The way Celsius founder Alex Mashinsky tells it, he not only invented DeFi, but also Uber and VoIP — and he even had a crack at creating Bitcoin, four years before Satoshi Nakamoto.
Weirdly enough, there’s some truth to all these claims.
“I tried to create electronic money in 2003, 2004,” he says, as if inventing a groundbreaking new system of money transfer is something you might knock up after dinner one night in your shed. “Obviously it never took off. But I always believed that the Internet should have its own money. I just didn’t figure out how to solve this double spend problem.”
Unlike many crypto leaders, Mashinsky had a successful career long before blockchain. A tinkerer and inventor since he was a kid, Mashinsky holds 50 patents covering aspects of the tech behind Skype, Netflix video streaming and Twitter among others. He’s raised more than a billion in funds, headed eight companies since the 1990s and overseen $3 billion in exits. Mashinsky even talked the New York Metropolitan Transportation Authority into hiring his company, Transit Wireless, to install WiFi and cell phone coverage throughout the subway system.
He attributes his success to being able to recognize the potential of disruptive, transformative technology long before the mainstream has caught on.
“My wife claims that I live in the future all by myself. And once in a while, society ends up coming to where I have been sitting on the road and waiting for them for a long time. But sometimes they go in a completely different direction.”
It’s somewhat ironic then, that when he finally did read the Bitcoin white paper, he says he thought it would never work. “Somebody showed me Satoshi’s paper, I read it quickly and said, ‘Ah, such a waste of computing power and electricity and communication. This will never take off.’”
Mashinsky’s crypto lending and borrowing platform Celsius, can legitimately claim to have pioneered the ‘yield for staked assets’ concept that powers much of decentralized finance today. The idea was first scrawled on a napkin in 2017 and Celsius went on to raise $50 million in an ICO in early 2018.
“We think we invented DeFi right? If you think about ‘what is decentralized finance’ it’s your ability to take an asset, put it into a wallet and have it earn yield,” he says, adding:
The first time in history that happened was when we launched our Celsius wallet in June of 2018. Before Compound before and before Uniswap, the first time over a year before any of these companies.
DeFi degens will no doubt object that Celsius misses out on the crucial ‘decentralized’ aspect of DeFi as it’s a company firmly controlled by Mashinsky himself. Indeed, Celsius is often referred to as ‘centralized finance’ or CeFi. “DeFi, CeFi, it doesn’t matter what you call it. Everybody is chasing yield because central banks and commercial banks are just not paying you anything for your money.”
Inventing VoIP and MoIP
Mashinsky has tried hard to get his own name for DeFi to take off: ‘MoIP’, or Money Over Internet Protocol. It’s a reference to his key role in the mid-1990s when he began developing the Voice Over Internet Protocol (VOIP) technology that revolutionized telecommunications and remains a key component of apps like Skype, WhatsApp and Telegram. At the time though he was better known for reselling telecommunications capacity via his company Arbinet, which eventually rose to a billion dollar valuation following its IPO in 2004.
Mashinsky says he faces the same challenges today in getting people to see the revolutionary potential of crypto as he did convincing people back then that the entire telecommunications industry – then charging $3 a minute for international or cell phone calls – would be utterly disrupted by new technology:
“People thought that the internet would never scale. Right? They were basically saying, look, the internet is a dial-up network running on the phone network. So how can it be bigger than the phone network?”
Of course as we now know, the internet grew to not only swallow up the phone network but almost everything else too. He adds:
Same thing today, most people discount crypto or cryptocurrencies as experiments for geeks and eccentrics, but I think we will one day discover that all the money runs upon this infrastructure. It’s just a question of time.”
Calling all cars
Seeing the future however, and being able to take advantage of it, are two very different propositions. Around the same time he was tinkering with electronic money, he got stood up by his driver at an airport while he was waiting with a client he was trying to impress.
That’s when he had the brainwave for something very similar to Uber, five years before Garrett Camp came up with Ubercab. Mashinsky’s version was called Groundlink (formerly LimoRes) and it was essentially the same concept, but so much earlier that you had to order the car using a Blackberry, as the iPhone hadn’t even been invented yet. Having a five year head start and still seeing the $100 billion idea slip through his fingers is the biggest, most soul-crushing regret of his life according to Mashinsky:
“Uber copied everything we had, we didn’t own a single car, we were cars on demand, we were the first app you could order a car on,” he says. “And yet we lost it all to Uber because they subsidized $14 billion worth of rides for millennials. So for me it was a very difficult time for me as an entrepreneur, as somebody who won so many times, to completely lose it.” He explains Uber’s approach seemed to turn out to be better:
“The slogan was ‘happy drivers equals happy customers.’ And obviously that was the wrong proposition because subsidized customers and unhappy drivers was the winning strategy, right? Even if you’ve got the concept right the business model and the execution is just as important.”
In 2010, when Groundlink was operating across 5,000 locations and was still bigger than Uber in New York, Mashinsky told the board that the company needed to match Uber’s ride subsidies in order to compete. But the major investors weren’t keen on losing money the way Uber did back then, and still does today (it lost $8.5 billion in 2019). “They basically told me now you don’t understand what you’re talking about, then we’re just going to replace you with some other CEO,” he says.
Mashinsky left in 2011 and Groundlink kept motoring on until a few months ago, when it finally fell victim to the pandemic inspired slowdown in August. Mashinsky said he’d become depressed in the aftermath as Uber took off.
“It was definitely a very painful experience for me. I don’t take any medication, but I think I should have taken some medication. Let’s put it that way,” he says, adding:
It was more about the size of the loss, right? The fact that everything that we tried to do came true and, and this company was worth tens of billions of dollars.
In between his departure from Groundlink and founding Celsius, Mashinsky also spent 18 months as a CEO turning around the fortunes of a company called Novatel Wireless (now Inseego). He even attempted to retire, before discovering he wasn’t cut out for a life of leisure. “I realized that I can’t retire and then crypto really gave me the passion that I was looking for,” he explains.
Back in the USSR
Alex Mashinsky was born in the Ukraine, when it was still part of the Soviet Union, and emigrated with his family to Israel in 1972. As a teenager he’d buy up confiscated goods like hairdryers and VCRs from customs auctions and sell them at a profit. He went to three different universities, never quite finishing his electrical engineering degree, served a compulsory stint in the army, and set off for New York at the end of the 1980s.
He’s lived under communism, socialism and capitalism and says each has its advantages and disadvantages. “In the United states the system here works exceptionally well for people like me who, even though I’m an immigrant, allowed me to express my ideas and my thinking and build companies and create jobs and earn a lot of wealth for myself. But it doesn’t work for 99% of the population,” pointing out that many Americans can’t even pull together $500 in the event of an emergency.
“My perspective of living through the three systems has allowed me to appreciate much more these blessings that I was given and not forget where I came from – to not forget the suffering and misery a lot of people around the world go through.”
Mashinsky says he’s financially very comfortable and that he thought long and hard about what he wants to do with the rest of his career. He looked at the Forbes 400 richest people, all of whom had reached the point where they never had to worry about money again and were just making more money for the sake of it or: “to measure their success by how much of these dollars or whatever else we’re accumulating” He adds: “I didn’t want to end up like one of those guys, I wanted to make sure that my yardstick or my measurement is going to be on how many lives did I impact.”
“We wanted to not give people fish, or teach them how to fish, but rather explain to people that there is a way to create a sustainable fishing farm.”
Fishing farm for the fam
Mashinsky’s sustainable fishing farm is achieved via blockchain. He says that the big banks pool a bunch of ordinary folks’ deposits into multi-billion dollar lots and then lend it out to make 18% profit without giving the depositors a cut.
Celsius aims to disrupt this by using blockchain to aggregate small value deposits into large pools, and to make money in similar ways to the banks, but provide 80% of the returns back to depositors, while keeping 20% for the business.
“Money makes money. Most people don’t understand that, most people think that when you put money in the bank, it just sits there.” he says. “But really, when you give bankers your money, they immediately turn around and lend it to their other customers.”
“All we’ve done is basically use some of the best ways that Wall Street created to earn yield or extract value out of capital.” Mashinsky talks at length about how the banks are ripping off ordinary folk by keeping all the profits, and how the Federal Reserve printing 20% of all U.S. dollars in existence in the past year is whittling away people’s savings, and so on.
Listening to him talk, he appears to have taken the Anti-Fed, anti-Bank ideology beloved by Bitcoiners and transformed it into a series of compelling reasons to hand over your crypto to Celsius.
He’s obviously pretty convincing, as according to Celsius it’s signed up more than 246,000 users in 150 countries, 84,000 of which are currently active. It has processed around $8.2 billion in loans and has over $3.3 billion assets, according to a December audit by Chainlink.
While that’s a long way from Grayscale’s AUM, it’s spread across more investors with the typical Celsian wallet worth around $13,000. Across 2020, community members earned a cumulative $220M via yields on 40 different cryptocurrencies at rates up to 21.5%. Half of users choose to earn via the CEL token — which grew in value by 3500% in 2020, despite not being listed on a major exchange that year. However FTX opened up CEL trading in early January.
Reeling off a list of stats, Mashinsky says proudly “no one in crypto has ever been able to achieve something like that.” He adds: “You’re not going to find the bank or another financial institution who can look you in the eye and say, ‘I always act in your best interest, I never charge you fees.’ So I do think that we have a unique value proposition.”
Mashinsky’s big personality is hailed by many Celsians who see him as a financial guru out to save them from the banks by bestowing the gift of yield. To these people he’s known as ‘the Machine’. But the “cult” around Mashinsky, is a concern for others.
Redditor slavikolev wrote that there are “worrying similarities to OneCoin” including the “absurd cult to the founder” the “us and them” mentality of criticising banks and of suggesting CEL critics are lying, and the “outright absolute idealism … and a belief that this will change everything for you, the investor.”
Missing the mark
Mashinsky has taken some public missteps too, like having a go at podcaster Peter McCormack recently by insinuating the reason Mashinky’s episode of What Bitcoin Did was pulled from the internet was due to the fact the podcast has a sponsorship deal with Celsius competitor BlockFi. But it turns out, Mashinsky never actually appeared on the show.
McCormack told the Magazine that he thinks Mashinsky is “unhinged” among some other choice insults. “He just created a dramatic situation out of nothing like he does,” he said, adding:
He accused me of deleting an interview with him from my podcast, right? I’ve never interviewed him for my podcast. And he never apologized. Bloke’s a weirdo and he needs to get his act together.
Another community member JonBristow worried about Mashinsky taking cracks at BlockFi on Twitter. “Do you find it trashy that the CEO of a billion dollar company (like Alex) keeps badmouthing and shitposting on Twitter?” the redditor asked. “It just makes the company look like it’s being led by a manchild.”
Mashinsky also makes some unusual moves, such as his recent decision to gift his wife Krissy 15 million CEL tokens worth $20 million for her 50th birthday in late October, a haul now worth $73 million. She instantly became the fourth largest token holder and the story got picked up by the New York Post’s Page Six who called him a “cryptocurrency mogul.” In response to this Mashinsky says that he credits Krissy’s support as the reason he got through the times in the wake of leaving Groundlink:
“While I was down, my wife basically kept reminding me that no one can take away my brain and that no matter what happens, I will always be her hero. And, and so when I reached this success here at Celsius, I wanted to celebrate this special day and remind her as well that I appreciate everything she’s done for me, you know, during the hard times.”
He concedes that as his wife she probably would get half anyway if he died, but says the gift gives her financial independence that can never be taken away: “If there is any dispute or if I have a judgement against me or anything like that this is her separate asset.”
“I think people that know me and have been following me for a while now know this was done for the right reasons. My wife does deserve to be put on a pedestal. We have six kids together. She has a career, I have a career but she definitely supported me with all my crazy ideas and this was a great way to say thank you.”
‘Abrupt’ raise was perfectly normal
Another move that raised eyebrows was the decision in mid-2020 to suddenly raise $20 million in a crowdfunding campaign on BnkToTheFuture. More than 1000 smaller investors took part.
Analyst Larry Cermak from The Block called the raise “abrupt” and suggested Tether’s $10 million investment was actually a “bail out”. “We got several tips that they were very close to shutting down,” he tweeted, before getting into an online spat with Mashinsky.
There is a story in there for why Celsius raised so abruptly last month. We got several tips that they were very close to shutting down. 100% agree with you on the lack of transparency, I would be cautious about using them
— Larry Cermak (@lawmaster) July 5, 2020
Various other journalists, including me, have received similar tips about Celsius being dodgy which either failed to pan out or resulted in some inconclusive stories.
The whole interaction with Cermak angered Mashinsky. “It’s just stupid to say, completely incompetent, right?” he says, adding that Cermak should have contacted him before spreading rumors.
Mashinsky says Tether was already heavily involved with Celsius and that he’d offered them equity to strengthen the relationship. He’d extended the offer to community members so they could “have a seat on the bus next to me.”
“The point is, is that a company in trouble will never get a $120 million pre-money valuation and definitely not from the third biggest project in crypto. This is Tether’s largest single investment in their history.”
Is that a unicorn in your pocket?
After his bruising experience being overruled by large investors on Groundlink, he’s given the new equity holders precisely zero voting rights – although he does plan to one day outsource governance to the Celsius community.
“I’m currently fully the guy in charge of Celsius,” he confirmed. “But the plan is to transition that to a consensus mechanism that the community will have control over time,” he says.
The end game for Mashinsky is a successful initial public offering on the share market with a billion dollar plus valuation. “I think the best way to give people access, the vast majority of the population is through an IPO,” he says, adding: “I do think that sooner or later, we will take that option. And that this will be the best way to democratize access to Celsius.”
“It’s going to be my third unicorn,” he says of his planned IPO:
I think there’s probably 15 people around that created three unicorns in their lifetime. So that’s definitely going to be a special moment.
Update January 28, 2021: Alex Mashinsky got in touch to say that since this interview was conducted, he’d rethought the IPO plan in light of the boom in crypto markets and the healthy state of Celsius’s finances. “Assets now are over $5.3B and Celsius Balance sheet has over $1B so no need for IPO,” he said noting that CEL had been the “best performing digital asset of 2020”. “I ran two public companies so If we have no need to raise cash why go for the headache.”
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