Celsius Network: A Crypto Custodian Under Scrutiny
On numerous occasions, reports appeared on the news supporting the case of an insolvent and dishonest fund.
Multiple publications have called Celsius operations a Ponzi scheme, as the lack of transparency, and the business model of this platform seems to be using controversial and unconventional methods while the company is also supported by a evasive business in the crypto field, Tether.
Recently a connection between Celsius and funds heavily shorting Bitcoin Cash was revealed, marking the hostility this platform represents to part of the cryptocurrency industry, unlike its proclaims.
Not everything is rosy in crypto.
We observe funds active lately in crypto investments (but not related with the field), willing to see the whole crypto market crash and burn instead of supporting the organic adoption and the use case of cryptocurrency.
Celsius Business Model and Accussations
Celsius is in the process of withdrawing from the US after receiving multiple cease and desist letters.
Celsius is about to completely withdraw from the US market after it received multiple Cease and Desist letters since September 2021 from security regulators of several states ( New Jersey, Kentucky, Alabama, Texas, NYAG), and eventually failed to comply with providing convincing information on its investment strategy.
Following the regulative action taken against Celsius, on April 11th, 2022, the company announced it will comply with the US regulation and stop offering its services to new customers in the country.
Celsius is also presenting a relation that is vastly influencing the price of Bitcoin Cash, as on April 12th, the following day after the Celsius announcement of withdrawing operations from the US, we witnessed a Bitcoin Cash short squeeze.
The result was this. On April 12th, a massive upside price movement for Bitcoin Cash was spotted, during a time when the rest of the cryptocurrency market was slightly dropping.
BCH went from $290 up to $350 (+12%) in no time as Celsius shorts were closing and created the short squeeze.
Right after this announcement, massive shorts closed and Bitcoin Cash price rallied. (more info).
So, shorting BCH bots didn’t malfunction as some of us suspected, but a small short squeeze took place as Celsius shorters had to close their position, and withdraw to pay back the lenders at the Celsius platform.
(source)
Can we remember another cryptocurrency platform receiving multiple cease and desist letters by the US authorities in the past?
Perhaps the infamous Ponzi scheme Bitconnect.
Celsius is Currently Operating as a Technical Ponzi Scheme”the revenues are not currently sustaining the business…Ask yourself if a regulated fiat money business would be allowed to Ponzi-out for a while until their revenues caught up with the returns they were paying.”
(source)
There is limited information on the dealings of this company (Celsius) on the internet.
Some reports claim Celsius holds 20 billion in value of coins from all those staking but the lack of transparency prohibits us from understanding how the staked tokens are used.
Research delivers diverse results with some of them definitely considered red flags.
Celsius seems unable to handle any customer service requests leaving its customers waiting for months for a simple transaction.
And the Celsius business model shares similarities with Carlos Matos popular meme-Ponzi as we find online various articles explaining the relevance.
It all begins with an admission of Alex Mashinsky (CEO of Celsius) on Tether’s business model.
stablecoin giant Tether is now issuing its dollar-pegged cryptocurrency in exchange for cryptocurrencies like Bitcoin and Ethereum.
“If you give them enough collateral, liquid collateral, Bitcoin, Ethereum and so on . . . they will mint tether against it,” (Oct. 2021 -source)
However, Tether is not in question in this post but we examine the public information available online concerning Celcius. Still this was a required introduction, since the Tether ties with Celsius are quite strong ( Celsius Reportedly Borrowed $1B from Tether with Bitcoin as Collateral).
A previous executive of this platform was Cohen Pavon.
According to Cohen Pavon, the shift to the U.S. was promoted by the recent regulatory uncertainty in the U.K. for crypto companies.
“We came to the conclusion that the U.K. is not the most stable place for Celsius in terms of regulations and geopolitical perspectives,” he said.
So, Cohen Pavon was lambasting the UK regulators, claiming the UK was not a stable “place”, moreover, for some unknown reason mentioning the geopolitical perspective! Still, even this nonsensical use of words is not the reason Pavon is mentioned in this article.
- Cohen Pavon, according to sources was the Chief Revenue Officer of Celsius.
- Relevant enough, is also Yaron Shalem, Celsius’s former CFO (Chief Financial Officer).
We have to take a trip to the past at this point, and revisit the glory days of ICO scams and pump and dumps of the 2017 bull circle that ended in January 2018.
Mose Hogeg and Sirin Lab
Moshe Hogeg is already a known name in crypto but probably not to those who joined the crypto field in 2018.
I previously published an article mentioning this individual and an infamous cryptocurrency scam called Sirin Labs ( read more).
Yaron Shalem, ex-Singulariteam VP and former CFO of Celsius, and Saga founder Ido Sadeh Man among 10 suspects nabbed for aggravated fraud, money laundering, embezzlement (source)
Celsius denied any involvement (of course) and provided this excuse:
Celsius Network has stressed that Shalem’s alleged offenses are unrelated to his period with the firm; it said he was suspended when Celsius learned that he was being investigated and is no longer employed by the firm.
Not screening the background of employees, is a red flag of its own.
Still, it gets worse:
Most of the suspects are linked to Hogeg, 40, the famously flamboyant owner of the Beitar Jerusalem soccer team, who is also suspected of sex trafficking and statutory rape. The other men are suspected of financial crimes but not sexual offenses.
One might think that sometimes a company can’t really know the history of an employee and is excused when one of their executives is facing multiple scam accusations by authorities.
How about when this is two of the high-level executives of the same company, though?
Is this the same excuse again? Under which procedures is this business hiring its executives anyway?
Especially when the whole company is based on just a few individuals running it, and a limited number of employees since it probably outsourced any customer service operations.
“Celsius’ Chief Revenue Officer Launched a Business With a Convicted Money Launderer” — CoinDesk
Roni Cohen-Pavon is the second high-ranking Celsius executive to be named as a result of an investigation into alleged crypto fraudster Moshe Hogeg.
A probe into Cohen-Pavon found he’d registered a company in Israel with Eliran Oved, a convicted money launderer who spent a year in prison in Israel for running an illegal gambling website, Play2bet.com, between 2004 and 2008, the Times of Israel said.
So, not one, but two of the executives of a platform suppositively managing 20 billion dollars worth of cryptocurrency are already under investigation for criminal financial activities (scam accusations).
Facing one scam accusation on executive level is already difficult for a company to manage.
Still, having two similar accusations out of a possible ten individuals managing this company severely reduces the company’s image to its investors and clients, and eventually deteriorates chances of long-term survival.
Roni Cohen-Pavon is still featured as a CFO of Celsius, however, according to WSJ, Rod Bolger succeeded Pavon, who was now supposed to be an interim CFO for the company.
“Mr. Bolger succeeds interim CFO Roni Cohen-Pavon” (WSJ)
This is probably a surprisingly positive move but does not erase everything else.
“The biggest crypto lending company is a massive Ponzi Scheme”!
The biggest crypto lending company is a massive ponzi schemerorodi — Substack
I suggest reading this article. It covers in-depth main points we are missing from the Celsius operations.
According to “rorodi”, Celsius has never been audited.
The crypto firm audit by Horizen doesn’t even make sense to pay for when this operation is supposedly a regulated financial organization lending funds to institutions and accredited investors.
It all gets really weird, though, when the explanation of the business model, is expressed in these terms:
A crypto-bank paying us the rewards banks are keeping to themselves!
We give back 80% of what we make back to the community.
When I was a child banks used to also give you 10%, now they have figured out that they don’t need to.
If you look at their earnings report you will see that they also make 10% ROI per year.
We are the real robinhood!!!
Well, all these could easily be quotes used by Carlos Mattos in a Bitconnect conference.
More similar marketing phrases follow, all designated to attract cryptocurrency holders that have received the message we send against the bank cartels, but are still beginners in this field and haven’t realized how exactly some hawks will appear to present them with an even worse alternative than the banking establishment.
Celsius Is Controlling Your Crypto
You are not the owner of the crypto you deposit on any of these platforms, and there is no guarantee you will ever receive your money back. There is no guarantees either.
In case anything happens, the most likely outcome is investors will lose their cryptocurrencies.
Passing ownership of your crypto to third parties is the main danger to completely losing your crypto.
While this Twitter account is often accusing wrongfully the cryptocurrency field and completely ignoring the use case and innovation, we can still agree with certain points, crypto critics often make. Such as the greed of some operations that seem to have an obscure purpose and deceive the public concerning their intentions.
BadgerDAO Exploit — Celsius “Lost” $50m
BadgerDAO suffered a hack that reportedly affected Celsius by $50 million in December 2021. Coincidentally almost all the Celsius negative news and reports all appeared in xQ4 2021. ( source).
Celsius proceeded with identifying the stolen funds, however, it conveniently claimed no responsibility since these were Celsius DeFi wallets as the second comment on this thread suggests.
A comment on this threat questioning Celsius ownership, receiving no answer:
And as usual we get the obvious promotional comments to enhance PR without having any meaningful reason to comment:
Custodian Prime Cutting Connections with Celsius
This event occured in June (2021) and presents information to consider together with the rest negative publicity around Celsius.
Custodian Prime Trust has given cryptocurrency lending platform Celsius Network 30 days to get off its platform, citing “red flags”.
A person familiar with the situation, who did not want to be identified because of the sensitivity of the matter, said Prime Trust’s risk team was concerned about Celsius’ strategy of “endlessly re-hypothecating assets.”.
- CoinDesk
But we earn Passive Income!
Probably 1.25 APY is not even considered by Bitcoin Cash investors, and if they consider staking their BCH, there are platforms offering better rewards.
However, all these platforms are accepting the staking of coins, increase liquidity and lend with low yields USDT and other stablecoins to funds that short cryptocurrencies in cryptocurrency derivative exchanges.
“Celsius may lend out your collateral to institutional investors”
The same is with the rest centralized platforms staking BCH. Staking comes with a cost, since the funds that borrow from Celsius are those shorting BCH.
THERE IS NO PASSIVE INCOME
“Earning passive income” is a hoax.
If you are planning to invest, there is no passive income. There is only risk and reward. So, go ahead, invest your money and build a portfolio undertaking the appropriate risks.
You invest and take risks. You are not entitled to royalties for the rest of your life because you staked coins.
Eventually, after years of striving to create passive income sources, you realize none of them work.
Should we try for years before we realize this, or perhaps learn it once and for all and stop being greedy with our investments?
There is no passive income but we can certainly suffer passive losses.
Those that actually earn from staked cryptocurrencies will take risks, they will short assets heavily on derivative exchanges and take their chances.
These investors have a very different approach and will never be held liable to the losses stakers of crypto will suffer.
In Conclusion
Celsius capitalizes on all the above. Its business plan currently survives with massive billion-dollar Tether prints.
With all the aforementioned red flags available to the public, it becomes clear that Celsius presents a case of a high-risk platform.
However, this statement is a personal opinion, and anyone should perform their own research when re-investing their crypto or funds on any platform.
This post covers part of the negative online publications against Celsius.
There is a reason centralization fails time and again:
Centalization demands trust.
Celsius may be exploring DeFi too, but again only acts as a custodian, a middle-man in control of the funds.
Cryptocurrencies were invented to reduce trust and create a world where we are in control of our funds, not a fund manager, not a banker, and certainly not a platform acting as a bank and claiming to be Robinhood.
Pantera Links:
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Originally published at https://read.cash. Re-edited for Medium.
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