David Weild is a stock market expert best known for his position as Vice Chairman of NASDAQ. He is currently the Founder, Chairman and CEO of Weild & Co. Inc., parent company of the investment banking firm Weild Capital. Weild is also known as the "father" of the JOBS Act, and has been involved in drafting legislation for the US Congress.
Alex Mashinsky is an entrepreneur who has founded several notable technology firms in the United States. He founded Arbinet in 1996 as a commodity exchange for telecommunication companies to trade unused long-distance minutes. Mashinsky's other company, VoiceSmart, was one of the first firms to offer telecommunications switches to handle ordinary voice as well as Voice over IP call routing. He currently serves as CEO of the Celsius Network which is an blockchain-based lending platform.
Harumi Urata-Thompson is CFO at Celsius and Nuke Goldstein is CTO at Celsius.
Want to unbank yourself with Celsius?
(and get a free $20)
- Install the Celsius wallet (https://celsius.network/get-the-app/)
- Use a referral code during registration (184970a20e)
- Deposit $200 of crypto or stablecoins
Q: What were Tether's goals here in making this significant investment in Celsius? Link
Alex: All of my previous seven companies were VC backed, and most of the value that was created stayed with the venture funds and not with the community. This is exactly what you see with many tech companies, such as Uber, Facebook, and LinkedIn, as well. What we are trying to do with Celsius is not only to act in the best interests of the community but also making sure that community participates in the value creation. Tether structured themselves in a very similar way. So Celsius and Tether have the same ambitions, goals, and approach. Celsius is doing a $30 million funding round in total, with $10 million of that coming from Tether. The Celsius community will participate with $10M total (to be increased from current $5M allocation) and Strategic Investors will take the remaining $10M. Strategic investments may include partnerships in Europe or Asia, or partnering with groups who may not be from the blockchain or crypto industry but who want to deliver the same values that Celsius has.
Q: What is Bnk to the Future? Link
Alex: Bank to the Future is a crowd funding site that allows users to invest in FinTech and Crypto companies. In the US it is only open to accredited investors and a maximum of 99 US investors. Additionally, we are limited to only 2,000 investors total and we have already more applications than that, so we will unfortunately need to do a subset of these applicants. URL: https://bnktothefuture.com.
Q: What is the strategic relationship between Celsius and Tether, and what kind of projects you are working on? Link
Alex: Tether today is an amazing growth story. They are 90% of the stablecoin community. They are #3 on CMC in terms of market cap, and the daily volume of Tether’s transactions is higher than bitcoin or ethereum in terms of dollars. Tether is 80% of the dollar volume on Ethereum network– ETH would not exist without USDT.
Our interest with them is to continue to develop new and innovative solutions that enable us to build bridges with the existing financial systems. One issue with DeFi currently is that there are too many purists who believe that DeFi should not work with Wall Street, or work with the banks, or have onramps and offramps for dollars, and that it should be its own economy. But the problem with this is that all of the dollars, all of the value is stored in these traditional finance markets and infrastructure that has been built over the last several hundred years. Even if we have a better solution, we need to build a bridge to move that value over– which is a big part of what Celsius is doing. Solutions like Tether help to serve as the bridge from traditional financial system to crypto. Celsius would like to build projects with Tether which will bring more users from traditional financial systems to our world of crypto and DeFi.
Q: What are the advantages and disadvantages of DeFi and digital currencies vs traditional financial systems? Link
Alex: Tether and DeFi works 24/7, 365 days a year– there are no banking hours, there is no time zone, no forms to fill out. However, these are new protocols, and the platforms are new. Ethereum itself is only 5 years old, and anything built on top of it is younger that that. They are competing with systems that have been around for hundreds of years and have had time to work out all of the kinks and bugs.
We have seen over the past few months several examples of DeFi products not functioning the way they were intended to, in that outside parties were able to take advantage or extract value from these protocols in a way not consistent with their normal use. Part of what the community needs to do is to prove that these things are stable and secure before trillions of dollars from traditional finance can flow in.
Q: One of the complaints about the traditional banking industry is that it is hellaciously expensive for workers to transfer money back to their home country (remittances). Can you talk about the value proposition of DeFi as far as cross-border transactions are concerned? Link
Alex: We can transfer money in the digital format, in a much more cost effective way. Users can get their money much faster and cheaper (traditionally we pay 10% fees for these kind of transactions). Tether, Dash, XRP are examples of such systems working today in the digital world. At this point, the fees are negligible. $1.6 billion of USDT can be transferred at a cost of a few cents, and it takes a few seconds. This can not be done in a traditional financial systems. Typically people transfer a few hundred of USD cross borders, hard working people, and the fees are consuming 10–20% of what they earned, paying fees to American Express or PayPal or others. We also offer a similar service, CelPay, within our ecosystem that allows users to send money to other users 100% free.
Q: Please explain how Celsius’ lending model enables people and institutions to trade on the short side by taking loans against their currencies, and how this causes the aggregated volume of these digital currencies to grow. Link
Alex: We enabled on the blockchain what is called on Wall Street SEC lending. You can earn yield on your bitcoin because Celsius is lending depositors’ bitcoin to institutions who do market making or go short on assets. These institutions pay rent (interest) for borrowing the assets from Celsius, and the borrowers are offsetting the risk of the asset going up or down during the time they do their financial activity. They pay anywhere between 3 and 15% for this loan. Unlike Wall Street, Celsius is giving back 80% of what they earn to the Community (depositors).
When you have an account with Charles Schwab or Fidelity, you think that they make their money from selling you that APPL stock– but these firms make most of their money from rehypothecating (lending) your stock out to broker-dealers or hedge funds who trade in that stock, and they get to keep 100% of what they get from that rehypothecation. What Celsius created is a system that enables small depositors (with even $10) access to the same type of financial benefits that only hedge funds used to be able to create.
Q: Is Celsius causing the market to grow (volume, number of transactions) by providing these lending services? Link
Harumi: Yes, we are enabling individuals to leverage the types of securitization services which have previously only been available to big players or institutions in the traditional makers. Previously, the only way for individuals to do something similar was to take a loan against their house– but this is not practical, because how many houses does the average person have? Individual investors can now easily borrow a few thousand dollars against an asset that is not as critical as their house– and use this cash for their needs.
Alex: If you look at the volume of trading since 2019, you definitely see an increase in the volume that is being traded. Additionally, rehypothecation of these assets has actually helped to stabilize the prices of these assets. In 2017, there were not easy ways to short or express your position on both sides of the market, and in November 2017, when CME futures were allowed, that helped bring down the price of BTC from $20,000 to $3,500. The market is very stable today because of futures, options, and other trading mechanisms.
Q: Regarding the need for custody solutions, what is missing? Will we see a tsunami of interest once improved custody solutions are in place? Link
Nuke: I have a bit of an unconventional view, longer term. Celsius is thinking of MPC (multi-party computation, a layer on top of the blockchain) as a way to provide custody. MPC companies provides something that is called a non-custodial custody solution– nobody really holds they keys but the key is distributed among different parties. This allows you to decide how many people you need. This is a topic known that has been known in the cryptography space even prior to 2009.
So once MPC gains traction the old custodians will struggle to survive. Celsius recently moved to Fireblocks – which is an MPC solution. Fireblocks will tell you they are not really a custodian, because there’s not one single vault that you can hack, which makes MPC much safer than any cold storage. If you talk to security officers or people in this field, they will tell you that MPC is much safer than cold storage.
Alex: Nuke brings up a very good point– people from Wall Street want to see the same infrastructure that they are used to seeing in their traditional markets. They’re looking for equivalents, things that look exactly the same to what they are used to– but the crypto community is saying no, we are looking for decentralized mechanisms that will bring greater security.
With many institutions who look into borrowing from us, their first question is “who is your custodian?”. And yes, we work with Prime Trust, because sometimes you cannot convince these institutions that there is a better way. But when you look at the more innovative hedge funds and institutions, you see that the minute you tell them you’re working with Fireblocks, they don’t need to hear anything else.
David: It’s an adoption issue, right? Really what we’re talking about here is two different issues. You’re making the case that you can do a better job with MPC, but then there’s also the brand issue, the comfort issue. If Fidelity gets into this business as a custodian, they could use Fireblocks (Alex notes here that Fidelity actually invested in Fireblocks).
My point is that brand really matters to a lot of institutions, and they feel comfort with a brand they know. It’s why with Coinbase, it’s relatively young, so investors are still a little more hesitant. But once you get brand and function together, you’ll really take off.
Nuke: Trust is the number one thing. We started with zero trust a year and a half ago and worked hard to build it from day one
Alex: Additionally, technology typically runs ahead of regulation. We’re just starting to experiment now with what is the best custody, structure, way to enable DeFi? Do we need KYC or AML or not? How do we interact with FinCEN? Celsius is very much on the regulated side of things, we said from day one full KYC and AML. Many new DeFi products are lacking this, and don’t want to incorporate it. But with many of the new regulations, you cannot implement certain functions if you don’t know things about your customer.
The issue is not technology, the issue is how will industry and regulators work together to advance this technology. Many banks and institutions don’t want any of these things to happen– they’re currently making lots of money off of the existing infrastructure, and the last thing they want is decentralization.
David: Ultimately, the large incumbents– the JP Morgans of the world, who is actually trying to move into the stablecoin environment– they are not the first movers in this space, because they have more at risk. It’s smaller, more entrepreneurial companies like Celsius that can take the risk, because they’re not taking a risk with hundreds of billions of market value at stake. But at some point the pressure will become so great from the new technology, that I think you’re going to see the major banks integrate these technologies or buy up companies like Celsius.
Q: Are stablecoins (like USDT) more risky than keeping the same money in a bank account? Link
Alex: When you deposit your paycheck to the bank, the bank immediately writes a liability against the deposit (to lend that money further) and the bank gives you an IOU (a document confirming that they owe you that money). In most cases, they don’t even pay you any interest on that (checking account). The IOU simply says that they will return you the money at any point in the future, when you need it. This deposit is FDIC insured (FDIC has overall $40B in assets under management), but the banks have trillions of dollars in liabilities — so the FDIC would not be not able to bailout even the smaller banks. Merging smaller (riskier) and bigger (healthier) banks is the only way for this system to survive (too big to fail), and this is what we have seen over the past decade in US.
When you buy a stablecoin (Celsius supports 11 of them), in almost every case instead of writing an IOU, the trust takes your money and buys US treasury bonds with your money, which is much safer (essentially an IOU from the US Government vs IOU from regional/commercial bank). These stablecoins are being stored on a blockchain (Ethereum, Algorand, Tron, or others) and are a representation of the US treasury IOU. While the banks, once you give them your money, they lend your money to create 10x or more money (see fractional-reserve banking). They don’t need collateral. So this is why I think stablecoins are actually much safer than USD deposited in a standard bank account.
Q: How many people can invest via the vehicle of BnkToTheFuture? Link
Alex: In the US we are only allowed to take 99 accredited investors, with a total not more that 2000 investors around the world. These rules are due to established regulations– the minute you cross 2000, you are considered a public company. Before this round, we only had two shareholders– myself and David, with our other employees holding their equity in the company in the form of options.
With this equity round, we are going from 2 to 2000 shareholders. Right now we have 10 strategic investors, and about 350 investors according to the BnkToTheFuture site. We will stop the processing of new applications at 1950 investors in total.
David: And the limitation on 2000 investors comes from the JOBS Act– for those of you that don’t know, I get called father of the JOBS Act because we wrote a bunch of papers and made several recommendations to improve capital formation. The limit used to be 500 investors, but the reason they did it that way, was that it was easier to cross out 500 and replace it with 2000 instead of writing new legislation. With accredited investors, I don’t think the number matters, but that’s not how legislation is written.
Alex: We also specifically don’t ask you how much you want to invest when you’re being approved, because we don’t want to be biased to approve investors based on how much they’re planning to invest. We want to allow small investors (minimum $1000) and big investors to have equal access, which stays in line with the ethos of this company and this community.
Q: If someone isn’t able to invest during this equity round, will there be a second chance? Or will there be a secondary market? Link
Alex: BnkToTheFuture offers a secondary market on their site. Anyone who joins BnkToTheFuture becomes a part of their LLC, and after one year, there is a secondary market. There is the longer explanation about this in the AMA we did with Simon (CEO of BnkToTheFuture).
We will probably have another round of funding, but not earlier than 6–18 months from now. If this happens, it most likely will be at a higher valuation.
Q: Will it be possible to borrow agains the Celsius equity? Link
Alex: Short term, the answer is no. We’re currently working to allow you to borrow against your CEL tokens, but borrowing against equity is much more difficult. Equity is a security, so borrowing against it follows much more complex regulations. Currently, we don’t have any securities in our wallet, but if at some point Celsius offers securities on the platform, you would be able to “margin-borrow” (the name for this service) against it.
Q: Because of the relationship with Tether, are CEL tokens going to be available on the Bitfinex platform? Link
Alex: We are talking to several tier-1 exchanges. However, we are adamant not to pay fees to be listed. We think we are one of the best projects out there, and that they should be paying us to be listed and to charge our customers fees. We are going to hold our ground, and it will be first come, first serve. Liquid exchange listed us for free, and they are benefitting from this fact with most of the volume on trading CEL. Other exchanges are asking half a million dollars for listing, but we would much rather take that money and give it back to our community.
Q: What is the benefit of investing into Celsius equity? Link
Nuke: We are the best company out there, Alex said that! I think we’ve proved that our business model works. We do what we said we would do, which is working in the best interest of our community. More generally– it is a perfect storm for us. The reason we’re so successful is that the technology is coming together right in time and the mindset of people out there is is exactly what makes crypto and blockchain in general but Celsius specifically, very popular.
People want a change. We have a lot to offer. The last thing we want to do is rest on our laurels and just do more of the same. We’re constantly looking to the future and seeing how we can change to become even better. I think we are in it for the long run.
Alex: And we’re listening to the community. I think a lot of it is building what the community wants, not just what I want.
David: You fill a valid business need that people have, a valid need in the marketplace. We are still in the early throes of adoption, but you already have a bonafide business need. So as the whole crypto space grows, your company should grow with it. So it’s almost up to you, Alex, not to screw up this opportunity!
Q: How can I become a Celsian and become a part of the Celsius community? Link
Alex: There are 3 ways to become a Celsian and be a part of the community. First, you can install the Celsius app, put your Bitcoin in the app, and earn interest. That’s fine– you don’t need CEL token, or need to buy equity. You can withdraw any time you want– this is being a basic Celsian.
You want to be a super Celsian? Buy some CEL token, earn in CEL, and so now you’re earning 35% more interest on your Bitcoin.
Now, you want to go one step above that, and you think Celsius is creating a lot of value in the company? If you think that you want to join Celsius, at the very beginning following their first valuation (and before any venture capital money has been used), then you can buy equity at a very early stage. Importantly, with Tether’s $10 million investment, they didn’t ask for a seat on the Celsius board, because they know that Celsius is already looking out for the best interests of their community. In all of my previous companies, a board seat was one of the first things that VC firms asked for when they invested in equity.
So all of these things are very different than any other VC-backed companies. With every transaction you make, you are casting a vote– do you want to support the banks, or the other VC-backed companies, or do you want to support and company that works in your best interest?
Harumi: And I think it’s important to think before you invest in anything– is this solving the community’s problems, solving society’s problems? And I think that’s always going to be the starting point. And so, Celsius or otherwise, that’s always something you should be asking yourself.
Q: How would you compare risk of lending with DeFi and CeFi (Centralized Finance)? Link
Alex: First of all, we are huge fans of DeFi. There is no us versus them– DeFi plus CeFi is the winning strategy and the winning solution. Only together can we win against the banks and the people controlling the world’s assets today. Now, there are differences– but every DeFi protocol is also bringing in aspects of centralization. When Compound adds USDT, or when Maker adds USDC, they’re adding centralization. Nothing is wrong with that! Every DeFi company is partially involved with CeFi, it’s just a question of how much.
When you deposit to the DeFi platforms, you deposit into a smart contract, which is the same exact thing that happens with Celsius. The technology is the same technology– and Celsius supports more blockhains than any DeFi projects, giving us a decentralization edge in that way. Even DeFi projects like Compound are copying aspects of what Celsius does– same thing with BlockFi and Nexo. These companies want to replicate what Celsius does, but do it even better. However, Celsius pays 80% back to their community, but if you look at the spread between Compound’s lending and borrowing rates, they’re only paying out 63%. If you want to know who is better, it’s simple math. For most people out there, what they care about most is how much they earn.
Currently, companies like Compound are subsidizing their rates with COMP distribution. But Celsius is not here for the short-term, but we know that a new system needs to be created, with companies that work in the best interest of their community and act in your best interest. We’re just a little bit ahead of the trend.
Nuke: I think there is sometimes a bit of confusion with everyone– regulators, developers, and users– on the different between infrastructure/protocols and business. I see DeFi as more of an infrastructure, and it’s still early days. Down the line, DeFi will be looked at as a protocol that companies like Celsius are piggybacking off of and using that protocol to provide the business services that we need to provide.
Q: Question for David– What brought you here to crypto? Link
David: I’m a molecular geneticist by training, and because of that background, when I was a kid at a top-10 Wall Street firm, because of that all of the technology firms were sent to me. I ended up running a strategy for the investment bank equity research, sales and trading departments on Wall Street, and then moved into investment banking. When my mentor became Chairman and CEO of NASDAQ, he asked me to be a Vice Chairman running the listings businesses globally.
At the time I got to meet guys like Steve Jobs, and executives at companies like Starbucks and Intel. For me, when I look at the securities business broadly– we started out in the physical certificate world, then we went to a central depository world, and now we’re talking about tokens as securities. This is the natural evolution of things as technology shifts, and DLT (decentralized ledger technology) allows you to cost-effectively transact and keep track of transactions. So it’s going to find broad applications for transaction businesses (such as trading currency). There’s a case to be made that we are reinventing the infrastructure on which finance runs, and hopefully the decentralized nature of these new forms will insulate us against potential future shocks to the system from the outside.
For me, it’s not something to shy away from. The large firms have so much incumbent business that they can’t afford to be involved in new trends. I do believe that some of these large incumbents will eventually pay a premium to acquire small companies like Celsius that are building out the infrastructure and taking the risk. Assuming the business continues to perform, it becomes a very interesting acquisition candidate. It’s an important technology shift– it’s not revolutionary, it’s evolutionary. There are a lot of things we can do better, and there are significant benefits to using DLT technology.
But there are plenty of businesses currently tokenizing stupid things that don’t need to be tokenized– and this is something similar to what we saw with the internet bubble with Pets.com– these were not great businesses, but at the same time, we could not have had businesses like Amazon.com or distribution of music through iTunes without the disruption from the internet. Probably 80% of what people are doing are dumb ideas, but there are also smart things out there that have real economic utility to them that lend themselves to distributed ledger technologies.
Q: What is Celsius doing to protect itself from quantum computing and other threats? Link
Nuke: Quantum computers are not as close as people think. It is not going to be next year when they can hack Bitcoin private keys. However, I’m a firm believer in exponential rate of progress in technology– so I think it’s coming. I think you will still need 10 times more Qubits to have Bitcoin. Realistically, I’m not as worried about specific hackers having these machines, but instead large countries and companies like Google who are doing this research.
That said, cryptographers are already thinking of this threat. There are cryptographies that are quantum-proof, but this just means that blockchains and the cryptography behind it will have to advance. Y2K was also considered a threat, but we solved that issue, and everything went smoothly.
David: Additionally, people are working on quantum-proof chips. We talk about it in a crypto environment, but it’s really more important that when you’re flying a predator drone, that someone can’t get into it and hack it. So, you can believe that there is a lot of time, money, and effort going on with both Israeli and US Defense Departments to prevent a quantum security breach.
Alex: And just to add to that, most of the blockchains that are moving from proof-of-work (PoW) to proof-of-stake (PoS) are including algorithms that are resistant to quantum computers. Quantum computers are very good at a few things. Since we know exactly what it’s capable of doing, you. can design systems that are resistant to this. For example, Ethereum is moving to PoS with ETH 2.0 and they are including elements that will make it resistant to quantum computing.
Q: As the industry grows, how will Celsius ensure to stay strong and continue growing? Link
Alex: Celsius does not choose winners or losers, and will include every asset that we are able to generate yield on safely. We just added BSV to Celsius because the community asked us for it, and because we found a way to generate yield on it, just the same way we found a way to generate yield on gold with XAUT. Celsius is an innovator, and as long as that means acting in the best interest of the community, everyone who copies us also needs to act in the best interest of the community.
The point is, we are still in the beginning stages of the idea of what decentralization and the blockchain means. BTC and ETH are just experiments on top of this infrastructure.
Q: What is the impact of the current macro-economical climate on the still-growing crypto industry? Link
David: I think for distributed ledger technology it’s positive, in the sense that anything that is decentralized and can support people remotely is helpful in times such as these. It’s causing people to interact more with their computers and devices, and people are looking at technologies that can help our individual businesses be more productive remotely (such as Zoom). I think it’s accelerated a move to remote transacting and remote support, and the world has started to conclude that the ability to transact remotely, in a decentralized fashion over the internet, is something that we value more today than we valued six months ago.
Q: Collaboration between digital payments world and crypto world - how do you see that develops? Coming together? Overtake each other? Link
A: Tether and stablecoins will rule the digital payment. They are more efficient. But eventually US Govs will come up with gov-baked US dollar. This is yet a bit slow these days, there are regulatory constraints, but we will get there are digital/virtual currencies are the future. Currently there are many regulatory bodies, also on the state level, which their visions of finance, which needs to be coordinated so that we see one smooth US gov backed cryptocurrency, one day. At some point, everyone will have some form of crypto wallet, as we do have credit cards in our wallets today.
Q: How do you see the collaboration between the digital payment and crypto worlds developing in the future? Link
David: I personally think that digital payments will all run through crypto, and that the US government will create a government-backed US dollar. I think most nations will do that, it just takes a while. Regulations in the US slow things down based on how tokens are categorized because of different departments, and both federal and state regulators. Eventually, we will need to create some sort of overarching mechanism to regulate emerging technologies to help speed things up. But eventually, there will be a US government backed cryptocurrency that will be important for payments– whether it’s Tether’s version, or one from the US government– because of the concern about the reserve currency and market share they are going to have to go in this direction.
Alex: Just to add to that, both Venmo and PayPal are getting into crypto– and they definitely wouldn’t be doing that if they didn’t feel that they needed to be a part of it.
David: Just like a credit card is currently held by everyone in the United States, I think at some point everyone is going to have some form of a crypto wallet integrated on their phone.
Q: When will we able to borrow against the entire balance in the Celsius wallet? Link
Nuke: Multicollateral borrowing is on the roadmap but it is a pretty complicated topic. I want to see automation and APIs first, but it is definitely coming this year. And our bandwidth will also be bigger following the equity raise.
Q: What is the use of the proceeds from the equity raise? Link
Alex: Assuming we raise $30 million– the plan is to keep doing more of what we are working on. Things like expanding Nuke’s team, so we can do more faster. Add to security, add more assets, add more services. We just increased the referral bonus from $10 to $20. We committed a long time ago not to give our money to advertisers, and instead give the money back to the community.
Nuke: We also are going to do hack-a-thons, working with some other projects, and lots of things on the engineering side. We will also add transparency and audibility of our systems on the blockchain– designs are in place.
Harumi: And you all have my word as CFO that this money will be spent well, for the betterment of the company and the benefit of the community!
Want to unbank yourself with Celsius (and get a free $20)
- Install the Celsius wallet (https://celsius.network/get-the-app/)
- Use a referral code during registration (184970a20e)
- Deposit $200 of crypto or stablecoins
You will earn $20 in BTC once you hold your deposit for 30 days