WEBVTT 00:00:00.000 --> 00:00:03.100 I want you to picture a specific image. It's 00:00:03.100 --> 00:00:05.200 a photo from a crypto conference a few years 00:00:05.200 --> 00:00:08.880 back. You have Alex Mashinsky, the CEO of Celsius 00:00:08.880 --> 00:00:11.660 Network, standing on stage. Oh, I know the one. 00:00:11.779 --> 00:00:14.500 He's wearing a black T -shirt and on that T -shirt 00:00:14.500 --> 00:00:18.280 are two words in bold white text. Unbank yourself. 00:00:19.039 --> 00:00:22.059 It is an iconic image in the industry. And, you 00:00:22.059 --> 00:00:23.699 know, at the time, for a lot of people, that 00:00:23.699 --> 00:00:25.780 wasn't just a marketing slogan. No, not at all. 00:00:25.800 --> 00:00:27.780 It felt like a battle cry. It was this promise 00:00:27.780 --> 00:00:30.420 that you could finally, finally opt out of what 00:00:30.420 --> 00:00:33.060 felt like a rigged financial system, stop letting 00:00:33.060 --> 00:00:35.340 Wall Street eat your lunch, and get paid what 00:00:35.340 --> 00:00:38.420 your money was actually worth. And that right 00:00:38.420 --> 00:00:40.899 there is the deep tragedy of the story we are 00:00:40.899 --> 00:00:43.240 diving into today. Because for a brief shining 00:00:43.240 --> 00:00:46.280 moment, Celsius Network wasn't just another fintech 00:00:46.280 --> 00:00:48.399 company. It was, for all intents and purposes, 00:00:48.600 --> 00:00:51.359 a movement. They promised safety. They promised 00:00:51.359 --> 00:00:54.380 a community -first approach. And, I mean, most 00:00:54.380 --> 00:00:56.780 importantly, they promised yields that made traditional 00:00:56.780 --> 00:01:01.200 banks look like highway robbers. 17 % APY. That 00:01:01.200 --> 00:01:02.859 was the number. That was the headline number 00:01:02.859 --> 00:01:04.700 that got everyone through the door. Exactly. 00:01:05.099 --> 00:01:09.409 17%. And so today, we are doing a forensic accounting 00:01:09.409 --> 00:01:12.709 of how that incredible promise turned into a 00:01:12.709 --> 00:01:16.530 $1 .2 billion hole in the ground. Yeah. We are 00:01:16.530 --> 00:01:18.329 looking at the detailed history from the Wikipedia 00:01:18.329 --> 00:01:21.209 archives, which is incredibly thorough, but we're 00:01:21.209 --> 00:01:24.390 also pulling threads from the bankruptcy filings, 00:01:24.390 --> 00:01:28.129 the independent examiner's report, and the DOJ 00:01:28.129 --> 00:01:30.189 indictments. All the primary sources. All of 00:01:30.189 --> 00:01:31.730 them, because we need to answer one specific 00:01:31.730 --> 00:01:35.010 question. How did a company that literally claimed 00:01:35.010 --> 00:01:37.629 to be safer than a bank end up wiping out the 00:01:37.629 --> 00:01:40.549 life savings of 1 .7 million people? And the 00:01:40.549 --> 00:01:43.269 answer isn't just, oh, crypto is volatile. That's 00:01:43.269 --> 00:01:45.569 the easy answer. Right. That's a cop out. It 00:01:45.569 --> 00:01:47.870 is. The real answer is about a very specific 00:01:47.870 --> 00:01:50.590 business model that when you peel back the marketing 00:01:50.590 --> 00:01:53.069 veneer, looks a lot less like a revolutionary 00:01:53.069 --> 00:01:55.950 bang and a lot more like a classic Ponzi scheme. 00:01:56.310 --> 00:01:58.750 Just, you know, wrapped in a very sophisticated 00:01:58.750 --> 00:02:01.450 tech stack. So let's go back to the start. The 00:02:01.450 --> 00:02:04.049 year is 2017. The crypto bull run is just starting 00:02:04.049 --> 00:02:05.969 to heat up. Bitcoin is entering the mainstream 00:02:05.969 --> 00:02:08.789 consciousness for really the first time. And 00:02:08.789 --> 00:02:12.229 into this moment step Alex Mashinsky, Daniel 00:02:12.229 --> 00:02:15.710 Leon and Newt Goldstein. Now Mashinsky is the 00:02:15.710 --> 00:02:17.930 gravitational center here. He wasn't some anonymous 00:02:17.930 --> 00:02:20.590 coder in a basement. No. And that is absolutely 00:02:20.590 --> 00:02:23.710 crucial to the initial trust. Mashinsky was an 00:02:23.710 --> 00:02:26.400 entrepreneur with a serious. or at least a seemingly 00:02:26.400 --> 00:02:29.379 serious track record. He claimed to be one of 00:02:29.379 --> 00:02:32.300 the inventors of voiceover IP, VoIP. The technology 00:02:32.300 --> 00:02:34.439 that lets us make calls over the internet. The 00:02:34.439 --> 00:02:36.979 very same. Yeah. He'd had successful exits from 00:02:36.979 --> 00:02:39.840 companies before. So he had this aura of a technical 00:02:39.840 --> 00:02:42.759 visionary who is now turning his sights on the 00:02:42.759 --> 00:02:45.900 deep inefficiencies of traditional finance. And 00:02:45.900 --> 00:02:47.360 the pitch was so seductive because it was so 00:02:47.360 --> 00:02:49.500 simple. If I have money in a savings account 00:02:49.500 --> 00:02:52.360 at, say, Chase or Wells Fargo, what are they 00:02:52.360 --> 00:02:55.330 paying me? Maybe 0 .01%. If you are lucky, I 00:02:55.330 --> 00:02:57.729 mean, back in 2017, interest rates were effectively 00:02:57.729 --> 00:03:00.289 zero. You were basically paying the bank to hold 00:03:00.289 --> 00:03:02.610 your money when you factored in inflation. Right. 00:03:02.710 --> 00:03:04.789 And Mashinsky's argument was simple. The bank 00:03:04.789 --> 00:03:07.530 takes my money. They lend it out at 5 % or 10 00:03:07.530 --> 00:03:09.710 % for mortgages, for credit cards. They keep 00:03:09.710 --> 00:03:11.710 all the profit and they give me the crumbs. Yeah. 00:03:11.930 --> 00:03:14.710 Celsius said, give us your crypto. We'll lend 00:03:14.710 --> 00:03:17.430 it out to institutions, to hedge funds. We'll 00:03:17.430 --> 00:03:20.830 give you 80 % of the revenue. That 80 % figure? 00:03:21.400 --> 00:03:23.560 was the cornerstone of their marketing. It was 00:03:23.560 --> 00:03:26.020 brilliant, really. It created this immediate 00:03:26.020 --> 00:03:29.000 moral distinction. The narrative was banks are 00:03:29.000 --> 00:03:32.000 greedy. Celsius is altruistic. It's a community. 00:03:32.240 --> 00:03:34.740 It's a community. They call their users Celsius. 00:03:35.099 --> 00:03:38.259 It wasn't a customer base. It was a tribe. It 00:03:38.259 --> 00:03:40.960 fostered this very powerful us versus them mentality 00:03:40.960 --> 00:03:43.979 that works so, so well in the crypto space. And 00:03:43.979 --> 00:03:47.030 the growth was just. It was absolute rocket fuel. 00:03:47.090 --> 00:03:49.449 They do an initial coin offering, an ICO, in 00:03:49.449 --> 00:03:52.129 March of 2018. They raised $50 million right 00:03:52.129 --> 00:03:53.830 out of the gate. And that was just the seed money. 00:03:53.969 --> 00:03:57.409 By the peak, which was around May of 2022, they 00:03:57.409 --> 00:04:01.490 had $12 billion. That's billion with a B in assets 00:04:01.490 --> 00:04:03.610 under management. $12 billion. They had lent 00:04:03.610 --> 00:04:06.310 out $8 billion to clients. And crucially, in 00:04:06.310 --> 00:04:09.030 late 2021, they raised $400 million in a Series 00:04:09.030 --> 00:04:11.189 B funding round. And this wasn't just crypto 00:04:11.189 --> 00:04:13.169 money anymore. This round was led by WestCap 00:04:13.169 --> 00:04:17.079 and... CDPQ. And CDPQ is the caisse de dépôt 00:04:17.079 --> 00:04:19.139 et placement de Québec. That is the second largest 00:04:19.139 --> 00:04:22.779 pension fund in Canada. Exactly. A massive, conservative, 00:04:23.160 --> 00:04:27.060 institutional player. That is a huge signal to 00:04:27.060 --> 00:04:28.899 the retail market. I mean, if a pension fund, 00:04:29.079 --> 00:04:31.540 arguably the most conservative, risk -averse 00:04:31.540 --> 00:04:33.879 money on the entire planet, writes a check for 00:04:33.879 --> 00:04:36.620 your company, you just assume the due diligence 00:04:36.620 --> 00:04:38.819 has been done. Of course. You assume the adults 00:04:38.819 --> 00:04:40.620 are in the room and they have looked at the books 00:04:40.620 --> 00:04:43.220 and kicked the tires. And that assumption was... 00:04:44.050 --> 00:04:46.870 Well, it was fatal for a lot of people. Because 00:04:46.870 --> 00:04:48.949 underneath the hood, the engine was not running 00:04:48.949 --> 00:04:52.079 smoothly at all. It was redlining. The due diligence, 00:04:52.279 --> 00:04:54.620 as we all found out much, much later, missed 00:04:54.620 --> 00:04:57.180 some absolutely glaring structural issues. OK, 00:04:57.240 --> 00:04:59.339 let's talk about that engine. Because the public 00:04:59.339 --> 00:05:02.120 pitch, we lend it to institutions, sounds safe. 00:05:02.259 --> 00:05:04.579 It sounds like standard prime brokerage. But 00:05:04.579 --> 00:05:07.259 how on earth do you generate 17 percent yield 00:05:07.259 --> 00:05:10.199 in a zero interest rate world? Who is paying 00:05:10.199 --> 00:05:13.399 that much to borrow Bitcoin? And that is the 00:05:13.399 --> 00:05:15.259 multi -billion dollar question, isn't it? Yeah. 00:05:15.319 --> 00:05:17.579 This is where we get into the weeds of CeFi or 00:05:17.579 --> 00:05:20.649 centralized finance. Theoretically, the model 00:05:20.649 --> 00:05:24.790 was this. Celsius takes your Bitcoin. They lend 00:05:24.790 --> 00:05:28.970 it to, say, market makers or hedge funds who 00:05:28.970 --> 00:05:31.649 need that inventory for arbitrage or for other 00:05:31.649 --> 00:05:34.430 trading strategies. Okay. And these firms, they're 00:05:34.430 --> 00:05:36.569 willing to pay a premium for that kind of liquidity. 00:05:36.949 --> 00:05:41.540 Okay, but 17%. That seems incredibly high, even 00:05:41.540 --> 00:05:43.740 for sophisticated hedge funds. It is extremely 00:05:43.740 --> 00:05:46.040 high. Yeah. And that's where the math just completely 00:05:46.040 --> 00:05:48.259 breaks down. The documents that were released 00:05:48.259 --> 00:05:50.379 during the bankruptcy proceedings show very clearly 00:05:50.379 --> 00:05:52.319 that Celsius couldn't actually find enough safe, 00:05:52.319 --> 00:05:55.019 high -yield institutional borrowers to cover 00:05:55.019 --> 00:05:57.079 the interest they owed their depositors. So they 00:05:57.079 --> 00:05:59.360 have a liability, the 17 % interest they promised 00:05:59.360 --> 00:06:01.899 me, but they don't have a corresponding asset, 00:06:02.000 --> 00:06:05.100 like a borrower paying them 18 % or 19%. Exactly. 00:06:05.100 --> 00:06:07.079 They were operating at a structural deficit from 00:06:07.079 --> 00:06:09.420 very early on. So to fill that hole, They had 00:06:09.420 --> 00:06:11.180 to get creative. And by creative, I mean they 00:06:11.180 --> 00:06:13.399 started taking riskier and riskier bets with 00:06:13.399 --> 00:06:15.560 customer money. What kind of bets? They started 00:06:15.560 --> 00:06:17.939 engaging in what's colloquially known in the 00:06:17.939 --> 00:06:22.560 industry as defy Deegan strategies. Deegan as 00:06:22.560 --> 00:06:26.050 in? Degenerate gambler. Yes. That is the industry 00:06:26.050 --> 00:06:28.589 turn of art. They were dumping customer funds 00:06:28.589 --> 00:06:31.610 into extremely high risk, decentralized finance 00:06:31.610 --> 00:06:34.470 protocols, just chasing yield wherever they could 00:06:34.470 --> 00:06:37.069 find it, no matter how sketchy. They were effectively 00:06:37.069 --> 00:06:40.050 acting like a reckless, unregulated hedge fund 00:06:40.050 --> 00:06:42.850 using customer deposits as their personal bankroll. 00:06:43.769 --> 00:06:46.610 They even got into Bitcoin mining, spending hundreds 00:06:46.610 --> 00:06:49.110 and hundreds of millions on equipment, desperately 00:06:49.110 --> 00:06:51.189 hoping the mining rewards would be enough to 00:06:51.189 --> 00:06:52.990 pay the interest they owed. So they weren't just 00:06:52.990 --> 00:06:54.990 a lender. They were a gambler. They were gambling 00:06:54.990 --> 00:06:57.350 with customer deposits to pay the interest on 00:06:57.350 --> 00:06:59.810 other customer deposits. Correct. And when even 00:06:59.810 --> 00:07:01.990 that wasn't enough to fill the gap, they utilize 00:07:01.990 --> 00:07:04.870 a mechanism that is really the smoking gun of 00:07:04.870 --> 00:07:08.180 this entire collapse, the CEL token. OK, we need 00:07:08.180 --> 00:07:10.420 to spend some real time on this because the CEL 00:07:10.420 --> 00:07:13.019 token seems to be the core mechanism that allowed 00:07:13.019 --> 00:07:16.180 the alleged fraud to scale. This wasn't just 00:07:16.180 --> 00:07:18.480 a loyalty point, was it? It was central to their 00:07:18.480 --> 00:07:21.240 entire balance sheet. It was the flywheel. It 00:07:21.240 --> 00:07:23.360 was the engine of the whole thing. Here's how 00:07:23.360 --> 00:07:26.980 it worked. Celsius created its own cryptocurrency, 00:07:27.420 --> 00:07:30.560 CEL. They held a massive amount of it in their 00:07:30.560 --> 00:07:33.920 treasury, billions of tokens. Then they went 00:07:33.920 --> 00:07:36.220 to their users, the Celsius, and said, look, 00:07:36.379 --> 00:07:39.279 if you choose to get paid your weekly rewards 00:07:39.279 --> 00:07:42.600 in our CEL token instead of in Bitcoin or dollars, 00:07:42.819 --> 00:07:45.540 we'll give you a higher interest rate, a bonus. 00:07:45.800 --> 00:07:48.180 So they're creating artificial demand for their 00:07:48.180 --> 00:07:51.339 own essentially printed money. Take our monopoly 00:07:51.339 --> 00:07:53.639 money and we'll give you more of it. Right. But 00:07:53.639 --> 00:07:56.120 it gets much, much darker than that. Celsius 00:07:56.120 --> 00:07:58.879 itself was the primary buyer of the CEL token 00:07:58.879 --> 00:08:01.199 in the open market. Wait, what do you mean? They 00:08:01.199 --> 00:08:03.259 were taking user deposits, your Bitcoin, your 00:08:03.259 --> 00:08:06.319 Ethereum, the hard assets with real value. And 00:08:06.319 --> 00:08:08.360 they were using that real money to go on to exchanges 00:08:08.360 --> 00:08:10.920 and buy up their own CEL tokens to prop up the 00:08:10.920 --> 00:08:13.339 price. Hold on. So they are using my Bitcoin 00:08:13.339 --> 00:08:16.000 deposit to pump the price of their coin? Yes. 00:08:16.300 --> 00:08:18.699 The blockchain analytics firm Arkham Intelligence 00:08:18.699 --> 00:08:22.139 estimated they spent about $350 million of customer 00:08:22.139 --> 00:08:24.480 funds doing this. But why? What was the point? 00:08:24.920 --> 00:08:28.259 Because as the price of CEL went up, the value 00:08:28.259 --> 00:08:30.779 of the billions of CEL tokens sitting on their 00:08:30.779 --> 00:08:32.919 own balance sheet went up. It was an accounting 00:08:32.919 --> 00:08:35.320 trick. It made the company look incredibly solvent 00:08:35.320 --> 00:08:38.419 and valuable on paper when in reality. It was 00:08:38.419 --> 00:08:40.659 bleeding cash. It's accounting alchemy. You print 00:08:40.659 --> 00:08:44.039 a token out of thin air. You use customer money 00:08:44.039 --> 00:08:46.259 to pump the price. And then you point to your 00:08:46.259 --> 00:08:47.879 balance sheet and tell investors, look, we're 00:08:47.879 --> 00:08:50.159 worth billions of dollars. Precisely. It is a 00:08:50.159 --> 00:08:52.820 perfectly circular economy. And it works beautifully 00:08:52.820 --> 00:08:55.940 as long as new money from new depositors keeps 00:08:55.940 --> 00:08:58.100 flowing in to support the price of the token. 00:08:58.240 --> 00:09:01.220 But the moment that flow of new money stops or 00:09:01.220 --> 00:09:03.580 the moment the broader market turns down. Gravity 00:09:03.580 --> 00:09:06.399 kicks in hard. And the insiders, they must have 00:09:06.399 --> 00:09:08.600 known this. This is the betrayal part that really 00:09:08.600 --> 00:09:11.320 gets me. While Alex Mashinsky was on YouTube 00:09:11.320 --> 00:09:13.899 every single week for his AMAs, ask Mashinsky 00:09:13.899 --> 00:09:17.200 anything, telling people to HODL, you know, hold 00:09:17.200 --> 00:09:19.120 on for dear life, saying that sellers are losers. 00:09:19.519 --> 00:09:22.440 He was personally dumping the token. He was. 00:09:22.620 --> 00:09:24.759 And not just a little. How much did he sell? 00:09:24.899 --> 00:09:27.679 The on -chain analysis suggests Mashinsky personally 00:09:27.679 --> 00:09:30.960 sold at least $44 million worth of CEL tokens. 00:09:31.789 --> 00:09:34.210 There's a specific record of him selling half 00:09:34.210 --> 00:09:36.210 a million dollars worth in a single transaction. 00:09:36.549 --> 00:09:39.789 While telling his community, his sulsions, to 00:09:39.789 --> 00:09:42.389 buy and hold, that's not just bad business practice. 00:09:42.570 --> 00:09:45.610 That is straight -up market manipulation. The 00:09:45.610 --> 00:09:47.230 Department of Justice eventually agreed with 00:09:47.230 --> 00:09:49.730 that assessment. But before the law caught up 00:09:49.730 --> 00:09:52.210 with him, the market mechanics themselves started 00:09:52.210 --> 00:09:54.899 to grind the gears of the machine. And we really 00:09:54.899 --> 00:09:56.700 need to talk about the Prime Trust incident because 00:09:56.700 --> 00:09:59.759 this was the first real public crack in the facade 00:09:59.759 --> 00:10:02.960 where an external reputable party stood up and 00:10:02.960 --> 00:10:05.740 said, something is very wrong here. Prime Trust 00:10:05.740 --> 00:10:07.700 was their custodian, right? The company that 00:10:07.700 --> 00:10:09.320 was supposed to be actually holding the keys 00:10:09.320 --> 00:10:11.679 to the crypto assets. Correct. And in the crypto 00:10:11.679 --> 00:10:14.460 world, custody is everything. Prime Trust held 00:10:14.460 --> 00:10:16.919 the assets to keep them safe from hackers, from 00:10:16.919 --> 00:10:19.990 internal theft, from everything. But in June 00:10:19.990 --> 00:10:22.769 of 2021, a full year before the final collapse, 00:10:23.169 --> 00:10:26.289 Prime Trust fired Celsius as a client. A custodian 00:10:26.289 --> 00:10:30.049 firing a client of that size? That's rare. They 00:10:30.049 --> 00:10:32.370 love fees. It's a volume business. Why would 00:10:32.370 --> 00:10:33.929 they walk away from that? Simple risk management. 00:10:34.429 --> 00:10:37.230 Prime Trust's internal risk team looked at what 00:10:37.230 --> 00:10:39.929 Celsius was actually doing with the assets, and 00:10:39.929 --> 00:10:42.909 they saw what they called endless rehypothecation. 00:10:43.269 --> 00:10:46.210 Okay, you have to explain that term. Rehypothecation. 00:10:46.700 --> 00:10:49.340 It sounds super technical, but it seems critical 00:10:49.340 --> 00:10:51.759 to understanding the insane leverage they were 00:10:51.759 --> 00:10:54.700 using. It is. So, hypothecation is a simple concept. 00:10:54.740 --> 00:10:57.279 It's just pledging an asset as collateral for 00:10:57.279 --> 00:11:00.120 a loan. If you get a mortgage, your house is 00:11:00.120 --> 00:11:02.139 hypothecated to the bank. They have a claim on 00:11:02.139 --> 00:11:04.759 it if you don't pay. Okay, got it. Rehypothecation 00:11:04.759 --> 00:11:06.820 is when the bank then takes that collateral, 00:11:06.960 --> 00:11:09.899 your house. And pledges it again to get a loan 00:11:09.899 --> 00:11:12.039 for themselves. So they're borrowing money against 00:11:12.039 --> 00:11:13.899 the thing that I used to borrow money. Exactly. 00:11:14.000 --> 00:11:16.500 And Celsius was doing this over and over and 00:11:16.500 --> 00:11:18.620 over again. Prime Trust saw that Celsius was 00:11:18.620 --> 00:11:21.059 leveraging the same customer assets multiple 00:11:21.059 --> 00:11:24.740 times to juice their yields. Scott Purcell, the 00:11:24.740 --> 00:11:26.899 founder of Prime Trust, he went on the record 00:11:26.899 --> 00:11:29.799 later and said that this model was, quote, destined 00:11:29.799 --> 00:11:33.159 for failure because. Any sharp drop in the market 00:11:33.159 --> 00:11:37.440 would trigger a cascade of margin calls and liquidations 00:11:37.440 --> 00:11:39.820 that they could never possibly survive. They 00:11:39.820 --> 00:11:42.240 were building a skyscraper out of leverage and 00:11:42.240 --> 00:11:44.659 the foundation was just sand. And the regulators 00:11:44.659 --> 00:11:48.220 started to smell it too. By late 2021, States 00:11:48.220 --> 00:11:51.740 like New Jersey, Texas, Kentucky, Alabama, Washington, 00:11:52.039 --> 00:11:54.820 they all started circling. They started issuing 00:11:54.820 --> 00:11:57.259 cease and desist orders. And what was their argument? 00:11:57.639 --> 00:11:59.899 They argued that these earn counts, they weren't 00:11:59.899 --> 00:12:02.220 savings accounts at all. They were actually unregistered 00:12:02.220 --> 00:12:05.000 securities. And that is a crucial legal distinction. 00:12:05.460 --> 00:12:08.220 If I put money in a bank, the bank has strict 00:12:08.220 --> 00:12:10.279 capital requirements, they have reserve rules, 00:12:10.480 --> 00:12:13.539 and I have FDIC insurance. Right. If I buy a 00:12:13.539 --> 00:12:16.179 security, a stock, there's risk involved, but 00:12:16.179 --> 00:12:19.539 there's also legally required disclosure. I have 00:12:19.539 --> 00:12:22.059 to be given a prospectus that details all the 00:12:22.059 --> 00:12:25.100 risks. Exactly. If it's a security, you have 00:12:25.100 --> 00:12:27.679 to tell the investor, here is exactly how we 00:12:27.679 --> 00:12:29.720 are making the money, and here are all the ways 00:12:29.720 --> 00:12:32.720 you could lose everything. Celsius was operating 00:12:32.720 --> 00:12:35.620 in this dangerous gray zone where they took on 00:12:35.620 --> 00:12:38.279 the risk profile of a hedge fund, but marketed 00:12:38.279 --> 00:12:40.399 themselves with the safety and simplicity of 00:12:40.399 --> 00:12:43.190 a bank. So how did Mashinsky respond to the state 00:12:43.190 --> 00:12:45.970 regulators? Did he try to comply to register? 00:12:46.289 --> 00:12:49.250 No, he brushed them off with his usual bravado 00:12:49.250 --> 00:12:52.330 and confidence. He spun it as the old system 00:12:52.330 --> 00:12:55.809 is scared of us. He played the victim card. He 00:12:55.809 --> 00:12:57.529 told his community that the banks were coming 00:12:57.529 --> 00:13:00.129 after them because they were a threat. He went 00:13:00.129 --> 00:13:02.330 on record saying he was very confident their 00:13:02.330 --> 00:13:04.490 products weren't securities. All while these 00:13:04.490 --> 00:13:07.179 cease and desist orders were piling up. Correct. 00:13:07.299 --> 00:13:09.840 But internally, the rot was really starting to 00:13:09.840 --> 00:13:13.039 spread. There's a now infamous internal message 00:13:13.039 --> 00:13:15.840 from a Celsius employee, a coin deployment specialist 00:13:15.840 --> 00:13:18.019 named Dean Tappan. Oh, I've read about this. 00:13:18.039 --> 00:13:20.720 This is the consultant memo. The very one. In 00:13:20.720 --> 00:13:22.820 a corporate Slack channel, Tappan joked that 00:13:22.820 --> 00:13:25.039 his official job title should be Ponzi consultant. 00:13:25.419 --> 00:13:28.950 You have to be. Just incredibly cynical or incredibly 00:13:28.950 --> 00:13:31.389 oblivious to write that down in a corporate chat 00:13:31.389 --> 00:13:33.250 that can be subpoenaed. Or maybe you're just 00:13:33.250 --> 00:13:35.129 seeing the reality of the business model and 00:13:35.129 --> 00:13:37.690 you're using dark humor to cope with it. But 00:13:37.690 --> 00:13:40.070 it wasn't just jokes. There was a lawsuit filed 00:13:40.070 --> 00:13:42.629 by a former investment manager, a man named Jason 00:13:42.629 --> 00:13:47.600 Stone, in July of 2022. Stone ran a company called 00:13:47.600 --> 00:13:50.559 KeyFi, which at one point managed hundreds of 00:13:50.559 --> 00:13:53.159 millions of dollars for Celsius. He explicitly 00:13:53.159 --> 00:13:56.120 alleged in his lawsuit that Celsius was running 00:13:56.120 --> 00:13:58.559 a Ponzi scheme. And Stone would know, right? 00:13:58.639 --> 00:14:00.399 I mean, he was one of the people managing the 00:14:00.399 --> 00:14:03.240 money. He was one of the guys. deploying those 00:14:03.240 --> 00:14:05.720 Dijon strategies we talked about earlier. His 00:14:05.720 --> 00:14:08.159 claim was that Celsius had no legitimate way 00:14:08.159 --> 00:14:10.299 to generate the yields they were promising their 00:14:10.299 --> 00:14:12.820 customers. So they were just using new depositor 00:14:12.820 --> 00:14:15.799 money to pay the interest owed to the old depositors. 00:14:15.860 --> 00:14:17.700 Which is, I mean, that's the literal textbook 00:14:17.700 --> 00:14:20.799 definition of a Ponzi. It is. Now, for the record, 00:14:20.940 --> 00:14:23.620 Celsius countersued. They claimed Stone lost 00:14:23.620 --> 00:14:26.679 or stole millions. But the independent examiner's 00:14:26.679 --> 00:14:28.220 report that came out later in the bankruptcy 00:14:28.220 --> 00:14:30.559 proceedings, it backed up the general sentiment. 00:14:31.200 --> 00:14:33.720 It cited another insider who described the business 00:14:33.720 --> 00:14:37.720 model as, quote, very Ponzi -like. Very Ponzi 00:14:37.720 --> 00:14:39.620 -like. That is not a phrase you ever want to 00:14:39.620 --> 00:14:42.759 see on your corporate tombstone. No. And as 2022 00:14:42.759 --> 00:14:45.899 rolled on, the macro environment turned viciously 00:14:45.899 --> 00:14:48.440 against them. The Terraluna ecosystem collapsed 00:14:48.440 --> 00:14:52.120 in May of 2022. That single event wiped out about 00:14:52.120 --> 00:14:55.320 $60 billion in value from the crypto market in 00:14:55.320 --> 00:14:57.860 a matter of days. And Celsius had significant 00:14:57.860 --> 00:14:59.820 exposure to that crash, didn't they? Despite 00:14:59.820 --> 00:15:01.899 publicly saying they didn't. They had massive 00:15:01.899 --> 00:15:03.840 exposure. They lost heavily in the lunar crash. 00:15:04.019 --> 00:15:07.419 But publicly, they denied it completely. And 00:15:07.419 --> 00:15:10.299 this denial, this campaign of deception. Leads 00:15:10.299 --> 00:15:12.360 us right into the final frantic days, the run 00:15:12.360 --> 00:15:14.919 on the bank. So after Luna, everyone in the crypto 00:15:14.919 --> 00:15:17.299 space got nervous. The rumors started swirling 00:15:17.299 --> 00:15:19.559 on Twitter and Reddit that Celsius was next, 00:15:19.639 --> 00:15:21.519 that they were insolvent. So people started trying 00:15:21.519 --> 00:15:24.379 to withdraw their money. It was a classic 1929 00:15:24.379 --> 00:15:26.860 style bank run, but it happened at the speed 00:15:26.860 --> 00:15:28.820 of the Internet. You didn't have to stand in 00:15:28.820 --> 00:15:30.519 a line outside a physical building. You just 00:15:30.519 --> 00:15:32.740 had to open an app on your phone and click withdraw. 00:15:33.309 --> 00:15:35.090 And how did Mashinsky handle this incredible 00:15:35.090 --> 00:15:37.710 pressure? Did he finally come clean and admit 00:15:37.710 --> 00:15:39.889 they had a liquidity problem? He did the exact 00:15:39.889 --> 00:15:42.830 opposite. He doubled down on the deception. And 00:15:42.830 --> 00:15:44.669 this is where the criminal fraud charges from 00:15:44.669 --> 00:15:48.190 the DOJ really start to stick. On June 7th, they 00:15:48.190 --> 00:15:50.450 published a blog post with the title, Damn the 00:15:50.450 --> 00:15:54.730 Torpedoes, Full Speed Ahead. Wow. Subtle. In 00:15:54.730 --> 00:15:57.490 this post, they deny any significant losses from 00:15:57.490 --> 00:16:01.549 Luna. They call the rumors FUD, fear, uncertainty 00:16:01.549 --> 00:16:04.429 and doubt. They accuse vocal actors of being 00:16:04.429 --> 00:16:06.289 paid by competitors to try and bring them down. 00:16:06.450 --> 00:16:09.669 And then came the final AMA, June 10th, 2022, 00:16:09.970 --> 00:16:12.330 just three days before the end. Mashinsky goes 00:16:12.330 --> 00:16:14.389 live on YouTube. He looks straight into the camera. 00:16:14.529 --> 00:16:17.169 He says, and I'm quoting here, Celsius has billions 00:16:17.169 --> 00:16:19.809 in liquidity. He said we provide immediate access 00:16:19.809 --> 00:16:22.710 to everybody. He even challenged skeptics online 00:16:22.710 --> 00:16:25.070 to find a single person who had trouble withdrawing 00:16:25.070 --> 00:16:26.970 their funds. Three days later. Three days later. 00:16:27.399 --> 00:16:30.980 June 13th. The email goes out to all 1 .7 million 00:16:30.980 --> 00:16:34.779 users. Due to extreme market conditions, today 00:16:34.779 --> 00:16:38.159 we are pausing all withdrawals, swap, and transfers 00:16:38.159 --> 00:16:41.320 between accounts. The doors were locked. I want 00:16:41.320 --> 00:16:43.059 to pause on the human element of that moment 00:16:43.059 --> 00:16:45.759 because pausing withdrawal sounds so technical, 00:16:45.879 --> 00:16:48.059 so clinical. But for the user, it means you wake 00:16:48.059 --> 00:16:49.519 up in the morning, you check your phone, you 00:16:49.519 --> 00:16:51.600 see your balance. Maybe it's $50 ,000. Maybe 00:16:51.600 --> 00:16:53.360 it's your entire retirement. Maybe it's the down 00:16:53.360 --> 00:16:55.980 payment for a house. And it's frozen. Yeah. It's 00:16:55.980 --> 00:16:58.039 just pixels on a screen. You can see the number, 00:16:58.159 --> 00:17:01.220 but you can't touch it. It's gone. It's absolutely 00:17:01.220 --> 00:17:03.500 terrifying. And unlike a traditional bank, there 00:17:03.500 --> 00:17:06.339 is no FDIC. There is no government bailout coming 00:17:06.339 --> 00:17:08.720 to save you. You are completely and utterly on 00:17:08.720 --> 00:17:11.200 your own. And the broader markets reacted violently 00:17:11.200 --> 00:17:13.680 to the news. Oh, it was a bloodbath. Bitcoin 00:17:13.680 --> 00:17:15.799 dropped 12 percent almost immediately. Ethereum 00:17:15.799 --> 00:17:18.660 dropped 14 percent. The contagion fear was immense. 00:17:18.960 --> 00:17:21.460 Yeah. And the CEL token itself just fell off 00:17:21.460 --> 00:17:24.059 a cliff. Yeah. It crashed from around $7 a year 00:17:24.059 --> 00:17:26.440 prior all the way down to 21 cent cents. And 00:17:26.440 --> 00:17:28.859 there was that absurd detail, too. The energy 00:17:28.859 --> 00:17:32.059 drink company. Yes. In the panic, shares of Celsius 00:17:32.059 --> 00:17:34.759 Holdings. The beverage company, which is totally 00:17:34.759 --> 00:17:37.400 unrelated, dropped 10 % because confused algorithms 00:17:37.400 --> 00:17:39.960 and panic sellers just sold anything with the 00:17:39.960 --> 00:17:42.559 word Celsius in its name. That is just a perfect 00:17:42.559 --> 00:17:45.579 metaphor for the pure chaos of that moment. The 00:17:45.579 --> 00:17:47.500 collapse that followed was swift and brutal. 00:17:48.059 --> 00:17:51.480 Exactly one month later, on July 13th, they officially 00:17:51.480 --> 00:17:54.440 filed for Chapter 11 bankruptcy. And when the 00:17:54.440 --> 00:17:56.779 filing was made public, the balance sheet was 00:17:56.779 --> 00:18:00.140 a horror show. They had a staggering $1 .2 billion 00:18:00.140 --> 00:18:03.630 deficit. A black hole. How much actual cash did 00:18:03.630 --> 00:18:05.670 they have on hand at that point? They owed their 00:18:05.670 --> 00:18:08.529 users $4 .7 billion. According to the filing, 00:18:08.670 --> 00:18:11.549 they had roughly $167 million in cash on hand. 00:18:11.750 --> 00:18:13.690 So they were. They weren't just illiquid. They 00:18:13.690 --> 00:18:16.269 were deeply, mathematically, hopelessly insolvent. 00:18:16.509 --> 00:18:18.930 Completely. And this brings us to what might 00:18:18.930 --> 00:18:21.549 be the most painful legal lesson of this entire 00:18:21.549 --> 00:18:24.410 saga for the users. It all came down to the terms 00:18:24.410 --> 00:18:26.430 of use. The fine print that nobody ever reads? 00:18:26.650 --> 00:18:28.890 The fine print that cost people everything they 00:18:28.890 --> 00:18:32.220 had. In the bankruptcy hearings, the judge had 00:18:32.220 --> 00:18:34.859 to decide a very specific, crucial question. 00:18:35.599 --> 00:18:38.799 Whose crypto is it? Is it the user's property, 00:18:38.940 --> 00:18:41.559 just being stored by Celsius like a valet parks 00:18:41.559 --> 00:18:44.619 your car? Or did it become Celsius's property 00:18:44.619 --> 00:18:47.180 the moment you deposited it? Logic would say 00:18:47.180 --> 00:18:49.380 it's my property. It literally says my wallet 00:18:49.380 --> 00:18:52.299 in the app. But the law said otherwise. The judge 00:18:52.299 --> 00:18:54.680 ruled that when users deposited into the Earn 00:18:54.680 --> 00:18:57.819 program, they legally transfer title, that is, 00:18:57.839 --> 00:19:00.519 ownership of their coins, to Celsius. So what 00:19:00.519 --> 00:19:03.259 is my Bitcoin anymore? By depositing it, I gave 00:19:03.259 --> 00:19:05.000 it to them. I was essentially giving them an 00:19:05.000 --> 00:19:07.279 unsecured loan. You were. You became an unsecured 00:19:07.279 --> 00:19:09.460 creditor. And in bankruptcy, there's a strict 00:19:09.460 --> 00:19:12.640 hierarchy. There's a waterfall of payments. Secured 00:19:12.640 --> 00:19:14.789 creditors... Big institutions who have collateral 00:19:14.789 --> 00:19:17.369 backing their loans, they get paid first. The 00:19:17.369 --> 00:19:19.470 lawyers and administrators and consultants, they 00:19:19.470 --> 00:19:21.710 get paid next. And let me tell you, the lawyers 00:19:21.710 --> 00:19:23.789 ate very, very well in this bankruptcy. We bet 00:19:23.789 --> 00:19:26.329 they did. The unsecured creditors, the customers, 00:19:26.549 --> 00:19:29.549 the selfians, you are dead last in line. You 00:19:29.549 --> 00:19:31.549 get whatever crumbs are left over after everyone 00:19:31.549 --> 00:19:34.150 else has been paid. And the indignity for these 00:19:34.150 --> 00:19:36.769 people didn't stop there. Because it was a public 00:19:36.769 --> 00:19:38.930 bankruptcy, the court records had to be made 00:19:38.930 --> 00:19:41.720 public. Right. Transparency is a cornerstone 00:19:41.720 --> 00:19:44.460 of the bankruptcy process. But in this case, 00:19:44.500 --> 00:19:46.880 it meant publishing a list of every single customer 00:19:46.880 --> 00:19:49.960 by name and their exact account balance at the 00:19:49.960 --> 00:19:52.519 time of the freeze. A searchable database went 00:19:52.519 --> 00:19:55.500 online. So suddenly your personal financial disaster 00:19:55.500 --> 00:19:58.299 is public knowledge. Your neighbors can see how 00:19:58.299 --> 00:20:00.759 much you lost. Your family can see. Someone even 00:20:00.759 --> 00:20:03.099 created a website called Celsius Net Worth where 00:20:03.099 --> 00:20:05.349 you could just type in a name. It revealed the 00:20:05.349 --> 00:20:08.450 sheer scale of the losses. The top three individual 00:20:08.450 --> 00:20:12.369 losers on that list lost $40 .5 million, $38 00:20:12.369 --> 00:20:15.990 .2 million, and $26 .4 million, respectively. 00:20:16.049 --> 00:20:18.710 Imagine losing $40 million because you trusted 00:20:18.710 --> 00:20:22.269 a t -shirt slogan, unbank yourself. But it wasn't 00:20:22.269 --> 00:20:24.069 just the crypto whales, right? The damage went 00:20:24.069 --> 00:20:27.599 much deeper. No, not at all. Molly White, a researcher 00:20:27.599 --> 00:20:30.059 who does incredible work tracking crypto disasters, 00:20:30.599 --> 00:20:33.079 she documented the letters that users sent to 00:20:33.079 --> 00:20:35.619 the bankruptcy judge. And they are just heartbreaking 00:20:35.619 --> 00:20:39.180 to read. There was one letter that included ultrasound 00:20:39.180 --> 00:20:42.319 picture. A parent begging for their money back. 00:20:42.799 --> 00:20:45.200 to feed their coming child. Oh, that's brutal. 00:20:45.559 --> 00:20:47.579 People lost college funds. They lost their life 00:20:47.579 --> 00:20:49.640 savings. They lost retirement accounts they had 00:20:49.640 --> 00:20:52.880 been building for decades. It just heartbreakingly 00:20:52.880 --> 00:20:55.779 dismantles the lazy narrative that this was just 00:20:55.779 --> 00:20:58.880 play money for rich crypto pros. This was real 00:20:58.880 --> 00:21:01.559 people trusting a predator. It was. So where 00:21:01.559 --> 00:21:03.240 does the story end? The company is effectively 00:21:03.240 --> 00:21:06.339 dead. The users have lost billions. What happened 00:21:06.339 --> 00:21:09.200 to the architects of this disaster? Justice is 00:21:09.200 --> 00:21:12.269 slow, but it did eventually arrive. In July of 00:21:12.269 --> 00:21:14.930 2023, the FTC, the Federal Trade Commission, 00:21:15.170 --> 00:21:17.809 banned Celsius from ever handling consumer assets 00:21:17.809 --> 00:21:20.049 again. But the Department of Justice went after 00:21:20.049 --> 00:21:22.549 Mashinsky personally. He was arrested and charged 00:21:22.549 --> 00:21:25.329 with multiple counts of fraud, conspiracy, and 00:21:25.329 --> 00:21:27.630 market manipulation. And despite all the bluster, 00:21:27.690 --> 00:21:29.849 despite the endless interviews where he claimed 00:21:29.849 --> 00:21:32.710 he was the victim and did nothing wrong. He folded. 00:21:32.869 --> 00:21:35.750 The evidence from their own internal chats from 00:21:35.750 --> 00:21:38.950 the blockchain, it was overwhelming. He pleaded 00:21:38.950 --> 00:21:42.089 guilty in December of 2024 to two counts of fraud. 00:21:42.730 --> 00:21:45.549 He admitted in court to artificially inflating 00:21:45.549 --> 00:21:48.170 the price of the CEL token for his own benefit. 00:21:48.390 --> 00:21:51.650 And what was his sentence? In May of 2025, he 00:21:51.650 --> 00:21:53.609 was sentenced to 12 years in federal prison. 00:21:53.910 --> 00:21:57.809 He also agreed to forfeit $48 million. 12 years. 00:21:58.009 --> 00:22:01.319 It's significant. But it doesn't do much to fill 00:22:01.319 --> 00:22:03.099 that billion dollar hole in the balance sheet. 00:22:03.160 --> 00:22:05.240 Not at all. The users didn't get made whole. 00:22:05.339 --> 00:22:06.599 They didn't get their money back. They got a 00:22:06.599 --> 00:22:08.819 restructuring. And this is maybe the weirdest, 00:22:08.920 --> 00:22:11.980 most surreal part of the entire ending. Go on. 00:22:12.119 --> 00:22:14.940 Celsius exited bankruptcy in early 2024. But 00:22:14.940 --> 00:22:16.579 instead of just getting a portion of their money 00:22:16.579 --> 00:22:19.039 back in cash or crypto, the creditors became 00:22:19.039 --> 00:22:21.500 involuntary shareholders in a brand new company 00:22:21.500 --> 00:22:24.480 called Ionic Digital. Which is, don't tell me. 00:22:24.910 --> 00:22:27.750 A Bitcoin mining company. It is a Bitcoin mining 00:22:27.750 --> 00:22:30.289 company. Yes. They took the leftover assets, 00:22:30.490 --> 00:22:32.349 which were mostly just the mining rigs they'd 00:22:32.349 --> 00:22:34.369 bought in a panic, and they rolled them into 00:22:34.369 --> 00:22:36.470 a new entity that's managed by another company, 00:22:36.950 --> 00:22:40.630 Hut8. So if you lost your life savings in what 00:22:40.630 --> 00:22:42.769 you thought was a safe yield app, congratulations, 00:22:43.150 --> 00:22:45.569 you are now an involuntary venture capitalist 00:22:45.569 --> 00:22:48.609 in an industrial Bitcoin mining operation. That 00:22:48.609 --> 00:22:51.750 is just a darkly ironic twist. You wanted a savings 00:22:51.750 --> 00:22:54.230 account. And you ended up owning a piece of a 00:22:54.230 --> 00:22:57.109 server farm in Texas. It really, really redefines 00:22:57.109 --> 00:22:59.930 the slogan, unbank yourself. You unbanked yourself 00:22:59.930 --> 00:23:02.670 straight into becoming a part owner of a mining 00:23:02.670 --> 00:23:05.410 operation. And the Celsius app itself, the platform, 00:23:05.630 --> 00:23:08.950 is it still around? Gone. On February 29, 2024, 00:23:09.329 --> 00:23:11.250 the app and the website were officially shut 00:23:11.250 --> 00:23:14.140 down. The screen went black for good. So let's 00:23:14.140 --> 00:23:16.259 unpack the lessons here. When we step back from 00:23:16.259 --> 00:23:18.359 all this wreckage, what is the core takeaway? 00:23:18.460 --> 00:23:20.339 Is it just that crypto is bad and you should 00:23:20.339 --> 00:23:22.519 stay away? Or is there something more specific, 00:23:22.680 --> 00:23:24.940 more nuanced to learn here? I think it's about 00:23:24.940 --> 00:23:27.539 the fundamental danger of the black box. You 00:23:27.539 --> 00:23:29.640 know, cryptocurrency was invented to be transparent. 00:23:29.839 --> 00:23:32.920 The code is law. Everything is visible and verifiable 00:23:32.920 --> 00:23:36.339 on the blockchain. Celsius took that transparent 00:23:36.339 --> 00:23:38.539 technology and put it right back into an opaque, 00:23:38.559 --> 00:23:41.140 centralized black box. You couldn't see the reserves. 00:23:41.259 --> 00:23:43.480 You couldn't see the risky loans. You just had 00:23:43.480 --> 00:23:45.920 to trust Alex. And trust me, bro, it's not a 00:23:45.920 --> 00:23:48.599 viable financial strategy. It really validates 00:23:48.599 --> 00:23:51.619 the oldest and most important saying in the entire 00:23:51.619 --> 00:23:54.920 crypto space. Not your keys, not your coins. 00:23:55.599 --> 00:23:59.539 This whole saga moves that phrase from being 00:23:59.539 --> 00:24:02.380 a catchy slogan for hardcore techies to a hard 00:24:02.380 --> 00:24:05.460 law of financial physics. If you do not personally 00:24:05.460 --> 00:24:07.500 hold the private keys to your crypto wallet, 00:24:07.660 --> 00:24:10.140 you do not own that money. You used to own an 00:24:10.140 --> 00:24:12.640 IOU from a company that might be, in its case 00:24:12.640 --> 00:24:14.980 was, hopelessly insolvent. And there's also the 00:24:14.980 --> 00:24:17.019 fundamental lesson on yield. We have to be realistic. 00:24:17.319 --> 00:24:19.819 Risk and reward are two sides of the same coin. 00:24:19.940 --> 00:24:22.859 You cannot have a 17 % reward with zero risk. 00:24:23.019 --> 00:24:25.440 It does not exist in the known universe. If you 00:24:25.440 --> 00:24:27.500 don't know where the yield is coming from, the 00:24:27.500 --> 00:24:30.660 hard truth is that you are the yield. Your deposit 00:24:30.660 --> 00:24:33.140 is the liquidity that someone else is using to 00:24:33.140 --> 00:24:36.019 gamble. That is a chilling thought to end on. 00:24:36.079 --> 00:24:38.599 We started with a T -shirt and we ended with 00:24:38.599 --> 00:24:41.599 a prison sentence. It's a classic tragic story 00:24:41.599 --> 00:24:45.339 of hubris, of greed, and of the devastating human 00:24:45.339 --> 00:24:47.920 cost of believing in something that is, was, 00:24:48.039 --> 00:24:50.180 and always will be too good to be true. Stay 00:24:50.180 --> 00:24:52.980 skeptical out there. Really. That's it for this 00:24:52.980 --> 00:24:55.440 deep dive into the rise and catastrophic fall 00:24:55.440 --> 00:24:57.700 of Celsius. Hopefully your keys are safely in 00:24:57.700 --> 00:24:59.299 your pocket. We'll catch you on the next one.