Celsius Network collapse. "Interest payments" were just what the community was told about CEL purchases

Celsius planned to sell 325 million CEL and raise $50 million. The Examiner found that the ICO and private sales actually sold 203 million CEL and raised $32 million. A footnote notes inconsistent amounts in Celsius’s underlying records; $32 million is the figure adopted in the report.

Of the unsold CEL, 4.33 million tokens were later burned. Another 117 million had been set aside under an option agreement with Mashinsky-owned AM Venture, but the purchase never closed and those tokens were not burned.

Former Vice President of Finance Ashley Harrell concluded internally that failing to burn the unsold CEL left Celsius “non-compliant with our own whitepaper.”

Employees also debated whether to disclose that the ICO had not fully sold out, including concern that the community would be upset.

Celsius told customers that its market purchases of CEL were used to obtain tokens needed for customer Rewards paid in CEL.

In March 2021, however, Head of Trading Desk Johannes Treutler wrote in a Slack conversation with the CFO and another executive that, over the preceding three to four months, Celsius had bought more CEL each week than it paid out as interest.

He added that those CEL purchases were not for interest payments: that was “just what we told the community.”

The report says customers were not told the extent to which Celsius itself was supporting the CEL market.

The internal strategy around CEL went beyond obtaining tokens for customer Rewards.

A Slack message described the goal of the strategy as keeping the “FOMO flywheel” spinning. Other internal messages reflected a view that people looked at CEL, rather than other measures, to judge whether Celsius was doing well.

Treutler wrote that a higher CEL price made people see Celsius as a legitimate company, while another executive called CEL’s rising price “our great marketing tool.”

In an Examiner interview, a senior executive also described Celsius as having created the market for CEL through the flywheel model.

In January 2021, during an internal discussion about the high cost of CEL buybacks, Mashinsky spoke about the need to take “unilateral action” concerning CEL’s price.

Four days later, Mashinsky sold about $440,000 of his own CEL.

The Examiner found that the full amount was purchased by Celsius through resting orders that had been placed to protect against sudden CEL price declines.

The trades prompted the then-CFO to write internally that a company seeking to become regulated was doing something “possibly illegal and definitely not compliant.”

By 2022, employees working around CEL were using stark language about the token’s value.

In an April Slack exchange, Coin Deployment Specialist Dean Tappen discussed how Celsius’s position and the amount founders had taken in dollars could look if outsiders learned about it.

He wrote: “We are using users USDC to pay for employees worthless CEL.”

Other internal messages in May 2022 said CEL’s price should be zero, or said Celsius should assume CEL was worth zero because its existing CEL position could not be liquidated.

In January 2021, Coin Deployment Specialist Dean Tappen wrote in an internal communication that his title at Celsius should be “Ponzi Consultant.”

Tappen later told the Examiner that this was a “poor joke” made during a late-night conversation and that he did not then believe Celsius was operating as a Ponzi scheme.

In April 2022, however, he described using customer stablecoins while growing short in customer coins to buy CEL as “very ponzi like.”

A few weeks later, when asked what cash was funding another push to support CEL, Tappen replied “users like always.” He told the Examiner that Celsius had negative equity at the time, so spending funds necessarily meant using customer funds in his view.

Celsius frequently held live “Ask Mashinsky Anything” sessions and later posted recordings to YouTube.

Beginning in May 2021, the Chief Risk Officer proposed editing misleading statements after the live session and before YouTube publication. The report says Mashinsky resisted because he feared a delay would create “FUD” in the community.

Celsius continued identifying inaccurate AMA statements internally. Some were later edited from recordings, while others were not.

The Examiner says live viewers and people who saw pre-edit recordings were not corrected, and some internal documents suggested employees hoped viewers would not notice the edited discrepancies.

In March 2022, Celsius changed its CEL rewards structure. Previously, users electing to receive Rewards in CEL needed at least 5% of their wallet balance in CEL to qualify for a 10% bonus.

Under the new structure, an internal explanation said any user earning in CEL who held just 1 CEL could receive a 10% bonus on in-CEL earnings.

Because Celsius charged no fee for swaps, customers began taking the higher CEL Rewards and swapping the CEL into other coins.

In May, when CFO Rod Bolger pressed issues including lower CEL reward rates, Mashinsky told him to “tell your team to stay in their lane,” adding that he did not need help in marketing and would bring in billions as he had before.

By May 27, 2022, Celsius had liquid BTC sufficient to meet only 30% of its BTC obligations to customers, and liquid ETH sufficient for 21% of its ETH obligations. Across coins excluding CEL and custody assets, assets accessible within seven days covered 49.5% of total coin liabilities on February 28, falling to 33.3% on May 27. These tiers included pledged collateral that could be accessed only after repaying the associated stablecoin loans.

Celsius nevertheless continued customer-growth efforts. Its May 27 AMA offered Rewards for referring friends.

Two days later, Mashinsky offered to pay $1,000 to one new Celsius customer that week.

Celsius paused withdrawals and other customer transactions on June 12.