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How Wall Street’s ‘best-kept secret’ now fuels high cryptocurrency yields

DATE POSTED:July 31, 2021
https://www.youtube.com/watch?v=1xVcwxVYkog&feature=youtu.be

One of Wall Street’s lower-risk businesses, securities lending, is now also being used by crypto lending companies to provide high yields for hodlers — or long-term crypto holders. But what are the risks to crypto holders?

“If you ask any Wall Street veteran: ‘What is the safest business on Wall Street?’ They’re not going to tell you banking, they’re not going to tell you trading, they’re going to tell you sec lending,” Celsius Network CEO Alex Mashinsky told Forkast.News in a video interview. “That is also the safest business in crypto.”

Securities lending is the loaning of assets such as shares to firms and institutions. Experts agree that the practice is less risky than before, but it’s not entirely risk-free in the traditional finance world. 

For crypto finance companies like Celsius Network, a crypto lending platform, the loaned assets are cryptocurrencies. Celsius Network’s securities lending strategy has allowed the platform to provide high-yielding interest rates for investors that choose to deposit their assets into Celsius. It currently offers 6.2% for Bitcoin and 8.88% for stablecoins, at press time. 

“When an institutional exchange borrows Bitcoin from us, instead of sec lending, they do digital asset lending and they pay us interest,” Mashinsky said. “No one on Wall Street has ever paid this money, the sec lending income, to their customers — that’s the best-kept secret.”

With Bitcoin’s boom, more services have popped up around the globe to present investors with a variety of options for their chosen interest-bearing crypto accounts. 

But like many other aspects of the crypto industry, the new kinds of services have drawn the attention of regulators. 

Recently, crypto lending platform BlockFi, which also operates trading services and interest-bearing accounts, has the New Jersey Bureau of Securities breathing down its neck, with local authorities claiming BlockFi’s Interest Accounts offers unregistered securities to its users. Texas and Alabama have made similar moves against BlockFi. 

According to Mashinsky, the sales aspect could be a sensitive zone for regulators. Celsius users must purchase cryptocurrencies outside of the network, putting Celsius out of regulatory cross hairs — at least for now. 

“Even though some may look at Celsius and BlockFi as competitors, they’re really not competing with us on yield,” Mashinski said. “Our job is just to earn that yield for you.”

But with the growth of the company, which Mashinsky says added US$300 million net assets in the same week Bitcoin recently dipped below the key US$30,000 mark, the company has opted to move its headquarters and main operations out of the United Kingdom to the United States, citing increasing regulatory uncertainty in the U.K. and the better business environment across the Atlantic. 

“For some of the things we do, we may benefit from being based in the United States,” Mashinsky said. “If we choose to go public or if we choose to do some other financial activities, there’s a big disconnect in valuation.”

Watch Mashinksy’s interview with Forkast.News Editor-in-Chief Angie Lau to learn more about his views on the risks of crypto securities lending, Celsius’ plans for public listing, why he believes Bitcoin prices could reach US$160,000 this year, and more. 

Highlights

  • How institutions fared in May’s crypto crash: “The 53% drawdown actually happened in almost one day. In Celsius we have 315 institutional counterparties. None of them defaulted on their loan. None of them was late paying the interest. Most of them posted more collateral. We had thousands of margin calls, but none of our counterparties has defaulted. In the financial system. If you have a 50% drawdown, every bank that you know will go out of business. The Fed is going to have to jump in and save all of them. So here the crypto community has proven that it’s resilient and it does not use leverage, unlike the traditional banks that have leveraged 20 to one, and they use fractional reserves and all these fancy financial tools.” 
  • What he thinks is Wall Street’s “best-kept secret”: “When an institutional exchange borrows Bitcoin from us, instead of sec lending, they do digital asset lending and they pay us interest. We could hide it and not tell anybody and take all that money. But instead, we’re giving most of that to our community. So really, Celsius is the real Robin Hood. Celsius is doing what Wall Street will not do for the last 200 years. No one on Wall Street has ever paid this money, the sec lending income, to their customers — that’s the best-kept secret. For some of the largest firms on Wall Street, more than half of their income comes from sec lending. So that’s a sacred cow that no one on Wall Street was willing to share with their customers.”
  • His Bitcoin price prediction: “I’m expecting the peak price to be between US$140,000 and 160,000 before the end of this year. But we will close below it because there’s going to be a lot of sellers, a lot of people who are going to try to take profits when we hit new highs. But the most important thing is not that I’m giving you these numbers. The most important thing is where I’m getting this data. The Celsius community is a hodler community. These are people that hold coins forever. The prices you see on the exchanges, that is the speculators. The last trade is not done by hodlers, in most cases it’s done by somebody who is arbitraging or manipulating the market or buying and selling trading the market. So what matters is 90% of the community, which is a hodler community. Are they adding assets or are they not adding assets? So last week was one of our best weeks ever. We added over $300 million in net assets in one week.”
  • How Celsius is benefitting from China’s mining crackdown: “The rates on DeFi are down 90%. The volume on exchanges is down 40%. But our institutional business, our mining business has never done better. Chinese miners have shut down because of the crackdown. Celsius is making almost twice as many Bitcoins as it projected because of this change.”

Transcript: 

Angie Lau: Crypto loans and interest-bearing accounts — are they safe? How will the shifting economy impact investor behavior? How is mining reshaping crypto? And how is crypto evolving against fiat currencies? So many questions.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast.News. I’m Forkast Editor-in-Chief Angie Lau.

Well, crypto’s notorious volatility can be too much of a risk for many investors. But now interest-bearing crypto accounts are gaining popularity. From Coinbase to BlockFi, Celsius Network and more, these accounts allow investors to earn rates that can’t be found in traditional bank accounts. But there’s a question that a lot of our readers and our viewers ask us: ‘Are these accounts safe and how are they able to offer 15%, sometimes 20% interest rates?’ What else is going on in the crypto world that these firms are innovating in?

Well, my guest today is here to tell us how all this works, how the current economic conditions can impact the crypto market and beyond, and how regulators might be honing in and what it all means for the market, and you. 

He’s the man responsible for the Wi-Fi services in the New York City subway system and a pioneer in voice over IP, that’s VoIP Services, who has added another title to this long list of accomplishments. He’s the founder and CEO of crypto-lending platform, Celsius Network, Alex Mashinsky.

Alex, it is great to chat again. Welcome to the show.

Alex Mashinsky: Thanks Angie. Great to be back.

Lau: Ok, let’s start — for a lot of people — from square one. You started Celsius in 2017 with co-founders Nuke Goldstein and S. Daniel Leon. What was your vision? What did you see before the rest of us in the traditional industry and how did you emerge from 2017 into what we see today in 2021.

Mashinsky: Sure. Great question. The crypto world basically had two waves of innovation, the first wave of Bitcoin and Ethereum, where exceptional stores of value both outperformed any other asset class or any stock or bond in the past decade. But now we’re seeing a second wave of innovation. Celsius really was the first company to create the yield on the blockchain. Before DeFi, before all these things that you’re hearing about in the news every day, Celsius basically said you can pay yield on Bitcoin, on Ethereum, on stablecoins. And we innovated in creating basically the first platform that paid in kind. You didn’t have to trade, you didn’t have to do anything. You just download the app, you open an account, you deposit your crypto, and every Monday you get paid interest on that crypto.

Today, there are 50 or so companies that are copying what Celsius has created, which is great. We have amazing validation from companies like Coinbase and others. But Celsius is by far the largest leader, with over US$15 billion in assets, and close to a million customers or earning yield on our platform.

Lau: A million customers. Did you ever envision that that would be the case four years later? I mean, you guys are practically still toddlers right now.

Mashinsky: So we are one of the fastest-growing companies in history with 400 employees. Basically, if you look at that asset accumulation, it’s probably one of the fastest in history, but what’s important is really what we provide for the community. We paid the community over US$700 million in interest in the world where banks pay you nothing. So you can’t earn anything on your money. And here comes Celsius that says that’s just not true. You can earn 8.8% on your stablecoin. You can earn 6.2% on your Bitcoin.

And most people look at it, like you said before, right in your preamble, that they’re just saying that’s not possible. But every public bank files with their Security Exchange Commission or with their regulator, and they report the quarterly numbers. And in those numbers, you will plainly see that the bank makes 15% to 17%. They just choose to pay all that profit to their shareholders and not to their depositors, not to their users. So all Celsius did is basically use exactly the same tactics banks used to earn yield. But instead of giving it to the shareholders, we chose to give most of that back to our users.

Lau: All right, let’s break it down, because the structure of Celsius is interesting here, as you said. But also in some parts of the world, very controversial in parts of the industry, still deemed strategically controversial. So let’s talk about that. Structure is essentially a bank, a community trust, per your literature, as you said, 80% of Celsius’ revenues go back to network users. The other 20% goes back to grow the company. You have a native CEL Token. You are bridging CeFi to the DeFi world. Explain how it works, how it all comes together, technically.

Mashinsky: Yeah. So again, there are a million customers. So we create a pool of Bitcoin. And right now we have, for example, just over 110,000 Bitcoin. So it’s about half of 1% of all the Bitcoins in the world. That Bitcoin is then being lent to institutions, exchanges, DeFi, [and] we also invest in mining. And all those sources create yield and institutions has to pay us interest. The mining platforms pay us Bitcoin, because they actually mint Bitcoin from the blockchain. So all those things are sources of revenues and we publish a rate. The rate is based on what we earn the week before. And that rate translates to anywhere. Sometimes it’s 70%, sometimes it’s 90%, sometimes we pay actually over 100%. So it depends really on how much we’re earning versus how many bitcoins we have and the rates go up and down. And for example, stablecoins varied between 6% and 12%. Right now they’re at 8.8%. That’s the highest rate you can earn anywhere. It’s twice as much of what Coinbase pays you right now. And the reason for that is that we have five sources of yield. So our stool has five sources while most of our competitors have only one source. They’re using the GBTC arbitrage. They’re using some other source.

Now, most exchanges, most of other companies, they are relying on charging you fees. They sell you a Bitcoin, they charge you a fee. They make you move stuff around, they charge you a fee. Celsius does not charge its customers any fees. We have to create yield and we keep a small portion of it. You get to keep most of it.

So it’s a very, very different business model. And you asked about Celsius and why did we come to be. Our mission was to create the new financial system for the people, by the people, a platform that will always act in the best interest of our community. You can read our white paper from 2017. Our mission from day one was to bring 100 million new people into crypto. And that’s also what’s going to make Bitcoin, Ethereum, all these other coins much more valuable. So we are 1% in. We’ve managed to deliver 1% of our target. And I’m sure now it’s going to move much faster as we’re accelerating what we’ve built, what took us three or four years to put together.

Lau: And I can just hear the worrying because it’s happening in my brain and in no doubt a lot of people trying to do their math here right now. Currently, as we speak, Bitcoin is at 31,000. You have 110. A couple of months ago it was at 65. That is a massive drop, 50% drop. That must have had an impact on the value of the Bitcoin and your ability to leverage that in yield. How have you dealt with that kind of volatility? What’s the internal mechanism that allows you to do so?

Mashinsky: First, that drawdown, the 53% drawdown actually happened in almost one day. So in Celsius we have 315 institutional counterparties. None of them defaulted on their loan. None of them was late paying the interest. Most of them posted more collateral. We had thousands of margin calls, but none of our counterparties has defaulted. In the financial system. If you have a 50% drawdown, every bank that you know will go out of business. The Fed is going to have to jump in and save all of them.

So here the crypto community has proven that it’s resilient and it does not use leverage, unlike the traditional banks that have leveraged 20 to one, and they use fractional reserves and all these fancy financial tools. Again, they flip a coin, lands on heads, and get giant bonuses. It lands on tail, the Fed shows up and bails them out. The crypto community doesn’t have those options. So we have to operate in a way that makes sure that we are resilient. So Celsius does not bet on assets. It’s not like we invest in Bitcoin and we hope it’s going to go up. Our job is really to create yield, just to create interest. Our customers are the ones that are saying, I’m going to put my money into Bitcoin, or I’m going to put my money into stablecoins. Obviously stablecoins did not have any losses because they’re pegged to the US dollar.

So we continue to pay 8.8% on stablecoins and we continue to pay 6.2% on Bitcoin. It doesn’t matter if it’s US$60,000 or US$30,000. So, Celsius really creates more yield when there’s volatility, when prices move up and down. That creates a lot of demand for arbitrage or for hedging or for market making. And that’s where we can charge those institutions much more and deliver most of that back to the community. So we just raised actually our rates on Bitcoin. We raised them higher because of the volatility. So, yeah, the price of Bitcoin went down. But our community, our million users, they’re all hodlers. They don’t care what the price is today. They care what the price is in 20, 30. And between now and then, Celsius allows them to earn that 6% a year. You compound that and you’re going to have twice as many coins by 2030.

Lau: That is really counter to what other competitors in the market have been doing, which is cut interest rates on Bitcoin and you’ve done the opposite.

Mashinsky: That’s right. So the reason we can raise rates is because we have five legs to the stool. So sometimes, like right now, the rates on DeFi are down 90%. The volume on exchanges is down 40%. But our institutional business, our mining business has never done better. Chinese miners have shut down because of the crackdown. Celsius is making almost twice as many Bitcoins as it projected because of this change. The institutional business is doing phenomenally well. Because we have all these different options, our business does not rely just on DeFi on Ethereum. We support 14 different blockchains and we can run on different blockchains as a CeFi not as DeFi. Celsius is a centralized finance. We have a bridge, we have one leg in traditional finance, one leg in DeFi and we are the bridge that delivers billions of dollars between the two worlds to take advantage of yields. And when DeFi doesn’t deliver the yield, we just take that money, put it in one of the other buckets.

Lau: For most investors in healthy portfolios, you want to diversify your portfolio. And so you’ve got five legs, from what I understand. Talk about mining

Mashinsky: Five legs of yield and 42 different assets that you can diversify between.

Lau: Well, there you go. And mining is a significant one that you just mentioned. And breaking news right now as we speak, and probably by the time everybody else watches this, they will have heard this. But what are you doing in mining? There’s a significant investment that you’ve made in mining. Tell us what it is.

Mashinsky: So about a month ago, we announced over US$200 million invested in mining operations and we invested in three strategic companies in addition to actual mining facilities — Core Scientific, Rhodium and Luxor. Core Scientific today announced they’re going public with a merger with a SPAC here in the United States [at] the valuation of US$4 billion. So that obviously is phenomenal news, not just for Celsius, but also to our entire community because their investment is doing very well.

And again, we did this ahead of all of these crackdowns in China and all of the chaos that’s going on, because for us, unlike other people who are investing dollars, hoping to mine Bitcoin, sell it and make dollars, Celcius is looking to make and retain and mint Bitcoin because we owe our community Bitcoin — we don’t owe them dollars. If you gave me 100 Bitcoin, I have to give you 6.2 Bitcoin in total during the year. Every week, I have to give you 1/52 of that 6.2 Bitcoin. So if I build a Bitcoin factory. With Core or with Rhodium or with other companies, that is a guaranteed source of Bitcoin, so we don’t care what happens on exchanges or DeFi or institutions, if we have a factory that every 10 minutes prints 6.25 Bitcoin.

Lau: But as you said, you are the bridge between CeFi and DeFi, so you have one foot in traditional finance and then the other foot obviously in this brave new world of ours.

I want to talk about what in traditional banking institutions would call securities lending, which is essentially depositing the dollars from users, lending it out to institutions, and then you are arbitraging in the middle. In crypto. How do you view that? You’ve been asked about it and how does that work within what you’re doing at Celsius?

Mashinsky: It’s a great point because most of us have a brokerage account with Fidelity or Charles Schwab or E-Trade or Robinhood. They’re supposed to be Robinhood, they’re supposed to give us money back. But Robinhood takes your securities, they take your Tesla stock, your Facebook stock — and you think you got the trade for free because you bought it with no commission, but Robinhood lends that shares or does sec lending, or securities lending into, for example, Citadel. Citadel does market making arbitrage and pays yield. They’ll pay 5% or 10% a year on your stock, on your Tesla. Now, Robinhood does not give you that earning. They take it to themselves. They give it to their shareholders.

The same thing is done in crypto. When an institutional exchange borrows Bitcoin from us, instead of sec lending, they do digital asset lending and they pay us interest. We could hide it and not tell anybody and take all that money. But instead, we’re giving most of that to our community. So really, Celsius is the real Robin Hood. Celsius is doing what Wall Street will not do for the last 200 years. No one on Wall Street has ever paid this money, the sec lending income, to their customers — that’s the best-kept secret. For some of the largest firms on Wall Street, more than half of their income comes from sec lending. So that’s a sacred cow that no one on Wall Street was willing to share with their customers. The innovation around what Celsius is done is basically break that, break all the rules and say, “No, the community, it’s their money. They deserve to get all that income.

Lau: It sounds great. And a lot of people are probably saying that’s fantastic. What’s the risk?

Mashinsky: If you ask any Wall Street veteran: “What is the safest business on Wall Street?” They’re not going to tell you banking, they’re not going to tell you trading, they’re going to tell you sec lending. That is the safest business on Wall Street. That is also the safest business in crypto. Celsius went through several and basically stress tests. March 2020. May 2021. A whole bear market in 2018. Several bull markets. 2017, 2020. And in all those markets, Celsius did not have a single default or a single liquidation with our institutional customers. So I’m very confident that we will continue to perform this well. Also, we have a very strong balance sheet with several billion dollars on it. So we know that we can deliver the yield, be profitable and deliver everything we promised to our community.

Lau: So I got to ask you, what happened with Prime Trust then?

Mashinsky: Look, when you change your cable company, no one prints about it in the news and says, Angie switched from Verizon to some other company.

Lau: AT&T!

Mashinsky: Exactly. Someone decided that that is breaking news and they decided to write all about it. It happens that the publication, their parent company owns 100% of our largest competitor. And all we did is we switched from provider A to provider B. All of our customers have moved over. All of our customers continue to get the same service. We don’t have any issues. There’s no problem. And like I said, for many of our customers, we even raised the rates because we start earning more.

Celsius has a lot of competition, Celsius has a lot of people who are trying to push us out of business because we are basically killing their golden goose — the source of yield that they created for themselves. And they’re very upset that we have given it to the people. God forbid, if all the people in the world will get access to yield, which was reserved only to the Wall Street clan, that’s what’s really happening here.

Lau: Well, let’s talk about the Wall Street clan, the market trend and Bitcoin and crypto seen as an inflation hedge. And currently, we are experiencing that right now. We’re seeing the Consumer Price Index in the U.S. rising. We’re seeing a Producer Price Index in China rising at extraordinary rates, which essentially means that the cost of goods made in China is going to eventually end up in stores. And you and I are going to have to pay for inflationary prices. Amidst all of that, amidst central bank, with limitless, it seems, infinite printing of dollars, where do you see current market trend either supporting or affecting Bitcoin? And we do note that right now we’re looking at US$31,000, US$32,000 per Bitcoin prices right now.

Mashinsky: First, last year, I predicted in January of 2020 — you can see on my Twitter — we’re going to hit 30,000 when Bitcoin I think was 4,000. And we hit it right on the nose in January, 2021, we hit exactly 30,000. This year, I made a prediction that we’re going to go all the way to 160,000, but we’re going to close the year below 100,000. More recently I said that before we get that we will actually revisit sub 30,000 because of the GBTC and the China liquidations. And so those are my prediction. I’m sticking with those numbers. 

Lau: Wait. Didn’t you also say US$160,000?

Mashinsky: Yes, the peak. I’m expecting the peak price to be between 140,000 and 160,000 before the end of this year. But we will close below it because there’s going to be a lot of sellers, a lot of people who are going to try to take profits when we hit new highs. But the most important thing is not that I’m giving you these numbers. The most important thing is that where I’m getting this data. The Celsius community is a hodler community. These are people that hold coins forever. The prices you see on the exchanges, that is the speculators. The last trade is not done by hodlers, in most cases it’s done by somebody who is arbitraging or manipulating the market or buying and selling trading the market. So what matters is 90% of the community, which is a hodler community. Are they adding assets or are they not adding assets? So last week was one of our best weeks ever. We added over US$300 million in net assets in one week. So when the markets are going down but I’m adding record assets, it tells me that the price is going in the wrong direction, that our community actually tells the truth and the price of Bitcoin is not telling you the truth.

And we know why. We know because of the China crackdown. We know that billions of dollars of GBTC shares were getting unlocked, which put some pressure on the price of Bitcoin, so on. And I think we’ve had the correction and we now going back to new all-time highs. And the question is just how quickly it’s going to happen. You cannot continue to print all this money. I mean, the United States printed 40% of all the dollars ever created in the last 12 months. So the dollar inflation is 40%. The Consumer Price Index increase is 5%. So you have to ask yourself, really, what is your protection against 40% monetary inflation, and you want an asset that has limited supply, Bitcoin, Ethereum, those are limited supply assets, the quality assets, and that’s why I think they’re going to do very well compared to holding U.S. dollars or some other fiat currency.

Lau: We are seeing crypto behave a little bit more like the equity markets at the moment. But to your point, things look very different from your neck of the woods. I want to ask about the recent dip in Bitcoin prices. What can you tell us about the demand for institutional crypto loans in Celsius Network? And some of our custodian sources have told us that despite the dip, banks in institutions had not necessarily slowed down in adopting crypto as alternative assets for their portfolios. What are you seeing in your network?

Mashinsky: We’re continuing to see new record account creation for holders who are less than one Bitcoin. So we’re not seeing any slowdown there. And it’s not just Celsius. You can see the same thing if you go to Glassnode or other sources, you can see that the statistics for the blockchain itself are also in acceleration in new account creation. So that tells you that there is a lot of first-time buyers or first-time owners who come into the network. On the other side of it, again, institutional demand is very robust. New institutions, new desks, the trade in Bitcoin are being added every day. Citibank announced one, Goldman Sachs, even Bank of America, all the people who were on the fence are coming in, creating desk and offering their clients all these different services.

Again, the price action in the exchanges and the exchanges volume are down 40%. So the price action with the people who create all the volatility is down. But all the other stuff is still doing very, very well. And that’s why I’m extremely optimistic. I have, again, hundreds of millions of dollars. And personally, in the crypto, I’m the largest user just on Celsius network. I have probably US$320 million. I’m long all these assets. But again, sometimes there’s a correction like we’ve seen recently because of China and other resources. And you just have to weather the storm. You have to stay indoors until the storm passes.

Lau: You are putting your money where your mouth is, or your crypto where your mouth is.

Mashinsky: I’m getting paid very good interest.

Lau: You’re getting great interest. So there’s self interest. There’s shared interest. You’re in it with the rest of the users.

There’s no doubt that as more people come to the party, the party is getting bigger. The liquidity, it’s getting more exciting. But with that also comes neighbors who don’t appreciate that big party and somebody calls the cops. And in the regulatory landscape, we’re increasingly seeing that right now.

And I’ll just note, BlockFi, one of your competitors, just this week coming under a legal microscope, a cease and desist order from New Jersey’s acting attorney general, saying that BlockFi’s lending and trading services are unregistered securities that violate existing securities laws. I know it’s not necessarily like for like, but they are a competitor of yours. They’re in similar space. Are you nervous for Celsius?

Mashinsky: Look, we operate in over 170 countries. We work with regulators worldwide. And there’s a big difference between someone who’s trying to sell you this or that asset and someone who just creates yield for you. So it’s true that BlockFi offers yield, but their rates are 90% lower than ours. And really their focus is on trying to sell you Bitcoin, Ethereum or other assets that may be deemed securities.

Celsius does not try to sell you anything. You must buy these assets somewhere else. Our job is just to earn that yield for you. So even though some may look at Celsius and BlockFi as competitors, they’re really not competing with us on yield. They’re really competing with the bank on paying the least amount possible. We’re offering some of the highest yield, but we’re not trying to sell you the asset. We don’t choose for you. If you should buy this asset or that asset and try to make a fee or commission on trying to sell you stuff.

So I think where they got in trouble was basically them being a little bit too aggressive on basically trying to sell certain products. And if what you’re selling is deemed a security, then you need to be a licensed broker dealer or you need to be a bank. I don’t think they hold those licenses.

Lau: So there’s no doubt regulators are clamping down even yourself. Celsius is London-based, but you recently announced that potentially you’re headed for the great United States, citing regulatory uncertainty in the U.K. How do you deal with the regulatory ground shifting. So why leave the U.K.? Why choose the U.S.?

Mashinsky: Well, we haven’t left the U.K. We still have many, many customers in the U.K. And we continue to provide the same services just like we continue providing services in New York. I think the United States has chosen to provide more clarity or provide more value to both mining and crypto companies, and the U.K. has chosen to basically have more strict regulations.

So, for some of the things we do, we may benefit from being based in the United States, for example, if we choose to go public or if we choose to to do some other financial activities. There’s a big disconnect in valuation, as we’ve seen with Core Scientific today. Core Scientific will not get half of that valuation if we will try to list in London. So I think there’s a lot of benefits for us. What we’re trying to do is also capture the value in the company. We’ve allowed over 1,000 of our users to come in and join the bus, sit right next to me, not just as yield earners, not just as CEL Token holders, but also as equity holders. No other company offers that. Coinbase — you name a company that offers crypto.  None of them have allowed the community to come in and buy that equity and benefit from the increase in value creation.

So what we try to do is really be the Robin Hood of this industry, where if you are the one buying all your coins from Coinbase and they’re are now worth 90 billion, how much of that value are you capturing in the value creation? None of it. So what Celsius is trying to do, is really allow people to participate in all three buckets. And we’ll be announcing our plans pretty soon. We are raising around the funding. We’re planning some of our other financial activities. And you’ll see that we allowed our community to participate much better than anybody else.

Lau: Ok, you got my radar completely up right now. So you’re heading to the U.S. You’re talking about, if I’m reading the tea leaves, potentially listing either through IPO or direct listing or potentially even SPAC. So which one of the three.

Mashinsky: Well, it’s too early for us to decide which one. Most companies in our space either do direct listing or spec. If you look at my history, I’ve done two IPOs of taking my VoIP company public in 2004 and then worked with another public company. My career has been working with private and public companies, so I’m comfortable with both and we will see what happens.

Right now, we are open to all ideas, to all suggestions, but currently we’re doing exceptionally well. We’re growing. We doubled our business in six months. We’ve made phenomenal investments. And the most important thing is that our community continues to benefit from all of this and we probably have one of the strongest community in crypto. That’s really is the main pillar that holds Celsius together.

Lau: It’s almost like I’m asking if you’re going to run for president. It’s like every time I’m sure it is this question. So it’s almost like a cliche question. When are you going to go public?

But what’s your valuation right now if you’re going to go to the market for another fund raise? We just heard obviously FTX raising $900 million, close to a billion dollars, they’re going to put that money to work. It’s interesting that Coinbase is also one of the investors there. The crypto exchange space, this crypto space is very interesting right now. Coinbase, I think market cap right now sits at close to $47 billion. So question, how much are you going to the market to fundraise for, at what valuation?

Mashinsky: Look, I think we should compare notes in a few months and we’ll be able to talk about it. Right now, we are doing a round of funding. We announced that. We have our leading investor so that’s already done. We are basically opening this round as well to our community. Last time,1,000 participated. 2,500 people actually registered to sign up. I expect at least double that this time. So we expect to bring our community, create even more seats on the bus and make sure that everybody gets to the finish line. Our mission is that 100 million people, it’s not about just getting 100 million. The key is to get these 100 million people to achieve financial independence, to achieve financial freedom. Today, if you go on our website, celsius.network, you will see we list our top 500 holders that have either CEL Token or equity with us. And almost all of them are millionaires. Almost all of them who came and participated in Celsius got to benefit. It’s not just I benefited because I created this company, or the employees of Celsius benefit because they got on the bus.

The whole point is to take the whole village with you because the financial world we live in, the traditional finance world, does not operate that way. We celebrate the people who displayed the most greed, not the ones who displayed the most generosity. And then they get to be 60 years old and they pepper a little bit of money on some charities and we say, look how generous they are. This is my third unicorn. I didn’t do this for the money. The point for me was to bring the whole village with me to the finish line because it’s not difficult. This is not some secret that you learned on Wall Street. And because of that, you get paid $100 million a year.

The whole point of all of this is to show how simple and how universal yield could be and how 7.8 billion people can join and all benefit. No one loses. The only people who lose are the people who used to hoard all that money and keep it all to themselves. I call this decentralized Buddhism. That’s what I believe in.

Lau: Well, decentralized Buddhism also means go with the flow. So let’s talk about it. How are you going with the flow? How are you going to be putting your capital to work? And talk about the partnerships that you have right now, notably Horizen, which together you’ve launched what is called the Zero-knowledge Audit, or a decentralized, blockchain-based audit system that preserves privacy. Talk about how you’re going to put this money raised in VC world in fiat dollars, put it in crypto and then put that crypto to work in decentralized reality.

Mashinsky: One important component of creating value and creating yield is also transparency. And unfortunately, we all have seen in 2008 when Lehman Brothers went bust. They went bankrupt in 2008. And just a few months earlier, their auditor told all of us that they’re a great company and they’re going to continue to do very well. So this whole idea of double-entry accounting system with an external auditor that audits you a year later is something that may have been around for 700 years since basically the Medici invented the system. It does not work anymore.

So what Celsius together with Horizen created is a real-time audit trail, that uses the blockchain. But it’s what we call triple-entry accounting system. It’s your traditional double-entry. So Celsius reports certain things, but then you can verify that in real time on the blockchain. So we publish our numbers every week. You can see on our app, you can see on our website how much we have in assets, what did we earn and how much we paid the community. Who got what. You can actually see everybody else. You don’t know their name, hence Zero-proof. But you know what the number one earner in Celsius earned. It happens to be me. But you can see exactly what was paid to Alex Mashinsky, and you can see your ranking versus my ranking.

Now imagine that with your bank. Imagine going to your bank, giving them your paycheck and saying, I want to know what you do with my money, I want to know where you deploy it, how much are you earning on it, how much you are paying me. And by the way, I want to know all the other customers in the bank and see if I’m getting my fair share. Because I’m 1% of your assets. Am I getting 1% of the income? So obviously there’s no financial institution in the world that will ever do that for you. But that’s what proof of community, or our project, of the Zero-proof knowledge, enables you to do. Because on the blockchain, all of that is possible. And if you have an institution that actually cares for you and is acting in your best interest, then they should have no problem opening the kimono sharing with you all this information. So that’s really the difference between traditional finance and companies like Celsius.

Lau: So kind of like on-chain analysis, except it’s like a crypto bank analysis and it’s completely obvious to everybody in the community what everybody is getting and doing.

Mashinsky: Right. And all that data is available to anyone. Even if you’re not a Celsius customer, you can go and verify data about the Celsius community, about all this. Because not everybody is a programmer and not everybody knows how to sift through tremendous amount of data. So we have what’s called a reward explorer. It’s like a crawler or a browser, that allows you to see the data in the visualized way, like with charts and numbers and beautiful representation. And that’s a community effort, the community built that to basically audit us, to make sure that what Celcius says is true.

So I think when you put all those pieces together, yields from sustainable sources, external audit, real-time information, you’re creating an institution that hopefully outlasts me. An institution that can really be there for the people, by the people. Because the vast majority of the value created here is being captured by the community. After all, they contributed the asset. They should be capturing most of the value. 

Today in our banking system, the Fed has lowered the rates to zero. They’re really robbing people who have any dollars, any assets. So on one side, the government takes half of your money with taxes. And on the other side, the Fed is debasing your currency. So being squeezed between a rock and a hard place, most people don’t understand that. Most people think, “Oh, it’s Corona, and this”. It has nothing to do with Corona.

Lau: And don’t forget the middle layer where you’re paying 2% to 3% management fees, crossing your fingers, hoping that you’re going to make that back if the price of your equity rises.

Mashinsky: That’s right. Unfortunately, most of the companies in the crypto world are toll collectors. They are just not called this bank or that bank, but they do exactly the same thing. They’re extracting a pound of flesh from you no matter if Bitcoin goes up or goes down. And what Celsius really decides to do is really take this idea that yield plus compounding interest is the most powerful force in the universe. That is that is what can get you to that financial independence.

So like you said, as long as you have diversification, and as long as you average in and you have these different assets in your basket, you’re going to do much better than what traditional finance is offering you, where the fees are more than what they’re paying you. I mean, it’s just crazy.

Lau: Well, I’m going to call you the unicorn whisperer soon, if your aspiration to take Celsius to the next elevation proves successful. Alex Mashinsky, it was absolutely a pleasure. Appreciate it.

Mashinsky: Well, I can definitely confirm that we’re a unicorn. I can confirm that.

Lau: The unicorn whisperer. Let’s see how many more you can birth. Hey, Alex, I’m going to absolutely invite you back on the show when you’re ready to tell us all about going public and all the rest of it in your next plans.

Mashinsky: Thanks for having me back. 

Lau: We’ll get you back on there. And thanks so much for joining us, Alex. Appreciate it.

Mashinsky: Great to be with you.

Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Angie Lau, Editor-in-Chief of Forkast.News. Until the next time.