The first time we interviewed Alex Mashinsky was in July 2018 in the heart of a bear market. Bitcoin was about $6,500. The launch of the Celsius app was imminent.

The second time was in May 2020. Bitcoin was still under $10,000, but by this time, Celsius had passed over a billion dollars in assets.

Today, we’re in the midst of another bear market. Bitcoin is down by over 50% from its all-time high, and it’s getting off pretty easily compared to other projects.

Celsius is considered one of the top cryptocurrency interest accounts and is the eighth startup company as a founder for Alex. Two of Alex’s prior companies, Arbinet and Transit Wireless are two of New York’s largest venture-backed exits ever ($750M and $1.2B respectively.)

Alex and Celsius have had to navigate a slew of factors to navigate in recent months:

1. The UST depeg and subsequent crash of UST and Luna. Many believed that the stable dollar-pegged coin would collapse, wiping out billions in market value and prompting a flood of people to sell their crypto.
2. The $100 million SEC and state fines on BlockFi, sending a shockwave throughout the cryptocurrency interest account space.
3. The movement towards DAOs and decentralized yield generation products has enlivened the discourse of DeFi vs. CeFi yet again.

Alex Mashinsky joins CoinCentral for a discussion about how Celsius faces the future and how today’s bear markets are different from those of the past.

How is Today’s Bear Market Different?

Each bear market tends to have higher highs and lower lows. Despite these corrections, we are still moving upward. Bitcoin did very well if you plot a Bitcoin versus the S&P 500 over the last 10 years.

The cryptocurrency market at the time of interview.

People have to understand that despite the volatility, the direction is clear and that they need to take advantage of these drawdowns to expand their exposure to this asset class.

But obviously, it’s scary that the fear index is at an all-time low. I think it’s nine it’s below 10. I haven’t seen it below 10, so we are at max fear.

But, we’ve tested all scenarios, and I think there’s a lot of support for these levels.

Algorithmic Stablecoins, the Luna & UST Depeg Fiasco, Celsius Network’s Involvement with Anchor Protocol

Just because somebody calls themselves a stablecoin does not mean that they are a stable coin.

People have to understand that the stable coin comes in three different formats:

1. Fully backed by Fiat currencies like USBC, TUSD, and USDT. A dollar is sitting in a US bank, trust company or bank. A token can be used to obtain a dollar.
2. Over collateralized stablecoins, like DAI. You must first consider what collateral is. DAI has, for instance, Bitcoin and Ethereum as collateral. They could be assets that are not directly related to the crypto market. These assets won’t lose value if crypto crashes.
3. Algorithmic stablecoins. This group has a problem because algorithmic stablecoins are backed with an asset that is more volatile than Bitcoin. It is directly correlated to its performance. So, this makes it inherently not stable.

People assume that UST was a stable coin, that it will never depeg, and that they can always get their money back.

The UST depegging price chart

That was proven not to be the case. It’s not about the algorithmic nature or the collateral. A combination of Luna and Bitcoin was not enough to maintain the peg after Bitcoin crashed.

Celsius has 55 different assets in our wallet, including Luna and UST. We must stake the tokens that people give us. We must do something with the Luna tokens that people give us.

So I don’t understand why people are surprised that we are participating in every DeFi protocol. These assets are held by us on behalf of the community. We stake them or move them around in order to maximize their yield.

LUNA’s price after the depeg

Celsius monitors all of these markets 24/7. We were the first to remove these protocols when we noticed a potential depeg. Most people were either watching a movie, asleep, or at work.

Most people don’t have the skills or the coverage to watch markets constantly. Celsius has over 800 employees, 50 of them are in our network security team, and almost 20 of them are in our risk team. They monitor all the markets so you don’t have to, and that’s why Celsius now has almost 2 million customers and billions of dollars.

We pulled funds before the crisis, not during the crisis.

We had a lot of withdrawals; we regularly handle transfers in hundreds of millions of dollars every day. Although our volume was greater [during the UST depeg week],, there aren’t many people who want to withdraw assets from Celsius and are still waiting. Everyone who requested withdrawals was served quickly.

Sometimes the blockchain was slow, like Terra stopped running its blockchain, and we can’t operate when the blockchain doesn’t operate. Despite slowdowns, I believe we did an outstanding job for our customers. We are the only guys in the industry with an 800 number. You can call us six days a week, at 1-866-HODL-NOW, and talk to someone.

We had record calls [during the UST depeg week]; we had two or three times as many phone calls inbound with people asking questions or asking for us to help. I’m very proud of our 800 team that helped make sure that we helped our customers better than I think anyone else during this event.

How Does Celsius Deal with a Flood of People Trying to Exit Simultaneously?

We have ample reserves. You don’t need to worry if you plan for a day such as this. You’ll have problems if you don’t plan for a day like that. It will be difficult to fulfill all orders.

Normally, we would see a lot of withdrawals of Bitcoin and Ethereum; this time it was primarily stablecoins. People worried that Tether, which was next after UST collapsed, would become a new stablecoin. Because they were concerned, they tried to remove the risk and get rid of their stablecoins. They were not concerned about Celsius, but they were concerned about the ability of these issuers to convert these stablecoins in dollars.

And they were proven wrong, like people who sold their USDT for 95 cents on exchanges. It was sold to another person who took the same token to Tether, and received a hundred cents per dollar. Tether didn’t depeg. The only thing that depegged on exchanges was the price for Tether.

USDC didn’t depeg either. Anyone who went to Silver Gate and Circle got 100 cents per dollar on USDC, just like Tether users get 100 cents per dollar.

People have to understand that these are two different things. People can be nervous about seeing the exchange price, but it is only a willing buyer or seller making a transaction below the asset’s value. It does not reflect the value of stable assets like USDC or USDT, which have fiat reserves equal to their total value.

Thoughts on DAOs, Would Celsius Ever Decentralize?

The mission of Celsius from Day One was to bring the next 100 million people into crypto.

We don’t believe that you decentralize; we believe that you build the roads and bridges.

If you think of a two-span bridge where one span goes to TradFi, and one span goes to DeFi, Celsius, as a CeFi company, is to build those bridges. We’ll keep innovating to build and expand these bridges with Celsius X and other services like the one we invented on blockchain yield.

Our job is to solve the KYC AML, cross-chain, security, and key management problems. These problems are not to be ignored.

DAOs are amazing; they serve a certain function, but no regulator will allow you to perform the function that we perform for our customers if we just become a DAO. It won’t allow you to do the same thing as we did during UST depeg where hundreds of millions were withdrawn. As a DAO, you can’t do this.

We must provide A to Z services to our community.

We just launched on-ramps in 40 states. Swaps are available all over the globe, not only in the United States. Next month, we will issue a credit card. We also have loans. We have a yield product. We have stake products. These are not the most common things you can do as a DAO.

We have to stay what we are and continue working with regulators and lawmakers to make sure that the laws act in the best interest of the American people and the rest of the world. We want to provide services that protect consumers, protect corporations, protect institutions, and let them use the future of finance, instead of relying solely on TradFi.

What Does Celsius Working with Regulators Entail?

Unlike many other companies that might be hiding offshore where they don’t have an address and you can’t visit their offices, our main office is in the United States, and we have offices in Israel, Serbia, London, and other places.

We continuously talk to regulators, lawmakers, Senators, and Congresspeople. We are a member of many organizations that lobby for crypto and blockchain.

They do an excellent job educating and pushing the agenda for all of us; it’s not just for Celsius, right. They do a great job educating and pushing the agenda for all of us. They don’t want any competition or innovation because they’re doing exceptionally well, not paying you any yield, charging you 24% on your credit card, charge you for your ATM, charging you for inactivity, overdraft fees, you name it.

We’re here to change all of that. Vote with your pocket. Vote with your wallet. Either you choose to go for crypto and help the community grow or you stick with TradFi the rest of the life.

Outside of that, there are several blockchain associations you can Google- some are blockchain-centric, some are crypto-centric. It is up to you to decide what you believe. You can also contact your congressman or lady to voice your opinion.

Today, if you want to get elected as mayor, governor, or Congressman and you say bad things about crypto, you’re not going to get elected. Your constituency holds at least 25% of crypto assets. It is too late to make crypto disappear, be squashed or move on.

What we really need is for people to get educated on the benefits. There are downturns, as we have seen with Luna or UST. Stable coins should be regulated, but there is a lot of innovation potential.

The last thing we want to happen to us, the United States of America, is to see China or some other country create all that innovation and then us be the last ones to the game because we were afraid to innovate. We are the country that created the internet. We are the nation that created Web 1.0, Web 2.0. We should definitely be the ones creating Web 3.0

In February 2022, BlockFi got hit with a $50 million penalty to the SEC and another 50 million in fines in 32 different states. What has this meant for the cryptocurrency yield generation sector? What has Celsus done to address the repercussions of this?

On April 15th, we segregated retail accredited and retail unaccredited. You cannot earn yield if you aren’t accredited. Accredited people can use all of the services we have before.

An excerpt of the BlockFi SEC penalty

For the unaccredited, they can still use loans, do swaps, and use on-ramps. They can still use all other options, but they cannot earn yield. We will introduce staking rewards in July. You will be able stake your coins through Celsius if they are stackable. Unaccredited users cannot earn a return on assets such as BTC that aren’t stackable.

This is just what the regulators asked us to do, and we followed. We always follow the regulatory regimes around the world, and we will continue to do so

Editor’s note: It seems that regulators mostly have an issue with loaning assets to third parties, hence the protection for unaccredited investors.

What Can We Expect to See in Celsius’ Rates This Year?

There’s less competition right now. Many of the smaller players are likely to get out.

Institutions will have to pay more to take loans, so I think we should be able to see rate increases instead of rate reductions for depositors.

Celsius Network’s stablecoin rates (source: https://celsius.network/earn)

What is the Psychology of a HODLer?

It’s very difficult if this is your first winter and you’re down 50, 60%. If you’re in alts and you’re down 80%, you feel like an idiot; you feel like oh my God, what was I thinking? I FOMO’d in, too much money was put in, I wish that I could do this, I wish that I could do it.

None of that matters. All that matters is that you make a decision now.

Do you have too much allocation considering all your other assets?

My quick measure for that, is how do you sleep at night?

If you sleep well at night, that means you probably don’t have enough allocation. If you aren’t able to fall asleep at night, it is likely that you have too many allocations. You might need to sell some more in order to make yourself comfortable at night.

That balance is different for each person because each person is willing to take different risks and has a different portfolio of assets.

I don’t provide investment advice, but this is a thermometer with Celsius. This thermometer is a great way to gauge your exposure to these assets.

What is the End Goal of HODLing? What is the End Goal of HODLing?

We’re definitely not trying to create billionaires or help people become the richest people in the world. We’re trying to make sure people with 100 percent of their assets in dollars or fiat denominated savings understand the importance of detaching. They need to put five or 10% in something that is not dollar-denominated because they’re printing dollars like crazy, right? It’s not stopping.

We’re going to go through a recession soon, and you want to have exposure to other types of assets that have their own economy and their own momentum, and get to financial freedom.

So, financial freedom doesn’t mean that you’re a millionaire. Financial freedom means that you have enough money to earn enough income to support your family. You don’t need to rely on social security, your children or any other resources that may not provide the comfort you require.

Our path to success is all about making it across that finish line.

For each one of us, we need to have a dream. Each of us must have a vision of our retirement and plan for how we will live in the future.

How Can Crypto Interest Accounts and Yield Generation Platforms Help Everyday People Brace for Inflation?

I don’t think the banks will fix the inflation issue anytime soon.

The best yield account that I know pays 0.5%. This is not about crypto. TradFi has this problem.

Crypto is doing a much better job of at least attempting to solve some of this problem. It is giving you an asset that is not correlated and hopefully earning several percentage points.

I think inflation will come down. I don’t think we will have 15 to 20% inflation. It’s already been down from 8.3 to 8.3. We will continue to see lower inflation.

You have to understand that the crypto market is watching the stock market, the stock market is watching the fed, and the Fed is watching inflation until inflation is tamed.

We will not see the fed refocusing on helping the economy. They are laser-focused right now on inflation. We need to defeat the three-headed dragon that is inflation. Each month, we see a decrease in inflation; this is us killing one head. The Fed can focus on the economy if they have three months with lower inflation rates. Because inflation is under control, they can do all the things they say they will do.

What Can We Expect to See in Cryptocurrency 2022?

If you look at the last several crypto winters, Bitcoin was always the first to bounce back before the stock market, the bond market, and commodities.

I expect us to go sideways for a while, maybe even retest the lows. Then, I expect us to climb.

When we go up, we go up 5x. As you mentioned, with the last few levels in 2020 and 2017. When it rises, it is more than the stock exchange or any other index.

I don’t know where we’re going, but I’m projecting the next bull run, [Bitcoin], will be over $100,000.

I don’t know how soon that’s going to happen. All the coins that were held by tourists and weak hands have been sold and will be transferred to the stronger hands. There isn’t much selling. All leverage is gone. The question now is: How many people are we adding to the system and how fast is this accumulation. Bitcoin is not being created.

What New Products Can We Expect from Celsius?

Celsiusx.io is our DeFi initiative where you can go cross-chain and do stuff with smart contracts.

CelsiusX- the DeFi arm of Celsius

We’re also launching a credit card next month; our website has a waiting list.

Watch our YouTube channel or Twitter, @Mashinsky or @CelsiusNetwork. Download the wallet and give it a try. You can also use our web app to access our services online.

Thank You, Alex!

——

You can follow Alex Mashinsky on Twitter, where he regularly comments on happenings in the industry. You can also follow Alex Mashinsky on Twitter, where he regularly comments on industry happenings.

You can also get $50 upon signing up for Celsius and depositing $400 and holding for 30 days with this code.