Confident Celsius Network takes aim at the banks

Roni Cohen-Pavon and Daniel Leon / Photo: Eyal Izhar, Globes

With the P2P crypto lending platform about to expand in Israel, co-founder and COO S. Daniel Leon talks to "Globes".

In recent months, the cryptocurrency market has trended upwards, with an emphasis on the decentralized finance (DeFi) sector and distributed crypto exchanges. Among the companies benefiting from the trend is Israeli-American crypto loan company Celsius Network. More than three years after its founding, it seems that investor interest in Celsius's blockchain platform is growing - as well as interest in its cryptocurrency, the CEL token.

This past summer, Celsius completed a $24 million equity round at $140 million valuation. To date, Celsius has raised a total of approximately $74 million, of which approximately $50 million was in an initial coin offering (ICO) of the CEL digital currency in March 2018.

The company's latest round of funding rests on two main sources based in Hong Kong: about $14 million was raised from about 1,000 investors via crowdfunding platform BnkToTheFuture, and about $10 million from blockchain company Tether, known for its stablecoin cryptocurrency.

As the crypto market began warming up in early October, the price of Celsius's currency climbed to an all-time peak, jumping more than 230% in less than a month. This happened about three weeks before the price of market-leading currency bitcoin soared to its highest level since January 2018, over $13,800.

"The rise in cryptocurrency prices is no accident," S. Daniel Leon, COO, president and co-founder of Celsius, tells Globes. "There’s a tectonic shift that’s pushing this industry forward. What happening at Celsius isn't happening in a vacuum."

"PayPal changed the picture"

One of the most notable crypto market developments - alluded to by Leon - is PayPal’s announcement that it intends to enter the field as early as next year. With almost 350 million active accounts worldwide, PayPal will launch the option to use cryptocurrencies on its platform, including Bitcoin, Ether, Bitcoin Cash, and Litecoin.

"PayPal has changed the situation in the market significantly," says Leon. "This move is a seal of approval for the crypto industry. We’ve always said this industry needed mass adoption - and needed a huge entity like PayPal to say 'We’ll bet on it'. PayPal can open the crypto market to tens of millions of people and many businesses. Crypto adoption will only come if cryptocurrency is easy to use. PayPal offers the market a simple user interface that will make it easy and safe to use cryptocurrencies."

Moreover, Leon adds, the global Covid-19 crisis and economic incentive policies implemented by governments around the world have given Bitcoin and other cryptocurrencies a significant boost. "More than 20% of all circulating US dollars were printed in the last year alone," he says. "This abnormal situation is causing people to lose faith in the value of the dollar, and they’re looking for alternatives. One of those alternatives is cryptocurrency. "

Leon notes other developments in the past year that have given impetus to the crypto market. One is increased use of digital payment, due to the restrictions imposed on residents and businesses in many countries since the outbreak of the coronavirus pandemic. Another development came in July when the US Office of the Comptroller of the Currency (OCC) clarified the US Treasury’s position authorizing commercial banks’ to provide cryptocurrency custodial services.

Recent reports about bitcoin purchases in the tens of hundreds of millions of dollars by publicly traded tech companies MicroStrategy and Square, have also reinforced investor confidence. In addition, central banks have recently been announcing the possibility of issuing their own sovereign digital currencies.

"Together, all these factors have created massive momentum, which could lead to a revolution in the field," Leon says. "Remember that bitcoin was launched in 2008 during the global financial crisis and the banking crash. And now, during the coronavirus crisis, we’re seeing central banks injecting money mainly into stock markets and financial institutions - while the average citizen doesn’t see a penny of it.

"Our message to the owners of the big banks and financial institutions is 'Enjoy this system - the one screws the rest of us - while it lasts.' The crypto industry is going to fundamentally change the financial system. Banks need to understand that the party is over. No matter if it takes two or five years - this train has left the station and is on its way to building a better, fairer, and more transparent financial arena for billions of people around the world."

Meanwhile, blockchain companies worldwide face myriad regulatory barriers, especially in the US. Companies like Telegram and Kick, for example, fought lengthy legal battles with the US Securities and Exchange Commission following their ICOs, and ended up losing.

How does Celsius deal with the regulatory challenge?

"Any major change, like the kind Celsius wants to make, is never easy, including the regulatory aspect. But I think that, as a company, we acted properly right from the start, unlike many blockchain companies that raised money through ICOs.

"Already ahead of our public offering in 2018, we listed the Celsius currency as a security. In that sense, we decided not to cut corners. We’ve invested a lot of money in meeting the accounting supervision requirements and conditions for obtaining licenses from the regulators."

Celsius is currently in the process of obtaining licenses to provide financial services in the UK, Australia and some US states. According to Leon, New York is one of the most challenging places for crypto companies; the state has established a special license called BitLicense. "We’re in contact with several companies in New York on cooperation that would allow Celsius to operate there as well," Leon says.

"We'll expand the Israeli team to 40 employees"

Celsius, which is registered as a British company, was founded in the summer of 2017 by CEO Alex Mashinsky, Leon, and their partner Nuke Goldstein, the company's CTO. Until recently, the company managed most of its operations from offices in the UK and the US, while its development activities were mainly in Serbia. Now, "Globes" can reveal, the company says it is currently working to expand its operations in Israel.

"In Israel, we used to work with a small team of 8-7 people, mainly in product development, customer service and marketing," said Leon, who this year relocated and moved with his family from New York to Israel. "This year, we expanded our Israeli team to 20 employees, and we hope that we will increase it to 40 employees as early as 2021. We’ll recruit employees here mainly in development, marketing, and regulation. It’s convenient for us to operate from Israel, one reason being that it’s close by Europe and Asia - two regions that are very big markets for us."

In addition, he said, this month the company opened a new office in Hong Kong, where its business development team operates, and another office in Australia is currently being set up. Today, the company numbers more than 100 employees, worldwide.

As part of its expanded Israeli operations, in September, Celsius added Adv. Roni Cohen-Pavon to its management team. Cohen-Pavon was previously a partner in the crypto and e-commerce department at the law firm of Herzog Fox & Neeman. "Roni is one of the leading people in fintech, for both legal and strategic matters. As far as we’re concerned, we’ve recruited Michael Jordan," Leon says. "He’ll be in charge of company strategy, all future plans, new revenue sources, and new product management."

Loans without fees and without penalties

In an interview with "Globes" in January 2019, CEO and co-founder Mashinsky said that he believed that Celsius would be the crypto market killer-app - the application that would lead to widespread adoption of cryptocurrencies around the world. There’s still a long way to go to reach this ambitious goal, but in recent months Celsius seems to have made significant progress.

Celsius defines its digital currency, CEL, as a "utility token" that allows its holders to enjoy preferential interest rates on loans or on making deposits through the Celsius app. In addition to accessing loans and deposits, the app, which was first launched in June 2018, also provides a digital wallet for holding and transferring cryptocurrencies. The app is currently available in more than 100 countries around the world, but Israel is not yet one of them.

"Celsius offers two main services," Leon said. "One service is cryptocurrency deposits, where we pay depositors much higher interest rates than banks. For example, annual interest rates of 5% -7% on Bitcoin or Ether deposits, and 10% -15% interest rates for depositors of stablecoin, a ‘stable’ digital currency whose price is linked to the US dollar, such as Tether.

"Our second service allows app users to take out cash loans, using cryptocurrencies as collateral. To date, Celsius has provided about $100 million in cash loans." In addition, the Celsius app allows users to take loans in low-interest cryptocurrencies at an initial interest rate of only 1% per annum for CEL borrowers.

Celsius stresses that there are no service fees or penalties for app users, and that over 80% of revenue is returned to its user community through interest payments on deposits made through its platform.

"To date, about 200,000 people from 140 countries have opened accounts in the Celsius app, and a total of almost $3 billion has been transferred to our system. The value of deposits assets under our management (in cryptocurrency) is close to $2 billion," Leon says. According to company data, during its three years of operation, it has granted a cumulative $8.2 billion in loans via the platform.

"Tether can give us tremendous momentum"

Tether, which invested $10 million in Celsius, is one of the largest - and most controversial - companies in the cryptocurrency industry. Tether’s stablecoin (traded under the symbol USDT) serves as a popular point of entry for many investors starting to trade on the world's crypto exchanges. In terms of market value its stablecoin is currently the third largest cryptocurrency, after Bitcoin and Ether (Ethereum's cryptocurrency).

However, it appears that US regulators do not approve of Tether’s activities. In April 2019, the Bitfinex crypto exchange was sued by New York State's attorney general, who accused it of using Tether funds to cover a loss of $850 million. Both Bitfinex and Tether are owned by the same parent company, iFinex of Hong Kong. In addition, crypto market experts have expressed doubt as to Tether’s financial reserves. The company has previously claimed that each coin it issues is backed by one dollar, but in March 2019, it announced it had changed the backing of USDT to include loans to affiliate companies that had borrowed funds from Tether.

You’ve chosen to raise money from Tether, despite the legal controversy regarding its activities. Why did you take the risk?

"Before fundraising, we did our own examination into the matter, and took into account both the pros and cons," Leon said. " Tether assured us that their legal dispute in the US would be resolved at some point. We felt comfortable with the Tether team and the value they can bring to the company. This is the most important strategic investor in the crypto market, one that can give us tremendous momentum."

In addition to using CELs on the Celsius app, the currency is currently traded on several decentralized exchanges (DEXs), including Liquid, IDEX, Switcheo, Uniswap, and Totle. DEX exchanges differ from regular crypto exchanges in that they do not hold client assets. All DEX transactions are peer-to-peer - settled directly between the transacting parties through smart contracts, and without brokerages and stock markets. However, decentralized trading exchanges do not comply with regulations in most of the world’s countries, which require stock exchanges to identify their clients and act to prevent money laundering through the stock market.

The CEL cryptocurrency began trading on the crypto-exchanges in April 2018, at a opening price of about $0.27. For more than two years, until September 9, 2020, it shuffled along at up to half a dollar. However, in less than a month, from September 10 to October 5, its price soared by 236%, according to crypto market data tracker Nomics. On October 5, the price of CEL reached a peak of about $1.48. In the following weeks, it fell slightly to about $1.28, reflecting a current market value of approximately $470 million.

"The price jump is significant mainly because it shows the community's confidence in our model," says Leon. "It’s like a rotating flywheel, where rising currency prices increase demand for currency, and rising demand raises prices. Over the past few months, this flywheel has been spinning faster and faster, in part because a market leader like Tether decided to invest in Celsius. This expression of confidence spurs us on."

Celsius Network

  • Activity: A blockchain platform that enables peer-to-peer deposits and loans (P2P)
  • Founding partners: Alex Mashinsky (CEO), Daniel Leon (VP of Operations) and Nuke Goldstein (VP of Technology)
  • Capital raised: about $74 million (of which $24 million in equity was raised this year, and $50 million in an ICO of the CEL cryptocurrency in 2018)
  • Company offices: USA, UK, Serbia, Hong Kong and Israel
  • Number of employees: about 100
  • Number of active app users: about 200,000 from 140 countries
  • Assets under management (deposits): almost $2 billion
  • Cumulative total value of loans: approximately $8.2 billion

Published by Globes, Israel business news - en.globes.co.il - on November 4, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Roni Cohen-Pavon and Daniel Leon / Photo: Eyal Izhar, Globes
Roni Cohen-Pavon and Daniel Leon / Photo: Eyal Izhar, Globes
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