing in to support the price of the token.
But the moment that flow of new money stops or
the moment the broader market turns down. Gravity
kicks in hard. And the insiders, they must have
known this. This is the betrayal part that really
gets me. While Alex Mashinsky was on YouTube
every single week for his AMAs, ask Mashinsky
anything, telling people to HODL, you know, hold
on for dear life, saying that sellers are losers.
He was personally dumping the token. He was.
And not just a little. How much did he sell?
The on -chain analysis suggests Mashinsky personally
sold at least $44 million worth of CEL tokens.
There's a specific record of him selling half
a million dollars worth in a single transaction.
While telling his community, his sulsions, to
buy and hold, that's not just bad business practice.
That is straight -up market manipulation. The
Department of Justice eventually agreed with
that assessment. But before the law caught up
with him, the market mechanics themselves started
to grind the gears of the machine. And we really
need to talk about the Prime Trust incident because
this was the first real public crack in the facade
where an external reputable party stood up and
said, something is very wrong here. Prime Trust
was their custodian, right? The company that
was supposed to be actually holding the keys
to the crypto assets. Correct. And in the crypto
world, custody is everything. Prime Trust held
the assets to keep them safe from hackers, from
internal theft, from everything. But in June
of 2021, a full year before the final collapse,
Prime Trust fired Celsius as a client. A custodian
firing a client of that size? That's rare. They
love fees. It's a volume business. Why would
they walk away from that? Simple risk management.
Prime Trust's internal risk team looked at what
Celsius was actually doing with the assets, and
they saw what they called endless rehypothecation.
Okay, you have to explain that term. Rehypothecation.
It sounds super technical, but it seems critical
to understanding the insane leverage they were
using. It is. So, hypothecation is a simple concept.
It's just pledging an asset as collateral for
a loan. If you get a mortgage, your house is
hypothecated to the bank. They have a claim on
it if you don't pay. Okay, got it. Rehypothecation
is when the bank then takes that collateral,
your house. And pledges it again to get a loan
for themselves. So they're borrowing money against
the thing that I used to borrow money. Exactly.
And Celsius was doing this over and over and
over again. Prime Trust saw that Celsius was
leveraging the same customer assets multiple
times to juice their yields. Scott Purcell, the
founder of Prime Trust, he went on the record
later and said that this model was, quote, destined
for failure because. Any sharp drop in the market
would trigger a cascade of margin calls and liquidations
that they could never possibly survive. They
were building a skyscraper out of leverage and
the foundation was just sand. And the regulators
started to smell it too. By late 2021, States
like New Jersey, Texas, Kentucky, Alabama, Washington,
they all started circling. They started issuing
cease and desist orders. And what was their argument?
They argued that these earn counts, they weren't
savings accounts at all. They were actually unregistered
securities. And that is a crucial legal distinction.
If I put money in a bank, the bank has strict
capital requirements, they have reserve rules,
and I have FDIC insurance. Right. If I buy a
security, a stock, there's risk involved, but
there's also legally required disclosure. I have
to be given a prospectus that details all the
risks. Exactly. If it's a security, you have
to tell the investor, here is exactly how we
are making the money, and here are all the ways
you could lose everything. Celsius was operating
in this dangerous gray zone where they took on
the risk profile of a hedge fund, but marketed
themselves with the safety and simplicity of
a bank. So how did Mashinsky respond to the state
regulators? Did he try to comply to register?
No, he brushed them off with his usual bravado
and confidence. He spun it as the old system
is scared of us. He played the victim card. He
told his community that the banks were coming
after them because they were a threat. He went
on record saying he was very confident their
products weren't securities. All while these
cease and desist orders were piling up. Correct.
But internally, the rot was really starting to
spread. There's a now infamous internal message
from a Celsius employee, a coin deployment specialist
named Dean Tappan. Oh, I've read about this.
This is the consultant memo. The very one. In
a corporate Slack channel, Tappan joked that
his official job title should be Ponzi consultant.
You have to be. Just incredibly cynical or incredibly
oblivious to write that down in a corporate chat
that can be subpoenaed. Or maybe you're just
seeing the reality of the business model and
you're using dark humor to cope with it. But
it wasn't just jokes. There was a lawsuit filed
by a former investment manager, a man named Jason
Stone, in July of 2022. Stone ran a company called
KeyFi, which at one point managed hundreds of
millions of dollars for Celsius. He explicitly
alleged in his lawsuit that Celsius was running
a Ponzi scheme. And Stone would know, right?
I mean, he was one of the people managing the
money. He was one of the guys. deploying those
Dijon strategies we talked about earlier. His
claim was that Celsius had no legitimate way
to generate the yields they were promising their
customers. So they were just using new depositor
money to pay the interest owed to the old depositors.
Which is, I mean, that's the literal textbook
definition of a Ponzi. It is. Now, for the record,
Celsius countersued. They claimed Stone lost
or stole millions. But the independent examiner's
report that came out later in the bankruptcy
proceedings, it backed up the general sentiment.
It cited another insider who described the business
model as, quote, very Ponzi -like. Very Ponzi
-like. That is not a phrase you ever want to
see on your corporate tombstone. No. And as 2022
rolled on, the macro environment turned viciously
against them. The Terraluna ecosystem collapsed
in May of 2022. That single event wiped out about
$60 billion in value from the crypto market in
a matter of days. And Celsius had significant
exposure to that crash, didn't they? Despite
publicly saying they didn't. They had massive
exposure. They lost heavily in the lunar crash.
But publicly, they denied it completely. And
this denial, this campaign of deception. Leads
us right into the final frantic days, the run
on the bank. So after Luna, everyone in the crypto
space got nervous. The rumors started swirling
on Twitter and Reddit that Celsius was next,
that they were insolvent. So people started trying
to withdraw their money. It was a classic 1929
style bank run, but it happened at the speed
of the Internet. You didn't have to stand in
a line outside a physical building. You just
had to open an app on your phone and click withdraw.
And how did Mashinsky handle this incredible
pressure? Did he finally come clean and admit
they had a liquidity problem? He did the exact
opposite. He doubled down on the deception. And
this is where the criminal fraud charges from
the DOJ really start to stick. On June 7th, they
published a blog post with the title, Damn the
Torpedoes, Full Speed Ahead. Wow. Subtle. In
this post, they deny any significant losses from
Luna. They call the rumors FUD, fear, uncertainty
and doubt. They accuse vocal actors of being
paid by competitors to try and bring them down.
And then came the final AMA, June 10th, 2022,
just three days before the end. Mashinsky goes
live on YouTube. He looks straight into the camera.
He says, and I'm quoting here, Celsius has billions
in liquidity. He said we provide immediate access
to everybody. He even challenged skeptics online
to find a single person who had trouble withdrawing
their funds. Three days later. Three days later.
June 13th. The email goes out to all 1 .7 million
users. Due to extreme market conditions, today
we are pausing all withdrawals, swap, and transfers
between accounts. The doors were locked. I want
to pause on the human element of that moment
because pausing withdrawal sounds so technical,
so clinical. But for the user, it means you wake
up in the morning, you check your phone, you
see your balance. Maybe it's $50 ,000. Maybe
it's your entire retirement. Maybe it's the down
payment for a house. And it's frozen. Yeah. It's
just pixels on a screen. You can see the number,
but you can't touch it. It's gone. It's absolutely
terrifying. And unlike a traditional bank, there
is no FDIC. There is no government bailout coming
to save you. You are completely and utterly on
your own. And the broader markets reacted violently
to the news. Oh, it was a bloodbath. Bitcoin
dropped 12 percent almost immediately. Ethereum
dropped 14 percent. The contagion fear was immense.
Yeah. And the CEL token itself just fell off
a cliff. Yeah. It crashed from around $7 a year
prior all the way down to 21 cent cents. And
there was that absurd detail, too. The energy
drink company. Yes. In the panic, shares of Celsius
Holdings. The beverage company, which is totally
unrelated, dropped 10 % because confused algorithms
and panic sellers just sold anything with the
word Celsius in its name. That is just a perfect
metaphor for the pure chaos of that moment. The
collapse that followed was swift and brutal.
Exactly one month later, on July 13th, they officially
filed for Chapter 11 bankruptcy. And when the
filing was made public, the balance sheet was
a horror show. They had a staggering $1 .2 billion
deficit. A black hole. How much actual cash did
they have on hand at that point? They owed their
users $4 .7 billion. According to the filing,
they had roughly $167 million in cash on hand.
So they were. They weren't just illiquid. They
were deeply, mathematically, hopelessly insolvent.
Completely. And this brings us to what might
be the most painful legal lesson of this entire
saga for the users. It all came down to the terms
of use. The fine print that nobody ever reads?
The fine print that cost people everything they
had. In the bankruptcy hearings, the judge had
to decide a very specific, crucial question.
Whose crypto is it? Is it the user's property,
just being stored by Celsius like a valet parks
your car? Or did it become Celsius's property
the moment you deposited it? Logic would say
it's my property. It literally says my wallet
in the app. But the law said otherwise. The judge
ruled that when users deposited into the Earn
program, they legally transfer title, that is,
ownership of their coins, to Celsius. So what
is my Bitcoin anymore? By depositing it, I gave
it to them. I was essentially giving them an
unsecured loan. You were. You became an unsecured
creditor. And in bankruptcy, there's a strict
hierarchy. There's a waterfall of payments. Secured
creditors... Big institutions who have collateral
backing their loans, they get paid first. The
lawyers and administrators and consultants, they
get paid next. And let me tell you, the lawyers
ate very, very well in this bankruptcy. We bet
they did. The unsecured creditors, the customers,
the selfians, you are dead last in line. You
get whatever crumbs are left over after everyone
else has been paid. And the indignity for these
people didn't stop there. Because it was a public
bankruptcy, the court records had to be made
public. Right. Transparency is a cornerstone
of the bankruptcy process. But in this case,
it meant publishing a list of every single customer
by name and their exact account balance at the
time of the freeze. A searchable database went
online. So suddenly your personal financial disaster
is public knowledge. Your neighbors can see how
much you lost. Your family can see. Someone even
created a website called Celsius Net Worth where
you could just type in a name. It revealed the
sheer scale of the losses. The top three individual
losers on that list lost $40 .5 million, $38
.2 million, and $26 .4 million, respectively.
Imagine losing $40 million because you trusted
a t -shirt slogan, unbank yourself. But it wasn't
just the crypto whales, right? The damage went
much deeper. No, not at all. Molly White, a researcher
who does incredible work tracking crypto disasters,
she documented the letters that users sent to
the bankruptcy judge. And they are just heartbreaking
to read. There was one letter that included ultrasound
picture. A parent begging for their money back.
to feed their coming child. Oh, that's brutal.
People lost college funds. They lost their life
savings. They lost retirement accounts they had
been building for decades. It just heartbreakingly
dismantles the lazy narrative that this was just
play money for rich crypto pros. This was real
people trusting a predator. It was. So where
does the story end? The company is effectively
dead. The users have lost billions. What happened
to the architects of this disaster? Justice is
slow, but it did eventually arrive. In July of
2023, the FTC, the Federal Trade Commission,
banned Celsius from ever handling consumer assets
again. But the Department of Justice went after
Mashinsky personally. He was arrested and charged
with multiple counts of fraud, conspiracy, and
market manipulation. And despite all the bluster,
despite the endless interviews where he claimed
he was the victim and did nothing wrong. He folded.
The evidence from their own internal chats from
the blockchain, it was overwhelming. He pleaded
guilty in December of 2024 to two counts of fraud.
He admitted in court to artificially inflating
the price of the CEL token for his own benefit.
And what was his sentence? In May of 2025, he
was sentenced to 12 years in federal prison.
He also agreed to forfeit $48 million. 12 years.
It's significant. But it doesn't do much to fill
that billion dollar hole in the balance sheet.
Not at all. The users didn't get made whole.
They didn't get their money back. They got a
restructuring. And this is maybe the weirdest,
most surreal part of the entire ending. Go on.
Celsius exited bankruptcy in early 2024. But
instead of just getting a portion of their money
back in cash or crypto, the creditors became
involuntary shareholders in a brand new company
called Ionic Digital. Which is, don't tell me.
A Bitcoin mining company. It is a Bitcoin mining
company. Yes. They took the leftover assets,
which were mostly just the mining rigs they'd
bought in a panic, and they rolled them into
a new entity that's managed by another company,
Hut8. So if you lost your life savings in what
you thought was a safe yield app, congratulations,
you are now an involuntary venture capitalist
in an industrial Bitcoin mining operation. That
is just a darkly ironic twist. You wanted a savings
account. And you ended up owning a piece of a
server farm in Texas. It really, really redefines
the slogan, unbank yourself. You unbanked yourself
straight into becoming a part owner of a mining
operation. And the Celsius app itself, the platform,
is it still around? Gone. On February 29, 2024,
the app and the website were officially shut
down. The screen went black for good. So let's
unpack the lessons here. When we step back from
all this wreckage, what is the core takeaway?
Is it just that crypto is bad and you should
stay away? Or is there something more specific,
more nuanced to learn here? I think it's about
the fundamental danger of the black box. You
know, cryptocurrency was invented to be transparent.
The code is law. Everything is visible and verifiable
on the blockchain. Celsius took that transparent
technology and put it right back into an opaque,
centralized black box. You couldn't see the reserves.
You couldn't see the risky loans. You just had
to trust Alex. And trust me, bro, it's not a
viable financial strategy. It really validates
the oldest and most important saying in the entire
crypto space. Not your keys, not your coins.
This whole saga moves that phrase from being
a catchy slogan for hardcore techies to a hard
law of financial physics. If you do not personally
hold the private keys to your crypto wallet,
you do not own that money. You used to own an
IOU from a company that might be, in its case
was, hopelessly insolvent. And there's also the
fundamental lesson on yield. We have to be realistic.
Risk and reward are two sides of the same coin.
You cannot have a 17 % reward with zero risk.
It does not exist in the known universe. If you
don't know where the yield is coming from, the
hard truth is that you are the yield. Your deposit
is the liquidity that someone else is using to
gamble. That is a chilling thought to end on.
We started with a T -shirt and we ended with
a prison sentence. It's a classic tragic story
of hubris, of greed, and of the devastating human
cost of believing in something that is, was,
and always will be too good to be true. Stay
skeptical out there. Really. That's it for this
deep dive into the rise and catastrophic fall
of Celsius. Hopefully your keys are safely in
your pocket. We'll catch you on the next one.