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Celsius

From Invertopedia, the encyclopedia of how things fail

Entry 014. An analysis built from the public record, not an insider account. Spot an error? Tell us.

Celsius was a crypto lender that took deposits, paid yields of up to 18 percent a year[1][5] and told customers they could "unbank" themselves[3][6]. Over 2018 to June 2022 it promised customers $1.36 billion more in rewards than it earned from their deposits[3]. It froze withdrawals on June 12, 2022[4] and filed for Chapter 11 a month later with a reported $1.2 billion hole[2][9]. Founder Alex Mashinsky pleaded guilty to fraud and was sentenced to 12 years in prison[6][7].

Contents
  1. 1The bet
  2. 2What happened
  3. 3The kill shot
  4. 4Red flags ignored
  5. 5The cost
  6. 6The inversion
  7. 7What survived
  8. 8References

The bet

Celsius pitched itself as a better bank. Customers would deposit crypto, Celsius would put it into fully collateralized institutional loans, and customers would share in the income as rewards[3]. Its marketing said deposits were as safe as they would be in a bank[6].

Growth came first. The court-appointed examiner found that Mashinsky overrode managers who tried to lower reward rates, and that the pressure to keep paying those rates pushed Celsius into riskier investments[3].

What happened

2017Alex Mashinsky, Daniel Leon and Nuke Goldstein found Celsius.[1][2][3]
2021Celsius books losses of over $800 million, mainly from Equities First, Grayscale, KeyFi and StakeHound, and does not tell customers at the time.[3]
Apr 2022A Celsius employee describes using customer stablecoins to buy its own CEL token as "very ponzi like."[3]
Jun 9 – 12, 2022In some cases Celsius uses new customer deposits directly to pay other customers' withdrawals.[3]
Jun 12, 2022Citing "extreme market conditions," Celsius pauses all withdrawals, swaps and transfers. CEL falls 45 percent to $0.21.[4]
Jul 13, 2022Celsius files for Chapter 11 in the Southern District of New York with $167 million in cash.[5]
Jan 31, 2023Examiner Shoba Pillay files her final report.[3]
Jan 31, 2024Celsius leaves bankruptcy and starts paying out about $3 billion to creditors.[8]
Dec 3, 2024Mashinsky pleads guilty to commodities fraud and securities fraud and agrees to forfeit over $48 million.[1][6]
May 8, 2025Judge John Koeltl sentences Mashinsky to 12 years in prison.[7][10]

The kill shot

The yield was never earned. Celsius paid customers more than their deposits made, covered the gap with riskier bets and its own token, and kept saying funds were safe until the run came.

The examiner found that from 2018 to June 30, 2022, Celsius owed customers $1.36 billion more in rewards than the net revenue it made from their deposits, and that its net interest margin was mostly negligible or negative[3]. The US company that held customer accounts after an August 2021 migration was, by the examiner's estimate, insolvent from the start[3].

To keep up appearances it bought its own token. Celsius spent at least $558 million buying CEL on the market, more CEL than it had sold to the public in its token sale[3]. Mashinsky later admitted manipulating CEL's price while secretly selling his own tokens, for about $48 million[6]. By the pause, under 24 percent of its assets could be reached within seven days[3].

Red flags ignored

  • Yield with no source. Rates of up to 18 percent a year[1], from a lender whose margin on deposits was mostly negative.[3]
  • Its own token on the balance sheet. The company bought back more CEL than it had ever sold to the public.[3]
  • Losses kept quiet. Over $800 million lost in 2021 was not disclosed to customers when it happened.[3]
  • "Safe" said loudest at the end. "All user funds are safe" went out a month before the freeze, while promo codes and referral bonuses kept new money coming.[3]
  • One voice on reward rates. The founder overruled managers who wanted to cut them.[3]

The cost

At the freeze Celsius reportedly had 1.7 million customers[4]. It filed with a reported $1.2 billion deficit and about $5.5 billion in liabilities[2][9]. Customers lost more than $5 billion[10].

Mashinsky made more than $45 million while customers lost money, the judge said[7]. Prosecutors asked for 20 years and the defense for a year and a day[10]. Under the plea deal Mashinsky agreed not to appeal any sentence of 30 years or less[1]. In May 2026 Mashinsky filed a handwritten motion asking the court to vacate the sentence, citing ineffective counsel[11].

The inversion

Ask where the yield comes from. If nobody can show you the income that pays it, the next depositor is paying it, and you are the yield.

What survived

The creditors, partly. Celsius left bankruptcy on January 31, 2024 and began distributing about $3 billion in crypto and cash, plus shares in Ionic Digital, a new bitcoin miner owned by the creditors and run under a four-year management deal with Hut 8[8].

The record. The examiner's 476-page report is one of the most detailed public accounts of how a crypto lender ran on customer money[3].

References

  1. ^ “Celsius founder Alex Mashinsky pleads guilty to two fraud counts”. Al Jazeera, December 3, 2024. Founded in 2017; the Earn program's yields of up to 18 percent; the plea to two of seven counts and the agreement not to appeal a sentence of 30 years or less.
  2. ^ “Celsius Network”. Wikipedia. Founding year and founders; the $1.2 billion deficit and $5.5 billion in total liabilities at filing (cross-check).
  3. ^ “Final Report of Shoba Pillay, Examiner (In re Celsius Network LLC, Case No. 22-10964)”. U.S. Bankruptcy Court, Southern District of New York, filed January 31, 2023. The primary record: the co-founders, "unbank" marketing, the $1.36 billion rewards gap, negative margins, Mashinsky overriding rate cuts, over $800 million of 2021 losses, the $558 million of CEL buying, "very ponzi like," "All user funds are safe," new deposits used for withdrawals June 9-12, liquidity under 24 percent, and the US entity insolvent since inception.
  4. ^ “Crypto lending firm Celsius pauses withdrawals and transfers, citing market conditions”. The Block, June 12, 2022. The June 12 pause and its wording, 1.7 million users, CEL down 45 percent to $0.21.
  5. ^ “Celsius files for Chapter 11 bankruptcy”. Fortune, July 13, 2022. The Chapter 11 filing in the Southern District of New York, $167 million cash on hand, yields over 18 percent.
  6. ^ “Founder of failed crypto lending platform Celsius Network pleads guilty to fraud charges”. AP via ClickOnDetroit, December 3, 2024. The guilty plea, the CEL manipulation and secret sales of about $48 million, the forfeiture, the "Unbank Yourself" slogan and the safe-as-a-bank pitch.
  7. ^ “Founder of crypto platform Celsius Network is sentenced to 12 years in prison”. AP via ClickOrlando, May 8, 2025. The 12-year sentence from Judge Koeltl; Mashinsky pocketed over $45 million.
  8. ^ “Celsius Network starts $3 billion payout after emerging from Chapter 11 bankruptcy”. The Block, January 31, 2024. Exit from bankruptcy, the roughly $3 billion distribution, Ionic Digital and Hut 8.
  9. ^ “Celsius Network final report from the examiner: lies, incompetence and Ponzi schemes”. David Gerard, Attack of the 50 Foot Blockchain, February 1, 2023. Summary of the examiner's report; the reported $1.2 billion hole at filing and $5.5 billion owed to clients and creditors.
  10. ^ “Former Celsius Network CEO Alex Mashinsky sentenced to 12 years in prison”. Decrypt, May 8, 2025. Prosecutors' 20-year request, the defense's year and a day, customer losses over $5 billion, the plea counts.
  11. ^ “Celsius Founder Alex Mashinsky Files to Have 12-Year Crypto Fraud Sentence Vacated”. Decrypt, May 29, 2026. Mashinsky's handwritten motion to vacate his 12-year sentence, citing ineffective counsel.
Categories: Crypto · Lender · Collapsed in 2022 · Cause of death: unearned yield · From the public record