As if nothing worse could happen,
a crypto platform with over a million
users is on the brink of collapse.
This collapse could spiral the entire
crypto market and your portfolio.
So what in the world is even happening?
This market is exhausting.
It's just one bad domino after another.
Like most crashed companies, the Celsius offer
seemed too good to be true.
Now, a platform that offered service is
far better than any traditional bank.
Huge returns up to 18% and zero fees.
But now there's a platform wide
freeze, and investors are panicking.
So what caused this disastrous crash?
Was it some kind of Ponzi scheme?
Did it run into simple liquidity issues?
Or is there some dark secret here for us to uncover?
We're going to explore all of this because first,
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Okay, now back to Celsius.
To explain, let's just imagine you're a regular Celsius user.
You heard about them a while ago, and you gave it
a look over and you really liked what you saw.
I mean, the banks that your parents use,
they offer a tiny amount of interest. It's laughable.
Celsius gives you a lot more, up to
100 times more, and they make a statement
that basically anyone can get behind that.
Banks kind of suck.
Now, Celsius isn't exactly a bank replacement.
You kind of treat it like one.
But it's more about getting that juicy passive income.
It's not exactly a safe haven for your money.
So you went ahead and you put some of your
hard earned cash into the Celsius network.
For a while, things look good. Great, even.
You can chuckle to yourself while
driving past your local bank
thinking about the suckers who put their money in there.
Life is good.
- [Laughs] Hello Suckers!
Then you wake up one day to
find your worst nightmare has come true.
Your money is frozen,
every last penny.
Have you been scammed?
Could you just run it again?
Could you come back when you have some money?
You immediately start reading mammoth sized threads on Twitter
and Reddit to find out what went wrong.
Some places are urging you to stay calm,
pointing out that Celsius could never
be 100% liquid because of its model.
But digging deeper, you find longtime crypto
heads saying I told you so.
Stories of surprisingly awkward withdrawal
processes and concerning delays.
This is often a sign of
a company with liquidity issues.
More cash going out than they physically have.
You read posts saying to get out of
the network just days before the collapse.
They say something smells fishy.
Withdrawals are getting harder.
They may be insolvent.
They can't pay their debts.
The CEO and his wife have been
selling off tokens, but it's too late.
However, there still is some hope.
At least the Celsius team
is working and answering questions.
So it's not like they've completely just cut and run.
But this is also complex and technical.
It's hard to give it the bul*** sniff test.
Extreme market conditions, stabilized
liquidity over leverage.
And what on earth is a StETH?
The strange thing about all this is you
see two distinct groups of people, those in
total panic and those who are completely relaxed.
It's hard to read.
Like, which side of the should you be on?
Those people who feel confident about getting a
hold of their money have complete faith in
the CEO, Alex Mashinsky, and the business model.
They call the people who are being negative FUDs,
blaming them and their fears for the crash.
Which I guess is kind of true.
It's aggressive, for sure, but technically, if no one
took their money out, then this wouldn't have happened.
But at the same time, you can't blame
anyone for being extra careful right now.
The funds get to say that they were right.
They have their money right now.
Then you get a bit sidetracked because you realize
you don't actually know what a FUD is.
So you Google it.
Ah, that makes sense. Why do I do that?
Sometimes I just put off learning
the simplest thing for no reason.
Oh, shit, I'm getting sidetracked.
The fudge say it was a scam, the Ponzi scheme,
or a flat out bad business model destined to fail.
And you're even more confused now.
Why can't you get in plain
English, what happened to your money?
Why is this so confusing?
Okay, so you decide to go back to the beginning.
The CEO made this neat analogy about their business model
being like borrowing a cup of sugar from a neighbor
and returning back the cup plus a tablespoon more.
Very quaint. Wholesome, almost.
But those interest rates seem to be
a lot larger than a spoonful.
How many spoonfuls are in a cup anyways?
And where does this extra spoonful payment come from?
Who's paying for this?
How could they be promising 100 times higher
interest rates than bank in the first place?
It's not like crypto magically
multiplies money on its own.
There had to be something else. And there is.
It turns out there's really only two types
of crypto lending platforms, ones that offer market
rates and ones that lose money.
So starting with the market rates, this is where you're
actually lending out your money directly in a market to
some other user who pays interest directly to you.
So the rates are just simply supply and demand.
Now there are pros and cons of this.
The downside of this is
that rates can change dramatically.
I've done a lot of lending stablecoins and other tokens
on Kucoin, and I've seen rates as high as
50% APY when there's huge demand, but also as low
as 1% when the market is crashing.
So the rates aren't as consistent.
However, you don't have to worry about the
institution trying to afford to pay you.
Here's how much I made with
Kucoin lending in the last year.
I'll have them linked in the description if
you want to try it out for yourself.
Then we have platforms that lose money.
Most crypto lending platforms simply can't afford
to pay 8% plus in interest forever.
But they know that that draws in new users,
so they use this as a loss leader.
They lose money on that so they can
make money elsewhere from you as a customer.
And that's totally fine.
Most of these platforms have huge
amounts of cash to draw from.
But the rates, of course, can't last forever.
Celsius falls into that camp.
Yes, they're making money lending out currencies, but
it just wasn't covering their entire 18% nut.
The operating model for Celsius seems
pretty similar to a bank.
People make deposits and earn interest.
Other people borrow money and pay interest.
So in your search, you go back to that phrase, "bank run".
I mean, the sure looks like a bank run.
They just ran out of
money, liquidity, sugar or whatever.
And then you see someone saying that
it looks like a Ponzi scheme.
And it does have traits of a Ponzi as well.
I mean, it promised outsized returns.
It appears to be insolvent.
However, that hasn't been confirmed.
But insolvent or not, it's clear that the system
could only handle so much pressure before it burst.
And here's the pressure you ordered.
The model relies on fresh money coming in at
all times to pay old investors or it collapses.
And that kind of sounds like a Ponzi scheme, right?
If the fear spreads too widely, then new money
dries up, then current investors get nervous and withdraw.
And then you end up with not enough money in
the pot to pay the people who are still there.
The problem is something can have Ponzi like
traits and not technically be a Ponzi.
Look at gold or the US dollar.
Both check a few boxes, so it's hard to determine.
You can't say something is bad because it
has a couple of Ponzi like traits.
So you put the idea of it being a
Ponzi to the side for a while because something
even shinier caught your eye in this research.
Conspiracy theories.
You've been trying to avoid them in this
research, but now it's time to delve deeper.
Who's to blame this time?
The illuminati, shapeshifting Lizards, Nancy Pelosi?
Some claim that this is an attack orchestrated
by big names and influencers, other states
third parties who sold their staked Ether
to deliberately try to hurt this network.
This is important to note because Celsius
has a ton of this StETH.
See, the problem is that a huge part
of their treasury is locked up until Ethereum
completes the transition to the new proof-of-stake model,
which could take several months.
This means that they have even less money
to pay out people trying to make withdrawals.
And it's even worse than that because staked ETH
should always be the same price as one regular
ETH since it essentially represents the same asset.
Well, when people began selling off their
staked Ether, it fell off that peg.
And this of course caused even more panic and more
selling, which made that price go down even further.
So not only does Celsius need the value
that's locked away right now, the asset that
they're holding, staked ether, is becoming extremely stressed.
It's not a great outcome for a network
whose biggest risk is running out of money.
So how are other cryptocurrencies affected by this?
Well, we saw it immediately.
Crypto prices melted away across the board.
Again, this of course just piles on existing
fears thanks to the Luna collapse, inflation, the
stock market regulations, home prices and just about
everything else that matters in the economy.
Right now the market is just kind of sitting,
waiting to see if there will be
some kind of total implosion of Celsius.
What happens next?
Well, regulators are also looking
closely at this disaster.
CEO Alex Mashinshky has fought to keep Celsius away from
the strict controls that banks have to deal with.
This sounds great and all but one of the
unfortunate side effects of this is that their customers
are unsecured creditors who aren't protected by insurance in
the same way normal bank customers are.
It's all right there in the terms and conditions.
With the benefit of hindsight, Celsius is
basically a higher risk interest bearing account.
Anything that offers way above market rates
is just going to be more risky.
Which is fine if you understand
what you're getting yourself into.
However, that's not exactly helped by the fact that high
risk crypto ventures often try to make their business model
sound a whole lot simpler than it really is.
It's not all sunshine and rainbows.
That sugar example from earlier deliberately makes
it sound like some good old risk
free borrowing to rosy cheeked neighbors.
People would be less likely to sign up if
they understood the complexity of things like staked Ether.
Yet here we are.
Celsius over leveraged and ran out of liquidity.
What they need to do now is convince investors
to give them more cash to solve this problem
that the business model can be fixed.
And it looks like it's beginning.
They're paying off as many debts as possible and they
could restructure the business, but it might not work.
An anonymous source revealed that some of their largest
investors might not be there for them or might
wait for the restructuring to happen first.
And this is far from ideal for Celsius users who
are essentially left to sit there and wait, hoping for
good news, hoping that this crisis will be averted.
And I just hope, for the sake of
everyone invested, that this is just a bump
in the road for Celsius, that the market
trends upwards and these weaknesses can be fixed.
Now, from here, I highly recommend checking out
this video on a fund currently investing
$4.5 billion into the crypto market.
It's a fascinating story.