Using Blockchain Because They Care about an Equalizing Economy

CryptoScout by Eleanor Haas


Celsius Network is a mobile app that functions like a crypto bank — receives crypto deposits, pays interest on crypto and makes loans collateralized by crypto. It became profitable in less than two years, an admirable achievement. But there’s more. Celsius set out to speed crypto adoption and then, by promising always to act in the best interest of depositors, the business became the first viable blockchain business to do well by doing good. It has become a member-driven business incentivized by the value created for that community. This is a far cry from the old ICO scams and crypto hacks that so tarnished the terms “blockchain” and “cryptocurrency.”

The Celsius Promise

The Celsius white paper defined its intent to replace Wall Street with a new financial system that equalizes economic opportunity for all participants — “a truly win-win-win self-governed solution for people involved in every step of the credit ecosystem.” The priority the founders had in mind was widespread cryptocurrency adoption as the basis for greater economic equality for the 1% of society who don’t have as much as others and for an acceptable return for the big guys with millions. And that appears to be happening.

The Business Model

To attract new users to cryptocurrency, the Celsius strategy appears to be to:

  • Add value to owning crypto by

– Paying interest on crypto

 – Lending dollars collateralized by crypto as an alternative to selling the crypto with the consequences of paying taxes and losing potential future gains.

  •  Facilitate the complex process of acquiring and managing assets that are denominated in gold, crypto or other digital assets, rather than dollars and make it a high-end user experience
  • Build credibility by complying with regulations for any jurisdiction where the company does business
  • Inspire confidence with measures to assure security of depositors’ funds
  • Generate revenue by lending pooled deposits at high fees to hedge funds, family offices and crypto funds that want to arbitrage, short the market or engage in other market making activities and offer lower lending rates to depositors who simply want to buy something.

But it was something Celsius did to differentiate itself from other lending platforms that not only set the company apart but determined the trajectory to ESG: Building trust by committing to act only in the best interest of depositors and supporting this by distributing 80% of profits to them in the form of high interest. Profits that benefit customers as well as shareholders? What a thought!

Banking Without Banks

Mashinsky was one of the people who put the power phone companies used to have into the hands of users with VOIP (Voice Over Internet Protocol) 25 years ago. Now the idea is to put the power banks have into the hands of depositors, a far more complex challenge. “The world needs banking, but it doesn’t need banks. Unbank yourself!” is the company’s website call to arms. Why? Because banks, says Celsius, are focused on creating profits for themselves and their shareholders, while unbanking with Celsius gives the lion’s share of profits to the depositors.

The Role of Blockchain

Blockchain technology makes unbanking possible by providing a back end without the traditional centralized trusts or intermediaries that add cost and interpose subjective control over transactions. With transaction processes controlled by the computer code of a smart contract, a business can afford to equalize economic benefits between itself and its customers.

How It Works

Alex Machinsky, Founder & CEO

Celsius Network empowers depositors to earn interest on any one of 26 crypto coins they own and hold in their Celsius wallets and to borrow and lend various crypto assets. It also pays interest on stablecoins and gold. Coins in a Celsius wallet can also, serve as collateral for loans

  • Interest. Depositors earn interest by holding crypto coins and the Celsius CEL, a utility token, in the equivalent of a savings account on Celsius and by making loans without the cost of a middleman. Rates vary weekly according to the cryptoasset market — from 3% to 12% APR so far.
  • Credit. Depositors can borrow US dollars and stablecoins that are collateralized by these accounts. Rates vary weekly according to the market. So far they have ranged from 1% APR — newly instituted to benefit those affected by COVID — to 8.95%, determined by the LTV (loan-to-value ratio) of the borrower’s collateral.
  • The CEL token. Celsius pays interest in its CEL, a utility token that provides user access to the most favorable rates and grows in value through demand rather than speculation. It can be redeemed in US dollars, gold or crypto assets. Both depositors and Celsius benefit from growth in CEL value, essentially, a bonus. CEL had an all-time high of $0.176 in late February, crashed with the market in March, recovered and is currently at $0.185.
  • Feeless services. Celsius charges no fees. The company’s revenue is generated from interest paid on deposits or collateralized loans. Collateral from borrowers is the basis for managing credit risk.
  • Security. Unlike fiat banks, Celsius does not take custody of deposits. Funds deposited into Celsius Network are held with the company’s custodian, BitGo, widely known as the single most secure and trusted crypto storage and custody provider. Assets held under BitGo’s management are insured for up to $100 million. In addition, Celsius offers multiple optional features depositors can use to protect access to their accounts.


The Back End

All three interlocking elements of the crypto ecosystem play roles: a blockchain platform, token and stakeholder community.

A blockchain platform with a decentralized distributed ledger and immutable transaction data enables all functions. In this case, as in so many these days, the platform is Ethereum. No intermediary between borrowers and lenders.

A token gives users access to services and rewards them for using the system. In this case, it’s CEL, an ERC20 utility token, which enables users to earn interest and to make loans and then rewards them in two ways.

  •  Holding CEL delivers immediate value to depositors in the form of interest terms that are more favorable for holding more CEL.
  • For long-term value, CEL is designed to grow through usage, not speculation. It is bought and sold on the open market. To pay interest each week, Celsius has to buy CEL tokens, reducing the number available for sale and, thereby, increasing the value by increasing demand.

Celsius reports that 83% of depositors hold the CEL they earn as interest rather than withdrawing and selling it.

A stakeholder community — an active network of depositors, who care enough about Celsius to have created their own website independent of Celsius — — where they promote the Celsius Network — and care enough to participate actively in weekly AMA (Ask Me Anything) Zoom chats with Machinsky. Some are also Ambassadors, rewarded for referrals. The number of members has grown at 4.3% a week since May 2019, when the Celsians started measuring this and just broke through 100K. Most are individuals — largely male Millennials; 250 are institutions — premier Wall St. trading firms.

Governance and Finance

The Celsius crypto ecosystem is supported by the traditional corporate structure of Celsius Network, LTD, a UK company governed by by-laws and a Board of Directors.

Initial funding was an ICO early in 2018, that raised $50 million. Revenue is generated through the sale of CEL tokens and interest earned on deposits and loans. Fund-raising is again in progress through the sale of equity to fund the staffing needed for accelerated growth and will be open to Celsius depositors and other individual investors as well as institutions.

Organic Marketing

To focus on acting in the best interest of its depositors, Celsius is innovating a marketing first for the crypto/blockchain industry as a member-driven ecosystem. Steady growth is being achieved with double the rate of signups since February despite virtually no paid advertising. The best way to describe the company’s marketing strategy seems to me to be organic marketing.

  •  Ensure trust by honoring the brand promise to operate in depositors’ best interests: deliver value to depositors as interest every week and function transparently.
  • Engage stakeholders through regular email, social media, Zoom and online communication and support their activities at and as Ambassadors.
  • Optimize the member experience by outsourcing complex functions secondary to the mission, such as custody of deposits and in-app crypto purchasing, to top specialists.
  • Extend access to the Celsius Network by partnering with crypto wallets and, exchanges for a mutual exchange of services.
  • Reward word of mouth by partnering with affiliates — individuals and companies — who earn free Bitcoin by referring depositors.
  • Get the story out to news media.

Towards an Equalizing Economy

According to Mashinsky: “Everyone should have options for earning money on their assets. But in the traditional financial system, only the 1% do; people with only a few thousand dollars don’t. That’s not fair. Being fair makes a difference People feel they can’t get ahead, that their aspirations are getting squished. But we’re treating the smallest contributor the same as the largest. That’s how you fix society. People don’t necessarily want to be rich; they want to be treated equally.”


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