John Bejakovic (CoinWatch): Welcome to another CoinWatch interview with founders. I’m your host John Bejakovic. Today we have Alex Mashinsky from Celsius. Celsius is a crypto borrowing and lending platform with an upcoming ICO. Now Alex is gonna tell us all about it. So Alex welcome to CoinWatch.
Alex Mashinsky (Celsius): Thanks for having us.
John Bejakovic (CoinWatch): First of all, what’s the big problem that Celsius is looking to solve?
Alex Mashinsky (Celsius): Well so the founders of Celsius and most of our employees are coin holders we’re all very passionate about the community. I’ve bee a coin holder since 2013. My co-founder has a lot of coins. Keith, our CMO, participated in the Ethereum original ICO. As we were thinking through how this industry is gonna grow we realized that we ran out of anarchists. You know, by 2013 we ran out of anarchists and now we’re running out of speculators, and really no one is focused on solving the next wave of adoption. Maybe, what we’re thinking is, it’s because we all we’re doing is really trading coins with each other or investing in ICOs. Those are the only use cases for most of these coins.
So what Celsius is trying to do is really create the right environment to bring the next hundred million people to adopt crypto. And when we started asking people and understanding what they’re looking for, the most common requests were, can I get a loan against my crypto. I already have a wallet but I didn’t buy any coins because I can’t afford to just park five or ten ethers. I need to be able to access some of that money. And the second most common question was can I earn interest on my coins.
And so we figured out how to put together a wallet that acts in the best interest of the community. The Celsius wallet basically is for the people, by the people. Instead of charging you fees and trying to extract as much out of you as possible, as some of exchanges and other wallets are trying to do, we’re all about hodling together and basically lending from the community. So we have a pool of BTC, we have a pool of ETH. We stake that with a large financial institution that agreed to be our custodian, and against that we lend dollars to the crypto holders.
So the user experience is very simple. You come in and you open a wallet and deposit BTC and you can borrow up to fifty percent of the value against it. We charge you 9% interest. We take that 9% and we distribute it in Cel tokens to, we distribute 5% of that to the rest of the community, because they stake their coins.
So it’s effectively the first implementation of proof-of-stake that anyone has done. And they get distribution in Cel Degrees, Cel tokens, which they can then sell back to the people who are taking the loan. Because the people taking loans need to pay the interest, they pay with Cel tokens, so we have buyers and sellers. It’s similar to what Filecoin is doing with storage, but here it’s just people who need loans and people who issues loans.
John Bejakovic (CoinWatch): What happens if a loan goes bad? What’s the process then?
Alex Mashinsky (Celsius): So because these are asset-backed loans, we only lend to the crypto community, we only lend to people who deposit crypto with us, and we don’t need to check your credit score, we don’t need your FICO score, we don’t care what country you’re from, so the loans don’t go bad. But maybe what may happen is the value of your security, the value of your crypto, may go down against the dollar loan that you took. But we are planning protection since we only lend, on Ether we lend 30%, on Bitcoin we lend a little bit more, and the chance of anything like that would happen where you would have a margin post is very low, and if you get any anywhere close to a margin call we let you know about it.
Our job is to protect the community. So our job is to tell you, you’ve don’t have enough collateral, or you soon won’t have enough collateral, and then give you three options: deposit more coins, you can return some of the loan to increase the collateral, or you can sell some of the coins proactively. Which would be the same thing that will happen if you borrowed against your securities or if you bought a margin like that. So we act the same way, but what we did is we solve a big problem for this community, where we think the next hundred million people can’t afford to just buy coins and park them in a wallet.
John Bejakovic (CoinWatch): I see, thank you for explaining the product. Tell me a little bit about your team. How did you get together and what experience do you have in this realm?
Alex Mashinsky (Celsius): So we all worked together for many years. You know Daniel, Keith, and me worked in several previous companies. And you know we were thinking about, again the problems, thinking about the solutions, and when we came up with the right solution, we dropped everything else we were doing and you know since last year basically being focused on this 100%. I’m a serial entrepreneur, I did seven startups in New York. You can look me up. And two of the top 10 exits in New York are companies I’ve founded Arbinet and Transit Wireless.
So a lot of business experience. All my previous ventures were VC-backed and this venture is all about giving back. So it’s for the people, by the people. We have over 6,000 contributors already that signed up, and we hope to hit 10,000 by the time we’re done. So it’s about the community, it’s about inclusiveness, it’s about global reach, and you can see all of that on our website. I think we’re doing a pretty good job explaining how it works.
John Bejakovic (CoinWatch): What about advisors who are actually helping you out with the ICO itself?
Alex Mashinsky (Celsius): We have several very prominent advisors. We have Miko Matsumara, who’s very famous in the industry. We have the founder of Sirin labs, Moshe Hogeg. We have a PhD from Columbia University who is a risk expert and we have some other people, you can look it up. Both people that invested with us as well as people who are contributing in different areas of what we try to do.
And we also have several partnerships we announced, a few we have, a few others that are in the pipeline. We partnered with, for example, the largest payment processor in Africa, to enable people all over Africa, in 21 countries, to be able to download our wallet, walk into any of those stores, and buy coins into the local wallets, using local currencies, or redeem some of those coins for BTC, ETH and so on. So really eliminate a lot of the friction that exists today in in African countries accessing the crypto world.
John Bejakovic (CoinWatch): That actually leads me to my next question, which is what’s the status of the project itself? What do you have currently as a product?
Alex Mashinsky (Celsius): We’ve posted the alpha videos of basically us running the wallet on the test net. And you can see that I think we have some stuff on Github as far as code samples. And this week, I hope, if not next week, we have a little bit of a storm here in New York, a lot of people not working this week, but hopefully by next week we will have the app in the App Store. So this will be an initial version that allows you to become a member of the Celsius community, allows you to apply for a loan, and basically locks in your position in line, because the wallet also does several other things.
It incentivize you to hodl and it penalizes you if you withdraw, if you create volatility, create a lot of transactions in the platform. Because unlike exchanges that love transactions, they make money on transactions, we love stability, because again our lending and everything else we do is based on the very stable system. The more stable our system the more financial partners we have who are willing to lend against it. The more volatility, the more nervous they get the more collateral they want.
So we created the rules in the wallet, the algorithms, the code that was written is all about stability and and enabling the hodlers not to, you know, supporting them in not trading, not exiting their position. Just to give an example. We pay more interest to the people who are joining the project earlier and who have not transacted. Meaning, if you withdraw your coins and you come back, we put you at the end of the line, which results in less interest being paid out to you compared to others who have been with us the same amount of time but have not moved their coins. Because every time you remove coins that affects our collateral, and affecting our collateral affects our ability to lend out to the rest of the people.
John Bejakovic (CoinWatch): Okay so when you say you move them back to the end of the line, what do you mean specifically? So what happens when somebody joins later?
Alex Mashinsky (Celsius): So that 5% that goes from that we charge, 9% to party as a borrower, and then we pay everyone else the 5% in distribution. Instead of paying it pro rata, we take into effect the amount of time that you’ve been with us, we take into effect how much BTC, ETH you have with us, and we take into effect how many Cel Degrees you have with us. So those are the three elements that decide how much of that 5% you’re getting versus other people. So the time effect basically gets reset if you withdraw your coins.
If you take out your BTC and move them somewhere else, and then come back, you don’t go back to your position in line. You go back to the end of the line. Because you created volatility in the system. So that’s our way of effectively penalizing people who are creating volatility, instead of people who are creating stability. So it’s just one example of how we are doing the opposite of what traditional wallets or exchanges do. Because their incentive is to maximize their profit. Our incentives are around maximizing the size of our community. Everything we do is about the size of the community, and we view the Cel token as a barometer of Celsius, of the value and the health of the community. So the more people we have in the community, the more they deposit with us, the more the Cel degree, the token, will increase in value.
We have our own token economics. So most transfers can be between members of the Celsius community, some borrowing, some lending, and all those transactions internally that have to happen internally between the two parties. So if you think of Filecoin or if you think of some of the other examples, there’s very few ICOs that can do these type of things and having internal mechanism. Everybody else requires an exchange. Everybody else requires you to have speculators effectively buying your coins.
We have an internal cycle and it’s a deflationary cycle. Each time a set of transactions take place, some of those go back into Celsius, so the total number of Cel tokens available decreases each time a loan is issued.
John Bejakovic (CoinWatch): Okay, I see. You said you want to bring on effectively 100 million more people into this crypto world. To the people who are coming into the crypto world, are you trying to position Celsius as a kind of crypto bank? And if not, how are you different from, let’s say, a traditional bank that’s handling loans and borrowing money?
Alex Mashinsky (Celsius): Yes we’re not trying to be a bank. We’re trying to be more like Costco. So if you think of Costco as an organization that does everything for their members, I mean you pay a membership fee and then everything inside Costco is best effort by the people who are organizing Costco to give you lowest price, lowest execution, and so on. So we do the same thing with Celsius. The wallet initially will have lending and interest payment, but we have we plan to add 50 or 100 other products, like a stable coin, like insurance products, like other things that are always acting in your best interest, are always acting on behalf of the community, versus trying to maximize the profits on those products.
So if you think of banks and insurance companies as traditional toll collectors, centralized companies whose entire purpose in life is to maximize profits, our purpose in life is to maximize membership and reduce the cost as much as possible. Because we believe that by doing so we will increase the value of the token dramatically. Just a few examples of what I’m talking about. If you think of Whatsapp, they basically have not charged anything to their billion users. If you think of Ethereum, Ethereum is a nonprofit that has not earned any money since its creation. All the money that was created there was earned either by the miners or by the people who hold the coins.
So this is the same type of mechanism we tried to build, the same thing. You build a very large community. The community has a lot of assets that are pooled together. All these toll collectors are gonna have to give all of us much much better terms than they do today. So by hodling together, it’s the Nash principle, together we can do a much better job than individually to negotiate the best deal.
And and that’s really what’s missing in this community, I think. All of us competing with each other to create the next best blockchain, or create a faster one. I don’t see the problem as a technical problem, and I’m a technologist right. But this is not a technical problem. This is an adoption problem. We ran out of early adopters and now we’re in that chasm. We’re gonna fall into that chasm or we’re gonna jump into the mass adoption phase. What we’re trying to do with Celsius is trying to give those necessary products to pass into the mass adoption phase.
John Bejakovic (CoinWatch): Okay thanks a lot for explaining that. Let’s talk about the ICO itself. So I know you guys have already had a pre-sale. How much money did you manage to raise there?
Alex Mashinsky (Celsius): So we have over 70 million of demand. These are people that registered and told us how much they wanna invest, and they’re filling out the KYC/ML and so on. And we we’ve collected about half of that, and so we’re still in the the pre-sale that lasts through March 15. Now people can still get a 20% bonus on a 20 cent token, and the price of the token goes up to 30 cents in the pre-sale. It’s still a pretty pretty good discount versus where the price is going to be in a public sale.
We only accept accredited investors in the U.S. We accept most contributors worldwide. There’s few countries that need to be accredited as well. In the public sale we blocked access completely for regulatory reasons.
John Bejakovic (CoinWatch): You said that you have 50 to 100 other products that you want to add to the actual platform. Can you walk me through some of that? What’s the roadmap for you following the actual ICO?
Alex Mashinsky (Celsius): Sure. So some of these products we are developing ourselves. For example, we are partnering with a diamond exchange to enable diamond-backed stable coins. So this will be a product that is in our wallet, that has a hundred percent in diamonds audited by Ernst & Young, sitting in the safe, and anyone who trades in that coin or moves from BTC to to that coin will be able to basically have a much more stable set up.
And we also have other things that we partner with third parties, like insurance products and debit cards or credit cards or things like that. So the idea is again to negotiate the best terms offering to our community, and give many many more reasons for people to have a Celsius wallet, instead of just a MyEtherWallet or you know a coin-based wallet or anything else. So we don’t sell coins, we don’t enable you to sell Bitcoin, Ether, or buy Bitcoin or Ether against fiat. You have to have those coins already. We’re just offering you the other set of services after you already have those coins, because basically all of our coins are stored with our partners in cold storage. So it’s much safer and better for the community than putting them on exchanges. Because when you put them on exchanges, exchanges lend them out, all the shorts jump on those coins they they create much more volatility.
When you remove these coins from exchanges you’re reducing the volatility, hence there’s a better chance for Ether or Bitcoin prices to go up. And that’s part of what we’re trying to do with all of this.
John Bejakovic (CoinWatch): I see. Can you actually just walk me through, in a very simple way, so if I put money, or if I put Ether into your into your wallet, what happens then? Where does where does this cryptocurrency go and how is it lent out and how is it paid back? Just walk me through the process.
Alex Mashinsky (Celsius): Let’s go through the user experience. You download the wallet to your smartphone. The wallet gives you an address. The address is actually a repository with our financial institution. So we partnered with a very large financial institution and that is really what’s different about Celsius and everybody else who’s talking about lending. We have a very large financial institution that agreed to act as a custodian. So when you give us your Bitcoin, we actually put it with them. They put it in cold storage and against that cold storage we have a dollar line with them. You can take that dollar line and instruct the bank to move the dollars into your account. So you tell us, okay, I have an account with Citibank, give us your account number, and we can instruct the bank to send you, if you give us $1,000 worth of Bitcoin, we will send you let’s say $400 worth of a loan.
We charge you 9% for that loan. As long as you pay that 9%, that’s all you have to pay. We take the 9% in dollars, we buy Cel Degrees with that. We look at who staked your ability to borrow, and we distribute 5% of that to that community on behalf of all the borrowers to all the lenders. As a lender, every day you’ll see the balance in your wallet go up, because you now have not just a Bitcoin or Ether you deposited but you also have Cel tokens that are distributed to you.
Because we’re using your proof of stake effectively to lend out to the community. So you could be a borrower, or you could be a lender and a borrower, or you could just be a lender. So each person can join for a different reason. And later on, as I mentioned, we’re going to be adding additional services so you can commit for a variety of other reasons in the future. For example, when Ethereum issues Plasma and a proof of stake, you’re not going to need a thousand Ether to enjoy that. By holding our wallet, you should have 90% of of proof of stake distribution that we collect will go out to all the Ethereum holders who have our wallet.
So these are the types of services. You don’t have to do anything. You don’t have to sign up, remember to check in. A lot of the banks and other companies, you can’t really run your life because you have to check everything every day to make sure you have the best deal, and they’re not charging you anything, you have money in your checking account instead of in your regular account or earned some interest. So you don’t have to do any of these things. Because our job is not to maximize profit. Our job is to make you so happy that you go and tell all your friends that the Celsius wallet is the best wallet out there.
John Bejakovic (CoinWatch): Okay thanks for explaining that. I think I think you definitely cleared it up for me, because I had some questions about how Celsius works and I think this has been very useful. If somebody’s interested in actually investing with you guys for the ICO, what should they do next?
Alex Mashinsky (Celsius): So go to our main website. You’ll see a link there to the crowd sale and just follow the instructions and you have to do KYC, you have to contribute your token obviously, and we will do a distribution about two weeks after we finish the public sale towards the end of March.
And you know, just to make one point on the ability, the reason — in 10 years no one really has partnered with any major financial institution. We have this gap between all the ICO companies and all the banks and the financial institutions. The reason Celsius has been able to bridge that gap is because in my career, I’ve raised over a billion dollars from venture, private equity. And running public companies I have a lot of experience and a lot of relationships with a lot of these guys. And I think that’s what bridged the gap. They wanted to work with someone that they know, that they know what to expect, they know what they can deliver, and and so the trust was there to create that partnership. And this is a huge bridge that again will help the community go from the early adopters to the mass adoption. So if I deliver, we all benefit. You know like we say in our presentation E=MC^2, Ethereum equals members times CC, meaning Celsius or community credit. You put those two together, and suddenly the value of Ether will go up dramatically. So that’s our real goal here, to increase the value of E.