Celsius Collapsing: Causes, Concerns, and Catastrophe (Feat. Mike Burgersburg) – Crypto Critics' Corner

Today Bennett and Cas are joined by Mike Burgersburg (Dirty Bubble Media), a Twitter personality, writer, and analyst who has been discussing the systemic risks of Celsius Network and what could, and likely will, ultimately lead to its collapse. Follow Mike on Twitter at https://twitter.com/MikeBurgersburg This episode was produced by Asher Hirsch and recorded on Thursday, June 9th, 2022.

In this episode Bennett Tomlin and Cas Piancey are joined by Dirty Bubble Media to discuss Celsius Networks, it’s involvement in DeFi, Alex Mashinsky’s troubled past, and more.

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Other episodes mentioned in this episode:

• Episode 26 – Cryptocurrency Lending is Too Good to Believe
• Episode 71 – Terra, Luna, and Algorithmic Stablecoins
• Episode 72 – We Never Want to Discuss Terra and Luna Again…and yet

Other resources:

• Mike Burgersburg Twitter
• Dirty Bubble Media Substack

This episode was edited and produced by Asher Hirsch.

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English Transcript:

00:00:05:16 - 00:00:13:06
Cas Piancey
Welcome back, everyone. I am Cas Piancey, and I'm joined, as usual, by my partner in crime, Mr. Bennett Tomlin. How are you today?

00:00:14:01 - 00:00:15:17
Bennett Tomlin
I'm doing pretty well. How are you?

00:00:16:09 - 00:00:33:11
Cas Piancey
I'm. I'm doing all right. I'm doing good. It's been an eventful day in the world of cryptocurrency. I feel like it always is an eventful day in the world of cryptocurrency. But today we have a special guest. Dirty Bubble Media actually, is your is your handle at Dirty Bubble Media? Is that what you're it's or is it Mike?

00:00:33:11 - 00:00:34:24
Cas Piancey
It's the Mike Burgersburg.

00:00:35:14 - 00:00:42:10
Dirty Bubble Media
It's it's Mike Burgersburg.. I made my account I was reading I was reading Bloomberg, and I was eating a burger. So.

00:00:42:17 - 00:00:59:21
Cas Piancey
So at Mike Burgersburg., we're going to do a nice show here at the beginning and the end, but yeah, you can follow him on Twitter. You'll see a lot of his stuff there and check out a sub stack. But a lot of what you've been up to has been in regard to the Celsius network, which has been getting a lot of attention.

00:00:59:21 - 00:01:23:01
Cas Piancey
Now, finally, I feel like you've been talking about it much longer than we have. We did an episode a while back just about lending platforms, and we did talk about Celsius. We talked about how their terms of service are weird, how the arbitrage seems weird, and that there's a lot of unexplainable stuff going on. So I guess what I'd like to hear from you is some stuff that we haven't gone over yet.

00:01:23:06 - 00:01:28:13
Cas Piancey
First of all, for anyone that's unfamiliar, what what exactly is the Celsius network?

00:01:29:18 - 00:01:50:24
Dirty Bubble Media
So the Celsius network kind of bills itself as the UN bank. Their motto is un bank yourself, which is, you know, I think a little bit concerning to begin with. Essentially, what they what they offer are two products to at least two consumers. They offer a an earned product and a lend product. So the earn product is you deposit your crypto into their system.

00:01:51:08 - 00:02:11:03
Dirty Bubble Media
They do some things with it, but they don't really disclose. And then they pay you a weekly return, which they actually call rewards. They don't call it a return because then they would be in trouble with the SEC. The other thing they do is they offer over collateralized loans to consumers at very low interest rates. So like they charge like a percent interest rate.

00:02:11:13 - 00:02:24:15
Dirty Bubble Media
If you over collateralize a loan like four to one with Bitcoin or Ethereum and you can also borrow against other cryptocurrencies including their own token which is called the CEL token. And the CEL token is kind of a centerpiece of how their whole system operates.

00:02:24:22 - 00:02:45:18
Cas Piancey
It's good. You mentioned CEL the CEL token because I feel like they make an effort to suggest whether it's people who are on the platform or the the company themselves, they make an effort to suggest that the CEL token is not representative of the Celsius network and that it has really nothing to do with it. And at the end of the day, if it went to zero, who cares?

00:02:45:18 - 00:02:50:00
Cas Piancey
But I think that's bullshit. Can can I hear your take on that?

00:02:50:13 - 00:03:08:13
Dirty Bubble Media
I agree with you and I agree with you for a couple of reasons. First of all, if you can go all the way back and I've done this unfortunately I've read the Celsius whitepaper and they in the white paper, they called the CEL token literally, they call it the backbone of Celsius network, OK? They call it the backbone of Celsius network.

00:03:08:13 - 00:03:32:09
Dirty Bubble Media
It's worth repeating that. All right. So for a very long time, I mean, the system was originally designed to operate entirely around this token. And that's what people who originally bought into the system were buying. They were buying this idea that this token was going to be the centerpiece and the cornerstone and the backbone of the system. Over time, that has changed Another part that's really critical to remember is that Celsius, the company owns approximately half of all the tokens.

00:03:32:09 - 00:03:57:14
Dirty Bubble Media
There's like seven. 696. Yes, 6933 million. They burned some, but 693 million tokens. The company themselves owns half. All right. They mark that's their balance sheet mark to market. All right. So there has been good analysis done by a Twitter person named or called himself Intel Jakal And I've really liked his work. And it showed that essentially their net equity back about a year and a half or two years ago, it was entirely based on the CEL token being mark to market.

00:03:58:07 - 00:04:21:29
Dirty Bubble Media
And in fact, there was a recent AMA where Alex was asked about how important CEL token was to the company and he was talking about how when there was a recent deal just to go back for people who are listening, Celsius raised them a half a million dollars from a number of investors, including West Cap and the CDPQ Which is the Montreal Pension Fund, when they raised that money and Alex Alex said they bought into our company, they were buying CEL token.

00:04:22:00 - 00:04:38:09
Dirty Bubble Media
He says that flat out right like a key part of this company's value is their token or at least was the tokens crashing over 90%. But at one time that was a key part a key part of their balance sheet. All right. So there are at least they're raising money with with some token in the real markets, number one.

00:04:38:15 - 00:04:50:01
Dirty Bubble Media
Number two, they sold their customers on a concept. CEL token was going to be a critical part of their business infrastructure so, you know, they've changed the narrative now. But to go back to what what they originally sold people on completely different story.

00:04:50:13 - 00:05:12:10
Bennett Tomlin
So Celsius networks bills itself as a lending platform that what they're supposed to be doing is taking your crypto, lending it out to institutional partners and OTC desks and the like so that they can use it for short term operations. And stuff. But it often seems to me that that is not necessarily where the majority of Celsius yield is coming from.

00:05:12:27 - 00:05:19:08
Bennett Tomlin
Can you talk about some of the places that Celsius has gone in DeFi or elsewhere to earn their yield?

00:05:19:16 - 00:05:37:07
Dirty Bubble Media
Yeah, so a few places that I know of and there are some places that I can't follow the money beyond a certain point. So I use the blockchain really heavily to kind of inform my research about the company, which I think is fair because that's kind of the whole cornerstone of the crypto concept is everything should be on the blockchain invisible to the public, right?

00:05:37:07 - 00:06:02:00
Dirty Bubble Media
That's the idea. So I think on my last check, I every once in a while, periodically we'll just like post all of that politics found in their various positions. It was around $3.8 billion worth of investments on the Ethereum chain. And I'm sure I'm not capturing everything according to enough data that I obtained from a user today. Celsius has or claims to have an EU total EU of 11 point, I think $1.2 billion worth of assets of those assets.

00:06:02:00 - 00:06:24:00
Dirty Bubble Media
They say that 7.6 or 7.8 billion of those are in quote unquote in Celsius accounts, whatever that means. All right. So of that, I think I found about 75% so on the Ethereum chain, what are they doing with the assets that they borrowed most of their assets that the two largest categories are Bitcoin and then Ethereum CEL token used to be the third largest.

00:06:24:00 - 00:06:40:02
Dirty Bubble Media
It's now I don't actually know where it is. It's quite low. UCC was one of the major ones as well. And then like Matic and a number of other the kind of popular cryptocurrencies. But your theory was one of the big ones, what they're doing with a lot of it. First of all, they sent a lot of their ether to the east to contract.

00:06:40:04 - 00:06:45:24
Dirty Bubble Media
And I've tried to understand why that is makes sense. I really don't understand why it makes sense. I wish they would explain to me.

00:06:46:05 - 00:06:56:13
Cas Piancey
Sorry, can we just hold really quick there? Because I don't think we've ever talked about Ethereum moving to Ethereum to on this show. I would love for Bennett to take an opportunity to do that.

00:06:56:23 - 00:07:29:23
Bennett Tomlin
The Ethereum 2.0 beacon chain is already running and has been running and is painstaking rewards. And it's possible for you to start accruing those rewards if you lock your Ethereum into this special smart contract. And so with the presumption being that the earlier you do it, the more rewards you'll accrue. And so when it's possible for you to access those funds after Ethereum 2 goes live, it will have been worthwhile.

00:07:30:12 - 00:07:36:13
Bennett Tomlin
The issue is to access any ether that you move over there. You need Ethereum to to go live.

00:07:36:16 - 00:08:01:19
Cas Piancey
And the idea being that they're putting in a Ethereum that they have right now that they can trade with and use and do all these things, invest in whatever they want to right now. But the whole entire chain is trying to move over to this other form of rewards, I guess we'll call it. And and like you said, it's a bit of a scheme if you go earlier, you might get more.

00:08:01:19 - 00:08:11:28
Cas Piancey
And but it ties up your funds for a longer period of time. So I just want to make sure everyone understands where we're coming from here. And what this all, all means. So sorry, Mike. Go ahead.

00:08:12:06 - 00:08:34:27
Dirty Bubble Media
I know it's OK because it's wrapping your head around that. It's a little bit it's a little bit confusing. Just a little bit. So this is one of the things about what Celsius has done that's really kind of boggled my mind. And I still can't totally understand the rationale Celsius claims by their own terms of agreement and how they report their quote unquote rewards, which are really yield all they pay to customers.

00:08:34:27 - 00:08:59:05
Dirty Bubble Media
They pay it every single week. The issue is they've staked like I think around 700,000 or more ether, which is like 70% of the total ether they claim to have under management is in the Eastern contract, either directly sent by by them or indirectly through the title, which allows them to get this Steve derivative back. So the issue I have is, number one, all those rewards are locked up with the with the original Ethereum, right?

00:08:59:10 - 00:09:23:16
Dirty Bubble Media
So they can be paying these rewards out every week. Where was that coming from? That's an issue. OK, now the second thing, what are they doing with the rest of it? Right so what they're doing with that is they're sending it to define protocols. The biggest one is a and then another one is compound, and they're using the A3 as well as Bitcoin and a couple other assets as collateral, which they then borrow stable coins against.

00:09:23:25 - 00:09:40:24
Dirty Bubble Media
All right. Now what they do with the stable coins is something I've tried to figure out for a long time. It kind of goes all over the place and it gets very difficult to follow it. One thing I found recently that was a little bit concerning is that I do have contact with a number of current and former customers.

00:09:40:24 - 00:10:05:28
Dirty Bubble Media
So I'm able to get information about how some things operate inside the company. They were able to give me addresses that had they had used to withdraw different assets from Celsius, from including us into other. And what I found was that a significant amount of the money that they had recently borrowed from these different platforms, like some like 95 million or more, went to these withdrawal wallets and seems to have been paid out to customers.

00:10:05:28 - 00:10:24:20
Dirty Bubble Media
So it seems like at least some of what they're doing is using customer or borrowed customer assets. All right. As collateral to borrow against and then pay out other customer withdrawals. Now, maybe I'm wrong. I don't know. The companies response to it was somewhat less than enlightening in my opinion. So we really don't know exactly what they're doing.

00:10:24:27 - 00:10:26:07
Dirty Bubble Media
But I think it's a little bit concerning.

00:10:26:07 - 00:10:48:13
Cas Piancey
To this claim because essentially what you're I just just to put it into simple terms for listeners, what you're describing sounds to me like a Ponzi scheme so it's a it's a big claim. And I understand you're not you're you're trying to hedge that with. I. Exactly.

00:10:48:14 - 00:10:51:20
Dirty Bubble Media
I'm not trying to make it's not that claim. I never tried in a sense.

00:10:52:02 - 00:11:12:01
Cas Piancey
What you're saying is without being able to follow all of the funds and understanding what you do and in terms of following what you have been able to follow, some of it appears to be that way. If it is indeed that that would to me sound very much like a Ponzi scheme, which is troubling. Now.

00:11:13:16 - 00:11:35:13
Dirty Bubble Media
Just a little so the response of. So this was interesting for me, right, because I've been covering or writing about this or whatever you want to call it for a while. And I've talked to Alex Mashinsky a couple of times, the CEO of Celsius and Person via their arms. I think he knows who I am now. I don't think he likes me very much, but he's he's watched me on Twitter for a long time, never response to anything.

00:11:35:13 - 00:11:54:14
Dirty Bubble Media
I posted this, the post I'm talking about right now, where they I'm claiming that they're withdrawing and then opening up withdrawals with borrowed money. He did respond to that. It's the first time he's ever responded his response was essentially Celsius wanes on DeFi. When yields are high, they borrow and defy when yields are well. He said that they are earning income from these activities.

00:11:54:23 - 00:12:11:10
Dirty Bubble Media
And then said that I was making baseless accusations or baseless allegations and asked and said that why don't you just ask a question and get a straight answer? Well, the thing is, the post that I made literally was there. This money was borrowed. It went to these wallets, we nor withdrawal wallets. What's going on here? I literally just asked a question.

00:12:11:29 - 00:12:25:14
Dirty Bubble Media
So it's the lady doth protest too much, in my opinion, in the way that these they often respond to these things is overly antagonistic and actually completely dodges the question that I was trying to ask recently.

00:12:25:14 - 00:12:45:27
Bennett Tomlin
It's been harder and harder for me to, with a straight face, describe Celsius as a lending platform because their activities seem to be so much more than just like taking the deposits and stuff. And like earlier today, I'd describe them as a you're giving your crypto to a hedge fund that promises to give you a certain amount of yield.

00:12:46:27 - 00:13:21:16
Bennett Tomlin
And that seems supported by the fact that they're they're not just lending an we saw that with their engagement with Badger Protocol or some of their engagement on anchor protocol or stuff like that. They're actively engaging in pretty high risk activities. Across the ecosystem. And there's not really a question in here. It's just it feels like Celsius has been getting increasingly uneasy about like they seem so far off what they're supposed to be doing and like like they're not even trying to hide that fact anymore.

00:13:21:18 - 00:13:45:26
Bennett Tomlin
But they're talking about and this brings it back, what you're describing, what he said to you is they're making basically they're forecasting future different yields and trading based on that. They think that the yield is low enough that by borrowing now, they'll eventually be able to lend that back out. And like that's an active trade. That's like a prop desk trade that's not like just neutrally matching borrowers and lenders or borrowers.

00:13:45:27 - 00:13:46:21
Bennett Tomlin
And yeah.

00:13:47:11 - 00:14:06:00
Dirty Bubble Media
Well, so here's a here's another interesting example. OK, so they also have a large position in the maker DeFi protocol, which is essentially mostly collateralized with Bitcoin also I think somatic as well. Now, if you go and look at the actual the waltzer on my Twitter or whatever, if you go to box they borrowed, I can remember how much Dai it was.

00:14:06:00 - 00:14:21:10
Dirty Bubble Media
A lot of the disabled coin, they borrowed almost all of it over a period of about a month and like October November of 2021 they never borrowed from that account since then right so they borrowed all this money it looks like most of it got swapped into like UCC and, and it disappears. It's just I haven't tried to follow because it's just too complicated.

00:14:21:23 - 00:14:43:21
Dirty Bubble Media
The point being though, is that that debt has been sitting there ever since then. They've been slowly paying it down, but very, very slowly. And instead what they've been doing is actually adding collateral to that position as the price of Bitcoin falls right. And actually recently on May 12th, when the whole Luna thing happened, the Bitcoin's price dropped. They came very close to getting liquidated like they were almost margin call on that, like it's you can even see it right on the banners.

00:14:43:21 - 00:15:17:06
Dirty Bubble Media
And there's different ways to look at the actual position and maker and they came within I mean, a point or something I was getting I'm getting margin call and they had to like emergency send a bunch of Bitcoin over there to kind of shore that up. But yeah, they're making some really weird plays and I've talked to a number of people in Dubai who basically and the consensus always is that not only are they engaging in some very risky stuff, it's almost like they don't really know what they're doing why they, they often like put way too much money into different pools and like talked about the all the BOJ and somebody pull it back

00:15:17:06 - 00:15:34:09
Dirty Bubble Media
out or they'll there was there's one called notional finance that they had put some Bitcoin into and they like held on to these rewards for too long and basically missed the opportunity to cash them out and lost a bunch on that. There's just like a lot of weird things that I don't know I don't know what it is, but it doesn't really make a whole lot of sense.

00:15:34:09 - 00:15:35:12
Dirty Bubble Media
I agree with you on this.

00:15:35:20 - 00:15:45:16
Bennett Tomlin
The person who claims to have invented voice over Internet telephony suddenly decide suddenly decided to run a hedge fund in very few steps.

00:15:46:04 - 00:15:47:23
Dirty Bubble Media
Well, almost, almost like that.

00:15:48:18 - 00:16:21:08
Cas Piancey
Obviously almost like a good segue So we have not really touched we've obviously mentioned Alexander Mashinsky I don't like to make any of these podcasts personal, but I think it's I think it's an important. Yeah, we do have to talk about Alexander Mashinsky because he is the face of Celsius and well, I'd like to hear his history. He has some really intense, bold claims.

00:16:21:25 - 00:16:27:08
Cas Piancey
And I Is there any way to prove or disprove those claims?

00:16:28:06 - 00:16:46:07
Dirty Bubble Media
There's a way to prove or disprove some of them. Yeah. So Alex, I believe, comes from Ukraine, lived in Israel for a while, served in the Israeli Defense Forces. He claims he was a pilot at one time. I have no clue if that's true or not. It's very possible. It's true. And then came to the U.S. to kind of seek his fortune.

00:16:46:07 - 00:17:05:00
Dirty Bubble Media
I guess you a number of different businesses until the mid nineties when he got involved in basically building like telephone switches and then got into the video IP business, which is the voice over IP. Now, one of the claims that Alex has made on his own personal website, he makes the interviews I believe it was on his Twitter profile for a while.

00:17:05:05 - 00:17:28:28
Dirty Bubble Media
He claims that he was, quote, the inventor of VOIP, which is I mean, absolutely false. There's no like go read any history of new IP out there. He's never mentioned once. Right. He points to some patterns that he filed, I believe in like 96 or 97. And those patterns are not really about the IP at all. They're actually about building a marketplace to sell access bandwidth, which is the business that his company, ARPANET, was actually engaging in.

00:17:29:21 - 00:17:55:17
Dirty Bubble Media
All right. So nothing about that claim is true. And actually, that's so kind of a back backstory for why I got interested in Celsius is actually because of Alex. I kind of learned about crypto and, you know, somebody coming from not a crypto background. I didn't recognize a lot of the things that were going on until I saw these companies saying they were paying out these crazy yields to consumers based on these magic things they were doing with the money.

00:17:55:17 - 00:18:12:23
Dirty Bubble Media
I recognized that because that's happened many times before in many other situations, and that's when I kind of got interested in crypto and really started doing research. And what I figured was that, you know, there's walk by and there's NEC, so and there's all these other companies doing basically the same thing or claiming to. The reason why I focused on Celsius was that Alex was different.

00:18:13:08 - 00:18:32:19
Dirty Bubble Media
You know, he's not this like 20 something. Nobody who pops out from thin air and suddenly runs a multibillion dollar company, he claims to have, you know, $3 billion in exits under his belt. He's the inventor of the IP seeking a company public. He has all these claims. And so I figured that if I was going to start anywhere, it was with a company that had this supposedly great background.

00:18:32:19 - 00:18:53:01
Dirty Bubble Media
Right. If anybody if anybody is legitimate is probably the guy who has all this 20 years of business experience or whatever. Right. And so that's where that's honestly, Alex, is what really drew me into focusing on Celsius. Not so much, but yeah, nothing. Nothing, really. Almost every story he tells about himself has some level of exaggeration. At a minimum, all the way up to all great fabrications.

00:18:53:01 - 00:19:08:14
Bennett Tomlin
And could you talk a little bit in regards to his past, about Celsius, his CFO and Alex Mashinsky's involvement with what with the schemes? The CFO was arrested for it. Yeah.

00:19:09:08 - 00:19:32:12
Dirty Bubble Media
Yeah. So Celsius was founded around 2018. Alex claims it was back of a napkin and he drew on and with the co-founder who's Steven Leon, who is like a ghost I've never really figured anything out about him. But long time business partner of Alex and then around that time, Alex also gets involved with a few other crypto related companies.

00:19:33:06 - 00:19:56:01
Dirty Bubble Media
Now one of them is called Micro Money. That's kind of like a forgotten little ICO initial coin offering that happened in mid 2018 that actually had almost identical business model to Celsius. It's really interesting. Like it was going to be a crypto lending company. It has if you, if you go and back and you find its old website on Internet Archive, it's very similar pitch to Celsius and it came out a little bit earlier.

00:19:56:01 - 00:20:16:08
Dirty Bubble Media
So I almost wonder sometimes if Alex got the idea from getting involved with this micro money thing, but I have no way to prove or disprove that anyway. Alex is mentioned as an advisor to this company on their old archive website. Also, if you go to Alex's, Alex has a venture capital firm called Governing Dynamics, which I think is a reference to John Nash.

00:20:17:23 - 00:20:34:13
Dirty Bubble Media
He mentioned there's a number different companies he's invested in that they have this scrolling thing that shows, Oh, we made this much money or we were involved, this big thing and micro money is one of those. So he admits that he was an investor in it. We know he was an advisor to it, and the CEO of Micro Money was also an advisor to Kelsey's network at the beginning.

00:20:34:13 - 00:20:55:24
Dirty Bubble Media
So there was a there was a link there. Now, in addition to that, we were able to identify some of Alex Mashinsky's wallets using some pretty basic techniques. And we can talk about that maybe a little bit later. And we found in this wallet that Alex had sold, obtained pre sale and then sold a bunch of the micro money tokens, which was a rug pulled, that thing crashed and it looks like he sold right around the peak.

00:20:55:29 - 00:21:22:28
Dirty Bubble Media
All right. So that's one another one that he's involved in is this Moshe Hogeg situation. I'm sure it is. Again, it's interesting because Hogeg has this career that's almost eerily similar to Alex's. He found a company in the early two. Thousands are 20 tens that is kind of gets a lot of press. But ends up being a failure similar to ARPANET, makes a name for himself that way and then kind of goes from there into all these other schemes that he's operating through his own VC firm.

00:21:23:12 - 00:21:44:13
Dirty Bubble Media
And there's some interesting characters that get involved there. There's this like Kazakhstan guy who was like tied to like the oligarchs from Kazakhstan who's like pumping money into this thing. It's weird. But anyway, yeah, Alex gets tied up with these guys to and so Alex is an advisor to Sirin Labs, which was one of my holdings projects. This project was going to build in a blockchain based IPO or a smartphone platform.

00:21:45:15 - 00:22:06:09
Dirty Bubble Media
And eventually it ended up this was that was going to cost $10,000. And then basically the whole thing fell apart. They got sued by the company that was supposed to be providing all this support for this thing and who ends up getting arrested. So that's one of the many projects that my project is involved in. There's a lot of other things going on besides your labs, but Alex was an advisor to that based on their website, based on his own statements.

00:22:06:17 - 00:22:25:20
Dirty Bubble Media
Right. Moshe Hogeg was an advisor to Celsius network. In fact, my name is in the original Celsius whitepaper. OK, and still there. And what do we have for Alex Mashinsky we know belongs to him, traded a significant number of the Sirin Labs tokens right around the time of the ICL and like we made a couple of million dollars from that.

00:22:26:09 - 00:22:50:07
Dirty Bubble Media
It also held about 5000 tokens of a company called Stocks, which was another ICO that was run by OK. So there's there's all those connections there. And on top of that, sources, of course, ends up hiring Marshall Giggs, former CFO, as their CFO and of course he was the CFO for multiple of the companies that actually got in trouble for the CFO, was subsequently arrested in Israel as part of the whole case.

00:22:50:20 - 00:23:09:04
Dirty Bubble Media
I believe he's been over at least since then. I don't know if charges have been filed against him or not. And then the third connection that's also really interesting is that Celsius as chief revenue officer, which I don't know what the chief revenue officer actually does, I never really heard of that before. But Celsius has one is a guy named Mr. Pavan, who was formerly Marshall Gaines, personal lawyer.

00:23:09:20 - 00:23:27:29
Dirty Bubble Media
So you have at least three different connections to this Moshe Hogeg person. And the part honestly, this is what I really start getting involved in Celsius is when I went on an AMA to ask Alex specifically about this relationship after the CFO was arrested, and his response was to pretend like he didn't know who she was. And I mean, we have the audio for that.

00:23:27:29 - 00:23:32:13
Dirty Bubble Media
So it's, you know, he lied to me. And that was really when I really started going, there's something wrong.

00:23:32:19 - 00:24:04:23
Bennett Tomlin
I think I might have live tweeted that Amy because because it was the that was they had just been it had just become public like a couple of the states had failed the orders against them. And then there's CFO get arrested and they spent like the first 40 minutes of the AMA like talking about nothing like they're in merch updates and what his wife's company had been up to and all these things in the interview and like it was ridiculous.

00:24:04:23 - 00:24:39:02
Bennett Tomlin
It was ridiculous. And I remember him trying to pretend like he had no idea who this person was. And I remember being like, I don't think that's true. There's, there was connections at that point and that's part of what really troubles me about Celsius is that Alex is seems very comfortable bending and distorting the truth. And they've built up like a pretty passionate group of believers that seem to like think Alex and Celsius as a whole or going to change the world.

00:24:39:02 - 00:24:46:24
Bennett Tomlin
And so because of that, the, the community around it ends up just so toxic yes.

00:24:49:05 - 00:25:15:01
Cas Piancey
I guess I wonder what you think the there's a lot of but we might as well air out all of this dirty laundry right now that's going going on around the Celsius network. I think a lot of people who are kind of well known people to maybe not even well-known people, but they have a voice and they're joiners.

00:25:15:12 - 00:25:49:08
Cas Piancey
They're they're not like us. And and they seem to be joining forces with you and that they think Celsius is up to no good. And so I'm wondering what the broader expectation is of what happens in the case of a out in out failure of the Celsius network. I know. Let's end this is strictly hypothetical. We are not I'm not trying to FUD.

00:25:49:08 - 00:25:50:26
Cas Piancey
I'm just asking the question.

00:25:51:18 - 00:26:10:04
Dirty Bubble Media
Well, OK, so I'm going to start by saying like the involvement of certain Bitcoin promoting people in this has been kind of recent, I think I think some of them were posting about it a while ago, but recently it's kind of gotten almost to a fever pitch. And I really don't understand I really don't understand what their motivations are.

00:26:10:19 - 00:26:30:19
Dirty Bubble Media
I've talked to a couple of them. I mean, they seem like they're sincere I don't know. Personally, I don't own any crypto, never have, don't plan to. So I don't have any financial interest in what happens here. I just want to put that out there. I don't really know. I don't know if they're out, if there are some like financial gain that they're trying to get or if they just really don't like Basinski.

00:26:30:23 - 00:26:59:26
Dirty Bubble Media
I think he's made a lot of enemies if you ever listen to him talk in his AMAs or whatever else he routinely insults like everybody in the business. I mean, the exchanges, other crypto lending platform terms, you know, custody services, whatever. He insults like everybody and talks about how much better their product is. So I think part of it's probably just personal, but I honestly don't know in terms of speculating as to what might happen I, I don't know.

00:27:00:03 - 00:27:20:29
Dirty Bubble Media
You know, I kind of think it depends on how it happens. The thing that's the thing that's concerning is that, you know, I don't have much visibility into their institutional partnerships. You know, we know that at one point they had borrowed at least a billion tethers from tether, which also happens to be one of their largest shareholders. Yeah. So we know that tether is exposed to them.

00:27:21:09 - 00:27:39:14
Dirty Bubble Media
We don't know who else maybe maybe exposed to them in terms of institutional side. But on the defensive side, I mean, they're some of the largest participants in these protocols, right? Like ABC, I believe it's somewhere between 30 to 40% of the U.S. debt is their debt. Right. And they're also one of the largest depositors on that platform.

00:27:39:14 - 00:28:05:10
Dirty Bubble Media
So if they have to suddenly pull out a bunch of crypto like the anchor terror thing, which if you guys want to talk about a second, we can they are so big that anything they do has significant impacts on the whole ecosystem. They're just too big. That's, that's part of the problem, I think, is that, you know, maybe if they hadn't been so focused on growing so quickly and so large, if they had stayed small, maybe they could have made a go of it.

00:28:05:10 - 00:28:22:05
Dirty Bubble Media
But they're so big now that, yeah, it's a problem. I mean, you know, like what would have happened, for example, what would have happened if they couldn't have, you know, covered that that major deficit and they had gotten margin calls on that. That's a lot of Bitcoin that's sitting there and that's a lot of debt to the meager protocol that's sitting there.

00:28:22:10 - 00:28:44:01
Dirty Bubble Media
So what I don't you know, and I don't know enough about how these protocols operate to know like what would they do, what they immediately start liquidating the position. I'm not sure. But if something like that happens, there's a serious problem. And one specific thing I would like to talk about is the going back to the state. Either thing, they hold a lot of this stuff derivative of ether that's based on this is to contract.

00:28:44:04 - 00:29:03:29
Dirty Bubble Media
And they hold like foreign 88,000 of them at least on their mostly state in AB. But that's, that's I think like 10% of the market cap of that and the pay we actually broke in May 12th when the whole crypto or Luna terra thing happened and it hasn't fully recovered. I think it's trading at like 97 or $0.98 on the dollar right now.

00:29:04:09 - 00:29:20:05
Dirty Bubble Media
So you know if they try to move that position if there's for some reason they have to try to cash that out or if they just spook like they did with Terra and decide you know, hey it looks like this is going south, let's get out now that would probably be enough to like totally crash the market for that derivative.

00:29:20:18 - 00:29:27:15
Dirty Bubble Media
So there are a lot of systemic risks that are definitely posed by this companies involvement, these different protocols.

00:29:28:16 - 00:29:48:01
Bennett Tomlin
There's supposed to be a lending platform. I know. I keep coming back to this. Yeah. I know. I keep coming back to this. But they're supposed to have people who want to lend their crypto and they're supposed to find people who want to borrow crypto and they're supposed to facilitate that relationship. And that's supposed to be the entire thing.

00:29:48:14 - 00:29:57:01
Bennett Tomlin
They're not supposed to be like operationally exposed to getting liquidated on maker down because they're trying to get extra leverage by swapping their data. You SDC like.

00:29:57:01 - 00:30:20:26
Cas Piancey
For sure, there's over there's over extensions of reality is here, but I do, I do like when I reflect on for instance a way for them to get that that kind of yield that they're promising I go to OK so let's say they borrow a bunch of stable coins like with customer funds like like we're talking about as a type of purely hypothetical.

00:30:21:25 - 00:30:46:22
Cas Piancey
But they if they borrowed all those stable coins, I would assume they could go to a place like Bitfinex, especially when markets are volatile and weird. And Bitfinex will pay a nice fat premium for you to lend out those stable coins on Bitfinex, right? Like I don't think that's crazy. To be a yield a way for them to receive yield.

00:30:46:22 - 00:30:54:07
Cas Piancey
It couldn't of course it couldn't last for a year or something, but they can. That's a temporary it seems like a temporary solution to that problem.

00:30:54:11 - 00:31:11:20
Dirty Bubble Media
Yeah, that's what they're doing. I mean, that's what they have to be doing. Like I went through and I did I did write an article where I tried to calculate a roughly how much they had to be earning on those stable coins in order to make it work. And that was, this is from a few months ago. But you know, they're borrowing because these are over collateralized loans, right?

00:31:11:20 - 00:31:34:17
Dirty Bubble Media
So for every dollar of, you know, collateral Ethereum or Bitcoin, they put into these protocols, they get back, you know, 30, 40, $0.50 worth of stable coins, which are then went out they're paying interest on the stable coins to the protocol. They're also paying interest to their customers. So they got the theory that the coin drop. So if you figure that out, they have to be earning like I think it was like 15 or 16% on these loans.

00:31:35:00 - 00:31:56:15
Dirty Bubble Media
And I mean, is it possible? I guess it's possible. You know, the thing is you can go, you can go to these defy protocols that Celsius is using and deposit your crypto and borrow for the same rates that they're buying for like two or 3%. So why would you do that? Because because Celsius always claimed they always claimed that all of their loans that they make are collateralized, right?

00:31:57:16 - 00:32:06:25
Dirty Bubble Media
Either they're on collateralized loans and people are paying higher rates or they have some really dumb customers who just like paying Celsius way more money than they need to. There's no other alternative there.

00:32:07:16 - 00:32:13:11
Cas Piancey
I'm waiting for you to have a counter argument here. Bennett So I was I was trying to just hold it, hold open some space for you there.

00:32:13:23 - 00:32:26:02
Dirty Bubble Media
If you can. I literally I've been I've been spending every time I post something, I ask them to prove me wrong. Just just tell me what I am. Tell me what I'm missing. There's some genius play here. What? You just tell me. That's all I want to know. Just tell me. Tell me how it works. It's all I want to know.

00:32:26:16 - 00:32:29:14
Dirty Bubble Media
And they never been able to give me any kind of explanation beyond that.

00:32:30:23 - 00:32:53:24
Cas Piancey
But this is the classic. I mean, let's just be real. This is what every single this is what the stable coin. This is what tether says. This is what Bedford says. This is what this is what anyone who doesn't want to expose their books to you says. They pull a KFC. Right. They say it's 12 secret ingredients. It's if we give away these ingredients, then we lose.

00:32:53:24 - 00:33:04:20
Cas Piancey
We lose our competitive advantage. And so what's the counter to that claim? You know, how do you counter that claim? I guess coin tested, I guess coin test did counter that claim and one right.

00:33:04:26 - 00:33:07:09
Bennett Tomlin
Quick or hopefully going to win.

00:33:08:18 - 00:33:08:26
Dirty Bubble Media
Yeah.

00:33:10:25 - 00:33:38:10
Bennett Tomlin
So ever since recently, ever since the tear clips, I've been thinking about Madoff more often for reasons I don't know why Madoff is on my mind after the terror collapse. But it has been and like there was a Y Combinator company called Stable Gaines that was advertising this unbelievable yield who deposited money with them because they were effectively just playing the anchor game and trying to pass that along.

00:33:38:26 - 00:33:48:13
Bennett Tomlin
And like when it collapsed, all of the customers for this company, stable gains, basically got screwed. Or at least so far, they seem like they're going to get screwed.

00:33:48:15 - 00:33:50:08
Cas Piancey
Well, they changed their terms of service.

00:33:51:02 - 00:34:11:11
Bennett Tomlin
Yeah. To pay them back in terror instead of dollars, which is. Yeah. And so I'm reminded of like some of the Madoff feeder funds like if you invested directly with Madoff, when they went to clawback the funds, those people had precedence over the like institutional funds and stuff. The feeder funds that people were investing in to try to get Madoff's yield.

00:34:11:24 - 00:34:32:18
Bennett Tomlin
And every time I look at Celsius, I just get this feeling in my stomach that they are exposed to Ponzi like structures throughout crypto and that at some point the people investing with them are going to end up in a situation where, like the people who invested in Madoff's feeder funds, your recourse is limited.

00:34:33:00 - 00:34:49:03
Dirty Bubble Media
Well, and let's be real. I mean, anchor Terra, that was a Ponzi scheme. There is no like there's no ifs, ands or buts about that one. OK, that was obviously obviously a fraud and it was obviously unsustainable. It was obviously going to collapse. Then it did a very good job of explaining that bunch of other people did, too.

00:34:49:03 - 00:34:49:28
Dirty Bubble Media
But I'll give you credit.

00:34:49:28 - 00:34:50:16
Bennett Tomlin
In that case.

00:34:50:16 - 00:34:51:09
Dirty Bubble Media
All right. Yeah.

00:34:51:12 - 00:34:56:02
Bennett Tomlin
Everybody in that case, Celsius was able to make their exit. They were pretty and.

00:34:57:02 - 00:35:32:28
Dirty Bubble Media
They made their exit good for them. But you know what? Why in God's name were these supposed professionals taking their customers money and putting it into an obvious Ponzi scheme? What does that make your company if you're investing? They say, I think was like $500 billion worth of ether in anchor and they had at least 130 $250 million worth of Terra us t so there's six or $50 million, which is like, I mean, I don't know how much there was at that point, but it's a significant chunk of their assets that they invested directly into a known, obvious, obvious, obvious Ponzi scheme.

00:35:33:02 - 00:35:41:05
Dirty Bubble Media
They got out, sure they did a good job, but what about next time? Come on, why are you doing that? Right. Well, that's the point. There's only so many times you.

00:35:41:05 - 00:35:50:10
Bennett Tomlin
Think that there shouldn't be a lending platform gambling that they can exit pansies in time that is not like what should exist. Yeah.

00:35:51:02 - 00:36:15:13
Dirty Bubble Media
It's unsettling. I mean, it really is. And that's you know, part of the reason I've spent so much time on this is that there are a lot of people who believe them and have I mean, literally, I mean, people like people who already lost their life savings on the CEL token crashing and having borrowed against this token and then been liquidated, which the company in many posted in many AMAs basically said could never happen, almost almost came very close to promising.

00:36:15:13 - 00:36:37:01
Dirty Bubble Media
It's never going to happen. OK, a lot of people lost their life savings. I mean, we're talking hundreds of thousands of dollars apiece, people who thought they were going to retire using Celsius, which on one hand, you know, maybe you kind of deserve what you got for falling for that. But at the same time, these are normal people who, you know, believed this story, which, you know, if you don't look too deeply, is can be a compelling story.

00:36:37:01 - 00:37:01:23
Dirty Bubble Media
Maybe, you know, and something else to talk about with feeder funds. So also has had its own feeder funds, right. Voyager Digital, which is a Canadian crypto company, has an exchange and also does like a lend earn product. They've, at least in the past, had a significant amount of money with Celsius. There's a German company called Nouri, which was previously a basically what they do is they sell Bitcoin for gift cards, and that turned out to be, you know, money laundering.

00:37:01:23 - 00:37:21:16
Dirty Bubble Media
And they weren't able to do that business anymore. So essentially being a Bitcoin bank and their business model, at least the last time I checked, was sending all of their Bitcoin to Celsius with absolutely no recourse. OK, so there's that one. There's a guy in I think Indiana or Ohio, I can't remember which one who's who's this investment advisor who sells a number of different crypto related things.

00:37:21:23 - 00:37:38:04
Dirty Bubble Media
He has a crypto like coin fund which could CEL token he also has a fund where he sends money directly to Celsius. So there's a number of these other feeder is going on besides like all under Celsius. And then Celsius itself is feeding into these other things that are on top of it. It's, it's like Ponzi ception almost.

00:37:38:04 - 00:37:44:00
Dirty Bubble Media
You know, you're not saying that Celsius is a Ponzi scheme. All I'm saying is they're clearly investing in Ponzi schemes.

00:37:44:18 - 00:38:14:13
Cas Piancey
This is this is my final. I think this is my final question for you today. We were hit with the news. It is Monday, June 6th today for anyone listening in the weeks it will take for us to get this out. But today we are hit with the news that B and B, which is the token four. Binance is being scoped out by the SEC as a possible securities violation.

00:38:14:13 - 00:38:47:06
Cas Piancey
Now, look, the response to this has been pretty resoundingly. Yeah, we all knew this already, asshole. Which OK, I get it. I get it. Everybody chill. I still think it is newsworthy that the SEC is making a move against them or thinking about making a move against them. I know people like to pretend it isn't because the SEC is pathetic, but anyway, I'm wondering if there's a correlation here, if there's some sort of.

00:38:47:12 - 00:38:54:26
Cas Piancey
Well, sounds a bit like CEL token maybe. I don't know. I don't know what you're saying, what your thoughts are.

00:38:55:12 - 00:39:18:14
Dirty Bubble Media
Well, I mean, I'm not an attorney nor are we finance expert. I'm just a guy, you know, who who got interested in this weird thing that was going on. So, you know, my my opinion is only what it's worth, you know, not much. But I have read, you know, the laws surrounding this. And I mean, if you have to think about what CEL token is, right?

00:39:18:14 - 00:39:39:06
Dirty Bubble Media
I mean, CEL token first of all, like I said before, the backbone of the company, right? It's the way they pay out yield. It's it's the core of their balance sheet. It's clearly it's being traded like like a security. Everything about it screams to me security. Obviously that hasn't been decided yet or whatever by the ICC. But it certainly looks like one to me.

00:39:39:06 - 00:39:56:29
Dirty Bubble Media
It looks like one. It talks like one. It functions like one. The only difference between sellers of security and regulated securities is that there are a number of interesting things that go on with sale token that may not go on with regulated securities like what's trading and insider trading, but we may not talk about that today. Yeah, it's almost certainly security.

00:39:56:29 - 00:40:16:20
Dirty Bubble Media
And we already know that the SEC is investigating Celsius and Gemini, who have a number of business relationship with each other. We know that for a fact. We know that they stopped offering their own products in the United States, maybe like a month ago out of the blue. Nobody really knows why. I mean, I'm certain it's because of some regulatory stuff that's coming.

00:40:16:28 - 00:40:32:29
Dirty Bubble Media
And we know that block by block by paid $100 million fine and also cease doing business in the US is part of a settlement with the SCC and CFTC. So I think the regulators are probably coming pretty soon and I look forward to that. I think that'll be interesting to see what they have to say.

00:40:33:00 - 00:40:34:13
Bennett Tomlin
Nine Celsius doing together.

00:40:35:20 - 00:41:03:00
Dirty Bubble Media
Well it's interesting that you asked that. I had a post about that a while ago. So Gemini has their G USD product and I don't know, this is why the Celsius investigation with the ICC. All I know is that Bloomberg reported that there was an investigation that involved both Gemini and Celsius. So I don't know if it's linked to this but I know at least one example of a relationship between the two of them is that Celsius feels like their 10th largest asset is actually G USD.

00:41:03:22 - 00:41:32:02
Dirty Bubble Media
Do USD has a market cap that somewhere between 100 to 200 to 100 $300 million. It fluctuates quite a bit, but Celsius was controlling something like a third to a half of the market cap of this total this talk it for some time now and I looked at the flows of that token and where do they go. And it's weird because all it does is cycle between Gemini to Celsius to block five to sell it to us to Gemini in a kind of the circle and all three of them offer significant yield by the way.

00:41:32:29 - 00:41:34:22
Dirty Bubble Media
So my thing was the way to summarize.

00:41:35:08 - 00:41:56:11
Cas Piancey
This point out there, I think Gemini and tell me if I'm wrong here, Bennett but I think Gemini got in trouble because and and it was reported, I think by the block at the time years ago, where they were offering yield, they were offering like incentives to anyone who was buying G USD. So this is something that happened years ago.

00:41:56:11 - 00:42:08:20
Cas Piancey
So if this is something that Celsius has been doing for a while, they were absolutely getting part of their yield from this behind closed doors under the table deal with Gemini like that's believable.

00:42:08:21 - 00:42:24:06
Bennett Tomlin
No, that's that that did happen. They paid a rebate or a discount. They were giving away g USD for less than a dollar is what I think it was which USD C did as well circles giving out rebates to get people to use USD C as well. So let's get let's get them in there as well just for fun.

00:42:25:15 - 00:42:34:16
Bennett Tomlin
I think the more interesting implication is that you g USD is extraordinarily tiny right? Like it doesn't matter in the scope of stable coins.

00:42:34:16 - 00:42:36:12
Dirty Bubble Media
Yeah. And nobody uses it.

00:42:36:21 - 00:42:59:04
Bennett Tomlin
A couple of days ago, the CFTC released an interesting document alleging that two unknown principals who happened to be massive Bitcoin wheels of Gemini. I have no idea who that could be ended up like lending out a bunch of their personal wealth to market makers and stuff to help maintain volume on Gemini and on Gemini products so that they would be competitive.

00:42:59:28 - 00:43:36:16
Bennett Tomlin
My fear with what you're describing with these funds mostly circling between those is that and again, this is speculation is that those same principals could be directly trying to incentivize adoption of $2 a basically subsidizing the yield themselves because I cannot for the life of me figure out why there would be a legitimate demand to borrow g USD because it's used to nowhere like no protocols, no real exchange adoption.

00:43:37:14 - 00:43:43:09
Dirty Bubble Media
Yeah. All it's all used for is always used for swapping into other stable coins, as far as I can tell. Look, the only thing anybody does.

00:43:43:09 - 00:43:49:06
Bennett Tomlin
So that's very strange. That's extraordinarily strange. Now that's troubling.

00:43:52:07 - 00:44:00:04
Cas Piancey
So on that troubling note, anything else, Mike, that you would like to leave listeners with before we, we sign off?

00:44:00:16 - 00:44:24:26
Dirty Bubble Media
I think, you know, the only thing I'm going to say is that, you know, I didn't know anything about crypto like a year ago. And I have learned a lot in this time. And I think that it's possible for anyone who has the interest and has a little bit of time to educate themselves and that if you're going to invest in anything, you should probably take at least a few hours to do a little bit of research before you entrust them with your life savings.

00:44:25:02 - 00:44:32:22
Dirty Bubble Media
Please, please, please do that. Probably that message is too late for a lot of people. But, you know, we'll see maybe something else.

00:44:32:23 - 00:44:41:10
Bennett Tomlin
And make sure to check out Mike at Mike Burgers, Bird and Twitter and Dirty Bubble Media and Sub Stack, right? Excellent.

00:44:41:19 - 00:45:04:00
Cas Piancey
Yes, perfect. Yeah. So Bennett has asked me to try to figure out a way to get more likes and subscribers and reviews. So I came up with a pretty cool idea. And we're going to be basically for every like subscribe review you give us, we're going to give you ultimately in the end four to five like subscribes and reviews in return.

00:45:04:20 - 00:45:14:05
Cas Piancey
I can't explain the intricacies, the complexities of how we manage to get that return. But I can assure you it's going to happen one day, not financial advice.