On June 12, 2022, Celsius Network — one of the largest cryptocurrency lending platforms in the world, with over $12 billion in customer deposits — froze all withdrawals, swaps, and transfers. The company’s 1.7 million users, many of whom had deposited their life savings attracted by promises of yields up to 18% on their crypto holdings, were suddenly locked out of their accounts. A month later, Celsius filed for bankruptcy, revealing a $1.2 billion hole in its balance sheet. The company that had marketed itself as a safer alternative to traditional banking had turned out to be running what critics described as a crypto Ponzi scheme — paying early depositors with money from new ones while making increasingly reckless bets with customer funds.
The Celsius collapse was one of the dominoes in the crypto crash of 2022 — a cascading series of failures that included Terra/Luna, Three Arrows Capital, Voyager Digital, and FTX. But Celsius stood out for the brazenness of its founder, Alex Mashinsky, who had continued to publicly assure depositors that their funds were safe even as the company’s financial position deteriorated to the point of insolvency.
Alex Mashinsky and the Promise of Yield
Alex Mashinsky was a serial entrepreneur with a gift for self-promotion. Born in Ukraine and raised in Israel, he moved to New York and founded several technology companies, including a Voice over IP firm. He claimed to hold patents foundational to VoIP technology — claims that were disputed but never definitively resolved. What was indisputable was his ability to sell a vision.
Celsius, founded in 2017, promised to “unbank” the world — replacing the traditional banking system with a crypto-based alternative that would offer depositors dramatically higher returns. The pitch was simple: deposit your Bitcoin, Ethereum, or stablecoins with Celsius, and earn annual yields of 7%, 12%, even 18%. Celsius would lend those deposits to institutional borrowers — hedge funds, trading firms, crypto companies — at higher rates, and pass the profits to depositors.
In a world of near-zero interest rates, where traditional savings accounts offered fractions of a percent, Celsius’s yields were intoxicating. The platform attracted retail investors who were frustrated with conventional banking and excited by the crypto revolution. Mashinsky cultivated a persona as a populist champion — wearing a t-shirt reading “Banks are not your friends” and hosting weekly YouTube “Ask Mashinsky Anything” sessions where he reassured depositors and attacked critics.
The Business Model That Couldn’t Work
The fundamental problem with Celsius was that the yields it promised were unsustainable. To pay depositors 18% returns, Celsius needed to generate returns significantly above 18% from its lending and investment activities — after accounting for operating costs, defaults, and the company’s own profit margin. In the early days of crypto lending, when demand for borrowed crypto was high and competition was limited, this was marginally possible. But as the crypto market matured and competition increased, the margins compressed.
Rather than lower yields and risk losing depositors to competitors, Celsius chased returns through increasingly risky strategies. It deployed customer funds in decentralized finance (DeFi) protocols — often experimental, unaudited smart contracts with significant risk of exploit or failure. It made unsecured or poorly collateralized loans to crypto entities. It invested in illiquid tokens and staking operations where the deposits couldn’t be quickly retrieved.
Most dangerously, Celsius used customer deposits to purchase its own CEL token — artificially inflating its price, which in turn inflated the value of Celsius’s balance sheet. It was a circular scheme: customer deposits funded token purchases that created paper wealth that justified more customer deposits. When the music stopped, the circularity collapsed.
The Crash
The unraveling began in May 2022 with the collapse of Terra/Luna, a stablecoin ecosystem that wiped out $40 billion in value virtually overnight. The Terra crash sent shockwaves through the crypto lending market, triggering margin calls and forcing liquidations across the industry. Three Arrows Capital, a major crypto hedge fund and one of Celsius’s largest borrowers, defaulted on its loans.
Celsius was caught in a liquidity trap. Much of its assets were locked in staking contracts, DeFi protocols, and illiquid investments that couldn’t be quickly converted to meet withdrawal demands. When depositors, spooked by the broader market turmoil, began pulling their funds, Celsius couldn’t keep up. On June 12, 2022, it paused all withdrawals.
Mashinsky continued to tweet reassurances even as the company was insolvent. In the weeks before the withdrawal freeze, he had publicly dismissed concerns about Celsius’s financial health, calling them “FUD” (fear, uncertainty, and doubt) spread by short sellers. He encouraged depositors to keep their funds on the platform. Many did — and lost everything.
The Criminal Charges
In July 2023, Alex Mashinsky was arrested and charged with securities fraud, commodities fraud, and wire fraud. The indictment alleged that he had systematically deceived depositors about Celsius’s financial condition, had used customer funds to manipulate the price of the CEL token, and had personally profited by selling approximately $48 million worth of CEL tokens while publicly telling depositors to buy and hold.
The bankruptcy proceedings revealed the full extent of the mismanagement. Celsius owed its depositors approximately $4.7 billion but had only $4.3 billion in identifiable assets — and much of that was in illiquid or depreciated crypto holdings. The $1.2 billion shortfall was the result of trading losses, bad loans, and the collapse of the CEL token’s artificially inflated value.
In December 2024, Mashinsky pleaded guilty to two counts of fraud. He awaited sentencing facing up to 30 years in prison.
The Lessons of Celsius
Celsius Network demonstrated that the crypto industry had not invented new financial principles — it had simply rediscovered old mistakes in a new context. The promise of high yields funded by risky lending, the use of customer deposits for proprietary speculation, the circular inflation of a house token — these were patterns as old as banking itself, dressed up in blockchain terminology.
The 1.7 million depositors who lost money on Celsius learned the oldest lesson in finance: if the yield seems too good to be true, it is. No legitimate lending operation can sustainably pay 18% returns in a near-zero interest rate environment. The excess yield had to come from somewhere — and in Celsius’s case, it came from risk that depositors didn’t understand and that Mashinsky didn’t disclose.
Go Deeper
📚 Easy Money by Ben McKenzie and Jacob Silverman — A skeptic’s guide to the crypto industry and the frauds hiding behind the hype, including the lending platform collapses of 2022.
📖 Explore more on our Recommended Reading page.
More From The Ledger
- FTX — The $32 billion crypto exchange that stole $8 billion in customer funds
- Enron — The original model for too-complex-to-understand fraud
Browse all stories on our Stories page.
🔔 Subscribe to The Ledger on YouTube for new investigations every week.