The Roots of the Collapse: A Flawed Business Model
Celsius Network marketed itself with the appealing slogan "Unbank Yourself," promising customers a new way to earn high yields on their crypto assets, often touting returns as high as 18%. In reality, the company operated a high-risk and opaque business that was financially insolvent from its inception, according to a court-appointed examiner's report.
How Celsius Operated
To fund the attractive yields it offered, Celsius took customer deposits and engaged in risky, under-hedged trading and lending activities. Instead of being a safe, decentralized platform, it functioned as an unregulated shadow bank, taking investor money and using it to generate returns. A senior manager cited by the U.S. Examiner later said that Celsius knowingly used customers' and investors' money to buy back its own CEL tokens to prop up its price, calling the model "very Ponzi like".
Disastrous Investments and Liquidity Woes
The platform's inherent flaws were laid bare during the broader crypto market downturn in spring 2022. The company had significant, risky investments in other failing crypto ventures, including Terra and Three Arrows Capital. As crypto prices plummeted, Celsius's liquidity issues worsened, and a bank run ensued, causing the company to freeze all customer withdrawals in June 2022. This was done despite CEO Alex Mashinsky's public assurances of the platform's stability.
The Fallout: Bankruptcy, Investigations, and Fraud Charges
The freeze on withdrawals was the beginning of the end. Celsius filed for bankruptcy in July 2022, leaving an estimated $1.2 billion hole in its balance sheet. The subsequent bankruptcy proceedings and investigations revealed the extent of the fraud and mismanagement.
The Legal and Financial Consequences
- Loss of ownership: A major blow to customers came in January 2023, when a U.S. bankruptcy judge ruled that cryptocurrencies deposited into the Celsius Earn accounts belonged to the company, not the depositors. This reclassified the depositors as unsecured creditors, drastically reducing their chances of a full recovery.
- Regulatory actions: In July 2023, the FTC, SEC, and CFTC all filed charges against Celsius and its executives. The FTC's settlement permanently banned Celsius from handling consumers' assets. The SEC accused Celsius and Mashinsky of lying to investors about the company's financial health and manipulating the price of the CEL token.
- Executive accountability: Founder and CEO Alex Mashinsky, who publicly touted the company's security while selling his own CEL tokens, faced serious criminal charges. In May 2025, he was sentenced to 12 years in prison after pleading guilty to two counts of fraud.
The Celsius Bankruptcy Recovery Plan
Following its exit from bankruptcy in January 2024, Celsius began distributing over $3 billion in cryptocurrency and fiat currency to its creditors. The restructuring plan also created a new bitcoin mining company, Ionic Digital, to be owned by the creditors. As of August 2024, significant distributions had been made, though many smaller accounts remained unfulfilled.
Comparison: Celsius vs. Regulated Financial Institutions
| Aspect | Celsius Network (Unregulated) | Regulated Financial Institution (e.g., Bank) |
|---|---|---|
| Asset Ownership | Often transferred to Celsius; users became unsecured creditors. | Deposits are insured by government bodies (e.g., FDIC in the US) up to a certain limit. |
| Yield Generation | Opaque, high-risk trading and lending activities. | Transparent, regulated lending and investment practices with lower, more stable returns. |
| Transparency | Publicly promoted safety while executives engaged in fraudulent, undisclosed activities. | Financial health and risk exposure are subject to strict public reporting requirements. |
| Risk Management | Failed to implement basic risk management; significantly under-hedged positions. | Adheres to strict capital requirements and risk management protocols to protect customer assets. |
| Regulatory Oversight | Operated for years, evading regulatory scrutiny, especially from US states. | Closely supervised by federal agencies like the SEC, FTC, and state regulators. |
Conclusion
What began as a promise of high returns and financial empowerment ultimately dissolved into a classic case of corporate malfeasance, exposing critical vulnerabilities in the unregulated crypto-lending space. The collapse of Celsius was not merely a casualty of a bear market; it was the result of a fundamentally flawed and fraudulent business model perpetrated by executives who prioritized personal gain over investor security. While the bankruptcy process has provided some recovery for creditors, the Celsius saga stands as a stark warning about the dangers of platforms that promise unrealistic returns while operating outside the bounds of established financial regulations.
For more detailed information on the official bankruptcy proceedings, see the public filings on the Stretto website, the official claims agent for the case.
