crypto strategy

Celsius was exploited like a Ponzi: report

Key points to remember

  • Celsius used client funds to raise the price of its CEL token.
  • It also used new deposits to fund customer withdrawals.
  • Celsius CEO Alex Mashinsky and other Celsius executives made millions selling their CEL holdings, despite claiming otherwise.

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Celsius was raising the price of its CEL token using customer funds, according to a new report. Even employees commented on how the scheme looked like a ponzi.

A Ponzi in many ways

An independent reviewer seems to have confirmed something crypto natives have suspected for months now.

In his court-ordered mammoth 689 page report on Celsius, Shoba Pillay reported that the defunct crypto credit company operated in a very different way to how it advertised itself, and that parts of the business were run like a ponzi.

According to Pillay, Celsius used customer funds to support the price of the company’s own token, CEL. Even Celsius employees, such as coin development specialist Dean Tappen, have described the strategy as “very much like a ponzi”. The company would also sell CEL in private over-the-counter transactions and repurchase the same amount in public markets to raise prices. Pillay describes a number of other ways Celsius has created the market for its own token, including timed buys and placing limit orders.

Meanwhile, former Celsius CEO Alex Mashinsky sold over $68 million in CEL tokens from 2018 to 2022, although he publicly stated during his AMAs (“Ask Mashinsky Anything”, as he called them) that he was not a salesman. Celsius co-founder David Leon also took in nearly $10 million, and former Celsius chief technology officer Nuke Goldstein also dumped $2.8 million.

Celsius also used new customer deposits to fund customer withdrawals in the three days prior to its freeze on customer withdrawals absolutely. “If Celsius had not instituted the pause and the run for the bank had continued, new customer deposits would inevitably have become the only liquid source of coins for Celsius to fund withdrawals,” Pillay said.

The report further claimed that Celsius suffered more than $800 million in unreported losses in 2021 due to investments in Grayscale, KeyFi, Stakehound and Equities First Holdings.

Disclosure: At the time of writing this article, the author of this article owned BTC, ETH, and several other crypto assets.

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