The Celsius Melting Point
The tale of a company with $25b in assets, a Series B of $750m, a revolving door or CFOs, and the bankruptcy condition.
TL;DR: Less than 4 years to go from nothing, to unicorn, to a case study for financial regulation on crypto businesses that function and mimic traditional financial services.
Hi Curious Readers of Professional Curiosity!
I co-founded a Crypto Startup, that’s in stealth mode servicing institutional companies and crypto businesses. If you’re reading that, congratulations - this isn’t even on my LinkedIn. Here’s what it is about:
We help CEOs, CFOs, and Investors understand the financial health and metrics of their Crypto Venture. Things like "what's our month to month" crypto-based earnings, the crypto-based cashflow, and "what does the accounting team and law team need to understand Crypto correctly".
There's a lot of noise and vanity metrics like TVL, Market Cap, and even USD Market Price of their Crypto. These are dangerous for people onboarding onto Web3, and create a lot of uncertainty when it comes to managing a Crypto Business.
We are focused on clearing that noise.
My ask: If you know anyone in the blockchain space that is in a managerial, financial, or VC Investor level role, I’d love your help in connecting with them. I hope to get actual promo materials soon. Message me on LinkedIn for more. <3
Today’s story is on the Celsius Network - a company that in 4 years accomplished:
Unicorn Status, basically
$750m Series B
3 CFOs in less than 18 months
As always, you’ll find TL;DR: and graphics at the beginning of each section.
Cheers!
In Case You Missed It
Sections You Can Skim To
What is the Celsius Network, and how does the business operate?
What is it?
What’s their business model?
What’s the company business maturity timeline?
The CFOs of Celsius
The Saga of Yaron Shalem - 2021 to 2021
The Blip of Rob Bolger - 2022 to 2022
The Inheritance by Chris Ferraro - 2022 to Present
Why did Rob Bogler Leave?
Where do we go from here?
What is the Celsius Network, and how does the business operate?
TL;DR: Crypto lending and borrowing platform that pays you high interest for …banking? with them.
What is it?
It’s a Cryptocurrency Lending Platform that “democratizes interest income” and provides “lending access” to users of a non-traditional financial institution background.
Layman’s: Celsius gives you interest for doing DeFi activity with them - specifically depositing your assets with them and they let you borrow/lend additional crypto assets. There’s no FDIC insurance.
Allen’s Note: How to skirt financial laws and regulations 101.
What’s their business model?
The company takes your crypto that you lent them, and lends it to hedge funds, exchanges, and institutional traders for a fee. Plus they issue crypto-backed loans at 9% interest rates. They also bitcoin mine. They also hold investments in various crypto companies.
What’s the company business maturity timeline?
My college degree is older than them.
Founded in Early 2018.
Entered an accelerator in 2019
Series A of $18.8m on July 2020 + and ICO somewhere.
Series B of $400m in October 2021, with an additional $350m from additional investors in November 2021.
Cease platform trading on June 13, 2022.
Latest as of August 16, 2022: US Bankruptcy judge gives green light for Company to use Bitcoin Machines to begin paying off debt.
This is a pristine company, isn’t it?
The CFOs of Celsius
TL;DR: The rise of Celsius Network has reflected by its CFOs.
CFOs, Seriously?
I’m a financial nerd. I’m not a Financial Independent / Retire Early nerd. I’m the business financial nerd. So unfortunately, I can’t give a credible rationale beyond “I just like it” on why you should buy certain things and why you shouldn’t, but what I can impart to you is my observations in the form of 3 CFOs.
The Saga of Yaron Shalem - 2021 to 2021
TL;DR: Arrested in Israel on charges related to blockchain fraud.
The Celsius Network’s first Chief Financial Officer (CFO) was Yaron Shalem. He was previously the CFO of private venture capital firm, Singulariteam, from January 2014 to March 2018.
Some details about Singulariteam as they will be important later: The Singulariteam is hosted on a non-secure site and has the incredibly prestigious distinct award of “Most Active Fund in 2015 and 2016”, complete with an English and Chinese translation and a comment about being a “super angel investor”.
Based on this site, you know there is credibility. Right? Anyway, can’t judge a CFO by their company’s digital presence, so let’s talk about the work history.
The Sogur Currency Project
After Yaron Shalem’s time in Singulariteam, he joined Sögur Currency in 2018. This particular project was formerly known as Saga, and was focused on creating a non-anonymous stablecoin. It was organized as a non-profit and was copying the IMF’s SDR Currency model. It was built on the Ethereum blockchain and had active smart contracts with users holding funds.
In January 5, 2021, Sogur Currency closed, citing complex regulatory environment and friction, with a promise that all funds were not pocketed by the project team. Support for Sogur was killed off by Celsius Network on February 16, 2021. With the closure of Sogur, so too was the end of Yaron Shalem’s career.
Joining Celsius Network
In March 2021, he joins the Celsius Network with company implied value of ~$3.1b - though this comes from one of the investors in the company. That valuation would become more true for investors later that year when Celsius Networked closed a $400m Series B in October 13, 2021, citing a self-reported $850m in interest paid to users of the platform and $25b in total assets held.
On November 24, 2021, the Celsius Network announced an oversubscribed (essentially, a lot more funding provided than initially requested and supplied for) fundraising round, closing out with a total Series B funding of $750m, setting the company’s valuation between $7b and 10b.
Departure from Celsius Network
But before the end of the year, the CFO, Yaron Shalem, was then arrested November 18, 2021 in Israel for Financial Fraud stemming from his time in Singulariteam, and his affiliation with Moshe Hogeg, a now notorious ponzi scheme businessman in the crypto and blockchain space (y’all remember ICOs?). His arrest is part of a ~dozen or so arrest made at a time. Celsius Network suspended access to their CFO on November 18, 2021.
Interim 2021 Holiday Season
For the holiday season, the Celsius Network would be quite busy swimming in $750m of cash. It outlined plans to invest $300m in BTC Mining in North America, and also outlined the $115m acquisition of an Israeli startup GK8. Back in June 2021, Celsius had invested $200m to buy mining equipment, and before the $300m investment, it had 22,000 Bitcoin AntMiner S19 ASIC miners.
The Blip of Rob Bolger - 2022 to 2022
TL;DR: He left 5 months in.
The next CFO hired was on February 22, 2022. His name is Rod Bolger.
Rod Bolger worked at the Royal Bank of Canada (RBC) for 10 years, with 5 of those years being the CFO. RBC is Canada’s largest financial services company and bank by market capitalization with 17 million customers and 89,000 employees and manages $1 trillion in assets.
Rod Bolger resigned from RBC in September 2021 citing his desire to enter the crypto space. He joined the Celsius Network on February 22, 2022, with a $1.3m compensation package ($750k base salary + Stock Options + Token Options).
Since being brought on, Rod Bolger would herald many changes with the rest of the Celsius Network Leadership. Specifically:
On June 13, Celsius Networked Halted trading.
On June 30, 2022, Rob Bolger resigned, just 5 months after starting.
Celsius Network would file for Chapter 11 bankruptcy July 14, 2022, citing a need for corporate restructure.
The Inheritance by Chris Ferraro - 2022 to Present
TL;DR: It’s his problem now.
Not much can be said about the succeeding CFO, except for this: On July 11, 2022, the then Head of Financial Planning, Chris Ferraro, a 17 year veteran of JPMorgan Chase, is named CFO.
Chris joined after Rob did, in March 2022.
Three days later, the company would file Chapter 11 Bankruptcy.
The Bankruptcy Proceedings
TL;DR: On going today, but they are going through a reorganization.
The company engaged in a chapter 11 bankruptcy, a reorganization of the business under strict U.S. Federal guidelines, with a heavy dose of engagement between debtors and creditors.
In the bankruptcy filing, Celsius Network revealed that it had a remaining $4.3b in assets and 5.5b in liabilities. It also had $170m in CEL Tokens. A far cry from the reported $25b in Total Assets managed. Missing a casual $21b; a large portion of the dollar valuation drop is attributed attributed to the Luna Crash of 2022.
Allowance to Pay Debt using Bitcoin Mining
This past Tuesday, the company received permission from Chief U.S. Bankruptcy Judge Martin Glenn to be able to continue operating bitcoin mining machines to pay off its debt, but blocked all other crypto assets to be sold citing “too vague”. The “Too vague” part happened to be the company’s plan to sell its equity stake in other crypto companies, even though the judge explicitly indicated that that is not allowed.
Rehiring the Previous CFO?
TL;DR: $93k offered to bring back Rob Bogler as a consultant - this was repealed.
As of July 25, 2022, at the request of debtors and the company leadership, a bid was made to rehire Rob Bolger at an agreed-upon advisory and consultancy rate of $93k per month ($1.1m per year annualized) - specifically for his “institutional knowledge and his experience with the unique features of cryptocurrency”.
On August 5, that bid was withdrawn after uproar from 100 angry customers and their hand sent letters to the US Bankruptcy Judge overseeing the case, Judge Martin Glenn.
Why did Rob Bogler Leave?
TL;DR: Unknown, so here are my 3 theories: He was a canary warning, he didn’t want to be blamed, or he was bad at his job.
As someone who is a Crypto Financial Consultant, I am not at all surprised by potential level of financial misreporting in Crypto and DeFi in general. Combined with very financially…not ready consumer investors, the entire sector is ripe for extreme job security for public accounting companies.
Based on the track record of Celsius, specifically on the stories we can observed from the CFOs hired, as well as the Series Fund Raising (and also its previous ICO, and also its business model in general), I think the writing was on the wall, and Rob Bolger inherited a ticking time bomb.
Let’s go over a few theories and notions on why I think Rob Bolger left. After all, how does someone who was the CFO of RBC, join and leave in 5 months?
My Unvetted Theories on Why He Left
Canary Warning
Rod Bolger most likely joined and told the CEO and its investors of the level of financial reporting inaccuracy. Rod was probably overruled, or got into a heated debate, and got told to “fix it”.
When Rod proposed fixes, his fixes were not favorable, and so he was probably ignored, which caused frustration, and Rod simply left. There’s good chance that Rod Bolger both discovered and tried to fix the issues before a frustrating departure.The Blame Game
Rod Bolger inherited all the issues of the company and was expected to be the “fall guy” for it all, even if it wasn’t his fault or happened under his time directly.
Rod Bolger joined 3 months after two major events happened for Celsius: The former CFO of Celsius, Shalem, was arrested, and Celsius just closed a completely oversubscribed Series B funding for $750m (a $7b-$10b valuation).
Between the lack of financial technology tools that would help a company this size manage its financial reporting and asset management, plus the incredibly chaotic nature of a high growth startup, plus the oversubscribed series funding, Rob probably saw enough information to know that he just inherited a ticking time bomb, and he didn’t want to be a signing CFO that took over the probably fraud issues the environment created.Quite Bad at His Job
There is a possibility that Rob Bolger was quite bad at his job. But can anyone really know how bad you are at your job when you are only 4 months in and then Luna crashes, taking out a good chunk of the crypto market with it?I find this theory unlikely.
Where do we go from here?
TL;DR: It won’t be the last Crypto Meltdown, that’s for sure.
The case is still on going and I’ll revisit this story later on. For now, I will catalog the Celsius Meltdown has part of my ever growing list of reasons why companies that behave like a bank and have “investors” need to have strong financial asset management, and also regulations.
There’s a reason existing traditional institutions have so many laws against them. This Celsius Network occurrence adds another to the tally.
I do want to present another persistant challenge in the Crypto DeFi Space -
A lack of financial reporting tech stack products, and a whole plethora of technical debt around internal reporting and B2B level financial reporting tools. There isn’t a fin tech stack that covers compliance, operations, and reporting - though there are efforts in valuation, asset management, and individual tax. Remember my blurp about the Crypto Startup I formed? This is where we want to focus on.
On that note…
I co-founded a Crypto Startup, that’s in stealth mode servicing institutional companies and crypto businesses. If you’re reading that, congratulations - this isn’t even on my LinkedIn. Here’s what it is about:
We help CEOs, CFOs, and Investors understand the financial health and metrics of their Crypto Venture. Things like "what's our month to month" crypto-based earnings, the crypto-based cashflow, and "what does the accounting team and law team need to understand Crypto correctly".
There's a lot of noise and vanity metrics like TVL, Market Cap, and even USD Market Price of their Crypto. These are dangerous for people onboarding onto Web3, and create a lot of uncertainty when it comes to managing a Crypto Business.
We are focused on clearing that noise.
My ask: If you know anyone in the blockchain space that is in a managerial, financial, or VC Investor level role, I’d love your help in connecting with them. I hope to get actual promo materials soon. Message me on LinkedIn for more. <3