In a recent interview with CryptoGlobe in Paris, Alex Mashinsky, co-founder and CEO of crypto lending and borrowing platform Celsius Network ("Celsius"), explained the problems with the traditional banking system and why "banking on blockchain" makes so much sense.
But we present the interview, it might be helpful to have a little background information on Mashinsky and his company.
Mashinsky is a technology innovator (a holder of 35 patents), serial entrepreneur, and venture investor. As a technologist, he is widely recognized as one of the inventors of Voice over Internet Protocol (VoIP), with a foundational patent dating back to 1994. In 2017, Mashinsky, along with S. Daniel Leon and David Brill founded Celsius Network. The company launched its services in July 2018.
Celsius provides two main services:
- Unlike a custodial crypto exchange such as Binance or Coinbase, it lets you earn interest on your crypto while you HODL; the interest is paid weekly (every Monday) and it is in the same digital asset as your deposit, e.g. BTC in the case your deposit Bitcoin. You can earn up to 7% interest (although this rate can change from week to week) on deposits in any of 16 popular cryptoassets. Not all cryptoassets earn the same rate of interest. For example, currently, on BTC deposits, you can earn 6.4% interest, while for BTC deposits, you earn 3.15 interest. There is also no fixed minimum term for deposits, and so "you can get your crypto deposits whenever you need them with no fees or penalties."
- It allows you to get fiat currency (e.g. USD, EUR, or JPY) loans by using your cryptoassets as collateral. The rate of interest you pay depends not on credit scores, but the Loan-to-Value (LTV) ratio, i.e. the greater the value of crypto that you are able to offer as collateral, the lower the rate of interest that you will need to pay. For example, at the present time, if you take out a $25,000 loan with $100,000 in crypto offered as collateral, you will pay 4.95% annual interest.
Now, let's have a look at a few highlights from our interview with Mashinsky.
How and when did you get into blockchain/crypto?
One of the guys I have worked with sent me the Satoshi white paper in 2010. I looked at it, and I was like "this is the slowest dumbest database I've ever seen in my life", and it's not going to scale. You're going to need like billions of dollars worth of electricity to run this thing. So, I was totally not a believer because I come from a faster, better, cheaper world, right? Everything on the internet is faster, better, cheaper.
But on the blockchain, it's actually the opposite, right? I mean, the blockchain slows down the bigger it gets. It needs more consensus, right? It runs slower because it needs more time to get there. So, understanding that kind of took me till 2013, to really fall for it and get bitten by the bug.
After seeing Mt. Gox, I was totally shocked at how resilient the community is, you know, like seeing the largest exchange at 80-90% of the volume collapse with complete loss for everybody. And then community just picks it up, dust it off, and keeps walking.
I recognized the opportunity in 2013; that was the moment of opportunity. And, you know, I was lucky enough to be there with VoIP, doing that disruption, taking monopolies like British Telecom. I brought VoIP into the UK, worked with Cable & Wireless, British Telecom, all these guys. And they didn't know if they wanted to work with us or they hated us because we were coming in, disrupting their hundred year old business with a completely new business model. It was basically almost free.
And they went from being the most profitable companies to having to sell all of their buildings and assets and everything else.
And I'm predicting the same thing will happen with traditional banks: they are all going to have to sell these beautiful buildings because their business model of just stealing money from us every month -- you're using our capital to really make money for yourselves and not returning anything to the hard working people who are the source of the capital -- those days are over. We tried to solve that with FinTech for 20 years, 30 years. But show me a success story. Show me one company that has broken that glass and enabled all of us to join the middle class and helped us. So, crypto represents that opportunity. The reason I'm so excited about it is because I've seen this movie before with VoIP. I've seen that disruption.
What are the unique challenges you are facing this time around?
To my amazement, the resilience of the blockchain -- the fact that, for example, Bitcoin has not been hacked once -- has been proved beyond doubt.
That is like an axiom of enormous magnitude because it basically says to all of us that you can rely on this infrastructure, more than you can rely on the banking infrastructure because banks go bust every 10-15 years. Again and again, we're going through these cycles. So, here, we have proven the infrastructure. That's the good news. The bad news is that we have not brought the killer up, the use case, the thing that everybody on the planet needs. Just exchanging bitcoins each other is not a killer app, right? Just a smart contract, like Ethereum created, is not a killer app. So, what we need is that Netscape moment. We need that explosion of innovation that gets us billions of people who are using this infrastructure to make their life better.
But Celsius is not focused on the technology. We're not coming and saying "here's a faster, cheaper, better blockchain"... We are also not betting on, for example, a new coin... What we're saying is that the use case, the killer app, the Netscape moment, is enabling seven and a half billion people to earn interest, fair interest with their capital... Most of the world's earns zero on their money.
One of the most profitable banks in the world, probably the most profitable bank, JP Morgan, they make $30 billion in profit a year, enough to give $5 to everybody on the planet every year, just from their profit, right? So that bank gets half of its money for free -- they don't pay anything for those deposits because people are too lazy or don't know how to deposit it, move it from checking account to savings account, and even then, that'll earn them 1%. So, most people are saying it's not worth my time.
The opportunity is to take the same service the bank does, right? Because the bank really earns return on the money; they just don't give it to you. The bank takes your money, they take a deposit, they pay you nothing or maybe 1%. They turn around, lend it to me on my credit card, and charge me 25%. You get nothing, I pay 25%. That's just a ridiculous amount of money. That's how they make these tens of billions of dollars in profit. They keep 90% of the value, and we're saying we're going to give the depositors 80% of the value. That is the only thing we do.
What's on Celsius's roadmap?
We announced we did over one billion dollars in loans in nine months. We already have over $100 million in assets under management. People gave us $100 million worth of crypto in nine months. 80,000 users downloaded our app. We've said we're going to do $2 billion this year in 2019. We're probably going to exceed that -- we're running ahead of the plan. And while everybody else is shrinking, we're growing this fast because our model is very different.
Celsius doesn't charge any fees. It doesn't sell you anything. We're not trying to sell you a Bitcoin. If you have Bitcoin, and if you have a stablecoin, we will earn interest for you. And we don't charge any fees for it -- if we earn it, we keep 20%, we give you 80%... Our customers benefit and through their benefit, we benefit. We only benefit if they benefit.