Who is Alex Mashinsky?
Alex is a serial entrepreneur with an established reputation of disrupting industries. ‘Disruption’ is overused nowadays, but Alex has the track record to back it up. The full list of his exploits prior to founding Celsius Network is enough to fill an article by itself (you can read one on Forbes or check out his personal website). Therefore, we will only mention his most popular success: creating the Voice Over Internet Protocol (VOIP) to make cross-border voice calls essentially free for everyone.
Remember the days when people paid exorbitant amounts per minute for international phone calls? Fast-forward to today where you can talk to anyone anywhere over Whatsapp, Facetime, or Skype. VOIP is the tech that enables this, and Alex’s previous startup Arbinet developed and offered this technology, for which he filed a patent. This invention significantly disrupted telecommunications as we know it and greatly benefited individuals and businesses. Alex aims to have a similar effect on the banking system with Celsius Network.
Alex holds 34 patents, has raised over $1B for his startups, and has realized more than $3B in exits. He was nominated for Ernst & Young’s Entrepreneur of the Year award in 2002 and 2011.
About Celsius Network
Earn interest on your crypto deposits
Banks, especially in today’s low interest rate environment, are known for offering very low interest rates to depositors, or even negative interest rates in countries such as Japan. This means that savers in most countries lose money to inflation and suffer diminished purchasing power over time.
The London-based Celsius Network wants to change this by giving depositors what they deserve. Celsius pays crypto holders up to 7% annual interest on their crypto deposits, depending on the cryptocurrency deposited. More than $50M worth of cryptocurrency has been deposited since the summer of 2018 and more than 16,000 users from over 100 countries have joined Celsius.
Celsius is powered by CEL, an ERC-20 utility token which can be used to pay interest on deposits. CEL holders may also receive higher interest payments on their crypto deposits.
Celsius’ value to crypto holders (individuals and businesses) is obvious – you receive handsome interest payments on your crypto deposits. Depositors also earn interest in the same coin that they deposit (e.g. Bitcoin depositors earn in BTC). Interest payments are disbursed every Monday. Crucially, depositors can withdraw their crypto at any time without incurring additional fees or penalties. Users can get started with the Celsius mobile app available on Android or iOS.
The interest that depositors earn is calculated as follows, in order to maximize returns for long term crypto holders:
- 50%: Your portfolio balance (i.e. deposit amount)
- 25%: Amount of time you’ve been part of Celsius without withdrawing your coins
- 25%: The amount of CEL tokens you hold out of the CEL tokens you earned as interest. CEL tokens will be distributed to members outside of the US next year.
Secure fiat currency loans without selling your crypto
Another issue facing crypto holders is that they cannot use crypto to buy a car or fund a new business venture. Banks may not accept crypto holdings as collateral. Borrowers would first have to sell their crypto, perhaps during unfavorable market conditions. Celsius offers a way for crypto holders to take out loans secured by their crypto holdings, without having to sell their crypto.
Celsius offers fiat currency (e.g. USD, EUR, JPY) loans to individuals and businesses that provide cryptocurrency collateral. Since its launch in July 2018, Celsius has made over $600M in loans with the largest single loan valued at $5M.
Borrowers can secure USD loans at rates between 4.95% and 8.95% APR at the time of writing. Ethereum, Bitcoin, Litecoin, Ripple, DASH, and Bitcoin Gold are currently accepted as collateral. Celsius promises no hidden fees and their website features an easy-to-understand illustration of how the loan process works.
BitPR has a sizeable Japanese audience, so could you please tell us about Celsius Network’s current usage and potential in Japan and southeast Asia?
Alex Mashinsky (AM): We saw a large Japanese contribution during our fundraising. Right now, roughly half of our customers are from North America and the rest are from over a hundred countries, with Japan being probably the largest one outside the US.
The reason for that is simple. Most of these countries offer very low interest rates to depositors. In Japan, there are negative interest rates – you have to pay banks to store your money. Celsius offers high interest rates that are not available in most of these countries. People relying on the banking system work hard to earn money but see their savings lose value due to inflation. I keep saying that banks can afford to pay 5, 6, 7% and still be profitable. They just don’t want to. In the US, maybe five banks control 70 or 75% of [depositor] assets. They are not incentivized to reward depositors, because depositors are unlikely to switch to a community bank in Alabama that pays more, for example.
What Celsius provides is an alternative which works with cryptocurrencies. We provide income to depositors because we generate income on assets [by making loans], which is what banks and financial institutions do. They just keep the gains to themselves. We transfer them to our depositors.
Crypto deposit rates at Celsius are obviously attractive to crypto holders who do not trade frequently, especially during this bear market. But are you seeing interest from business that hold sizeable crypto balances?
AM: We have some ICOs that deposited with us. We also have financial institutions that are long-only, for example. We also lend coins.
The lenders are mostly retail, the borrowers are mostly institutions. They borrow for a variety of reasons (e.g. tax reasons). If I am a long-only fund and the cost of my Bitcoin holdings was roughly $300/BTC, I’m not going to use that Bitcoin. I’m going to borrow Bitcoin against my Bitcoin and use that. If I have to recognize capital gains, I’d rather I’d rather recognize it on my borrowings versus my entire BTC portfolio.
Our business model in terms of lending and deposits is nothing new. The only difference is that we’re also doing it for the guy that just has 1 Satoshi. The big difference between us and many other banks is that we treat the big guys and the little guys the same way. Institutions come to us every day asking for better terms. We say ‘no’ and tell them that if they’re not HODLing and helping the community, they’ll be penalized with lower interest on their deposits.
With institutional investors on Wall Street, asset managers, and family offices on the cusp of investing significantly crypto, how is Celsius positioning itself to attract these new clients?
We’re relying on greed. If you have a sustainable and provable method of generating income, institutions will come to you.
People trust Warren Buffet because he has a long track record of delivering significant IRR. If you look at my career, I’ve had very high IRR in my seven previous startups. When institutions look at Celsius, look at whether the management team can deliver, if the business model is sustainable, and if we can be trusted with their money.
Our model is simple, we give 80% back to the community. Banks keep 80% to themselves. It’s not like there is a complicated algorithm that nobody knows about. It’s very simple, we lend at up to 9% and we distribute at rates of up to 7% to the community that deposits their crypto with us.
Could you talk briefly about your partnership with Monarch Wallet and what these partnerships will mean for Celsius going forward?
We partnered with multiple wallets and exchanges. Monarch was probably one of the bigger ones. We’ve also partnered with Infinito and Coinvest. We believe that everybody should be able to generate income on their crypto holdings. The community will grow and we will see mass crypto adoption if hundreds of millions of people join and benefit from this service, which is why we are partnering with wallets and exchanges [to tap into their large customer base].
I’ve done this before. I created VOIP and deployed it worldwide, enabling free cross-border voice calls for anyone with an internet connection. I brought VOIP to Japan in 1995-96 and deployed it with NTT (Nippon Telegraph and Telephone). Over 3.5B people use VOIP today. It was a perfect application that took users from an expensive service provider (phone companies) to a cheap service provider. Celsius is also a cheap service provider because we give most of the money back to the community.
We see that Celsius uses BitGo for securely storing deposits. Could you please tell our readers more about how collateral and deposits are securely handled?
AM: We decided that we’re not going to be our own exchange or custodian because there are other people who do these things very well. We chose BitGo as a custodian and we’re also going to support other custodians.
When you download the Celsius Network mobile app, the address where you deposit coins into is a BitGo address, not a Celsius address. Deposited coins go directly to BitGo and they leave BitGo only when we lend them out, then they come back to BitGo. BitGo is one of the best custodians and they help hundreds of exchanges and institutions. For example the Chicago Market Exchange (CME) and Bittrex use BitGo. They have a lot of very famous customers that have not been hacked, which is why we rely on their infrastructure.
BitGo recently announced that they have a $100M insurance policy via the Lloyd’s of London insurance market to protect clients that maintain cold storage accounts. It makes our customers’ deposits that much safer.
How many currencies does Celsius Network offer loans in?
AM: We support multiple currencies in addition to USD. You can borrow in Euros. We just did our first Japanese Yen loan recently. We have a partnership in Brazil where we lend in Real. The deposits and collateral are all in Bitcoin, Ethereum, Litecoin, etc. but the cash loan itself can be in a number of currencies.