 Their loan books are opaque, their activities are opaque. You're being way undercompensated for the risk. Corey Clipston, the CEO of Swan Bitcoin, has been among the most vocal critics of Celsius Network, a crypto lending platform that is now at risk of insolvency. Like, I think they were gonna come down no matter what. It's gonna be a fight over the scraps, unfortunately, for a number of years. After Celsius froze withdrawals earlier this month, other crypto firms have been facing liquidity issues. Some people say this could be a Lehman Brothers moment for crypto. But how did we get to this point? Are crypto lenders like Celsius posing a systemic risk to the crypto ecosystem? And what are the fundamental lessons that we should learn from this crisis? We address these questions in this Cointelegraph interview. Before we start, don't forget to like the video and subscribe to our channel. I'm Giovanni, your host. Let's get into it. So we are seeing an unprecedented market collapse happening in crypto. What is the role that the Celsius accident has in this all market turmoil that we are witnessing? Can you break down the situation at the moment? I'd like to question the premise that this is unprecedented in any way. This is like a, what, 65% drawdown in the Bitcoin price. We should pretty much expect that by now after a 85% pullback in 2018 and 94% pullback in 2011 and 83% pullback or whatever in 2014-15. So definitely not unprecedented. What is new this time around is the explosion of extremely risky leverage models with decentralized companies running risky loan books gathering up primarily retail deposits. These are not deposits in the way that you would think of banking deposits. They're not insured and essentially, well, not even essentially according to the terms of service, you're actually an unsecured creditor to platforms like Celsius, which then out the back end go and trade your money for profit and give you an interest rate. But unlike the world of hedge funds, which is usually how that model works, you as an unsecured creditor, essentially an LP in their hedge fund are not getting 80% of profits. So, you know, basically what I've been saying about all of these, you know, sort of re-hypothecating services, not targeting Celsius specifically, but any of these yield platforms for the last few years since SWAN launched is that the, you're being way under compensated for the risk that you don't know what's going on. Their loan books are opaque. Their activities are opaque. There's no insurance. These are not bank deposits. There's no regulation. And so it's exceptionally risky. So long before this accident with Celsius happened, you have been one of the most vocal critics of Alex Machinsky and Celsius Network. Can you tell us what were the red flags that drew your attention to this project? With Celsius in particular, you know, I've been aware of them and they're sort of exceptionally shady founder Alex Machinsky for years, dating back to their ICO and sort of all the false promises around their ICO sale and kind of like his misrepresentation of his background, you know, he never raised a billion dollars. He never had three billion dollars of exits. He wasn't the inventor of VoIP and, you know, he wasn't part of the most successful IPO of 2004. So kind of his four big claims that he marketed himself with to gather up the money for the ICO and continued to sort of trump it ever since to build this kind of like cult of community or personality or whatever around Celsius were all false. So the third leg of the stool, you know, one shady ICO to all the stuff coming out last year about their mishandling of customer funds with losing the money and stay count and losing 50 million dollars in the Badger Dow hack. And then the real nail in the coffin was as Luna, UST blew up, which I was watching closely since I forecast that very publicly and loudly in March and watched it happen sort of in front of our faces. The news came out Celsius actually promoted themselves, you know, the day or the day after that it collapsed that they had pulled 500 million dollars out of anchor of their users funds out of an obvious Ponzi scheme that anybody who looked at it for like 45 minutes could see it was a Ponzi. So that just showed to me that these guys are even worse at risk management or just like part of this nasty pump and dump crypto machine, like much more than I even suspected previously. So I just thought it was like the right thing to sound the alarm. I think that's what doomed them essentially is that when people saw like, hey, this is a pattern, you know, you've got a stake count, Badger Dow, Luna, total opacity, markets crashing, you know, and then essentially there was a bank run where people just completely lost confidence in their ability to make good on their deposits. And rightfully so, like I think they were going to come down no matter what. So what is the situation with Celsius at the moment? We see that depositors are still unable to access their funds. And it seemed that Celsius was kind of trying to get out from this over leveraged position that it has here and there, maybe trying to wait for the market to recover a bit. So what is your take on this? Yeah, that's that's certainly what they're saying. And, you know, who knows whether they have any chance of actually pulling that off. It seems like the smart money believes that they don't have a chance at it. The lawyers that they have hired it can go kind of specialize in restructuring. So this kind of, you know, canary that I guess the red herring that maybe they're looking at getting acquired is probably completely false since those lawyers don't really specialize in M&A. So my guess is there's probably like a long restructuring here. We don't know where in the liquidation stack depositors sit because again, these are not bank deposits. These are not regulated. And so it's very likely that the investors, you know, those 750 to 900 million that came into the company to bail them out last year after they were on the wrong side of the GBTC ARB trade from Westcap and the Quebec Pension Fund probably sit in front of depositors in the liquidation stack. So we'll see what's left at the end of this. And then, you know, we'll see how much investors are able to get and then what's left for depositors. And don't forget, you know, trustees of different estates and class action lawsuits for BitBoy and others all essentially coming after whatever's left there. I think it's going to be a fight over the scraps, unfortunately, for a number of years. I was talking to CZ, the CEO of Binance not long ago, and he was telling me precisely that the ecosystem, the crypto industry should review the system of incentives that a lot of projects are offering at the moment because many of them are not backed by a sustainable business model. And they use these high yields to lure investors into projects that at the end of the day are not sustainable in the long run. So here's kind of a good litmus test for anyone that's watching that actually understands Bitcoin and likes Bitcoin a decent bit. If you are thinking of doing business with someone with a company run by somebody who lies about Bitcoin often, like Michenski does, like Zushu lies about Bitcoin, like Sam Bakeman freed lies about Bitcoin, whether they're doing it intentionally or out of ignorance, either way, like if you're a Bitcoiner, don't do business with these people because they actually don't understand your goals and what you're trying to get with Bitcoin with self sovereign money. Can you be more precise in terms of what lies are you talking about? Oh, so like Michenski said that, you know, it was Bitcoin, it was Bitcoiners fault that 30% of BTC has been lost. First of all, 30% is high. Second, it basically all the coins that were lost, like 99 plus percent of them were probably lost in the first couple of years when they weren't really worth anything. So that's when people were just like throwing away laptops with like, you know, tens of thousands of coins on them and things like that. So, you know, self custody is obviously a better way to not lose your coins than giving them to Alex Michenski and his shady operation, which just lost all your coins. So liar. I see a lot of Bitcoiners and like Bitcoin maximalists, I guess that you could be put in this basket of people that are hardcore fans of Bitcoin that are basically looking at this latest market turmoil and the disasters going on with these platforms saying, we told you so, it's Bitcoin is the basically only crypto that is really worth the trust of investors. But when I look at this criticism, I think, can Bitcoin really survive if all these other infrastructures that is around it collapse? Well, Celsius is not important market and infrastructure by any stretch of the imagination. It's completely irrelevant. It was just sort of like a leech kind of sucking, sucking rent out of the system. So totally unnecessary. Plenty of places to buy Bitcoin, you can buy through brokers, you can buy peer to peer, you can buy in exchanges that aren't, you know, taking your coins and rehypothecating them and fricking staked Ethan Lido or Badger Dow or whatever, like they're completely unimportant to Bitcoin. I think what we see with Bitcoin versus altcoins is, you know, there's 20,000 other tokens out there. Only one of 20,000 altcoins has ever had an all-time high in Bitcoin terms. And then three or more years later, had a new all-time high. That's Dogecoin last year because Elon pumped it. And because, you know, the last time it had an all-time high, people rightfully understood that it was just a joke. So literally no other coin has ever had two all-time highs in Bitcoin terms, you know, in two cycles. So they all go to zero in the long term because they're all essentially pump and dumps of varying degrees of success. So they're either kind of like a long con or like an immediate rug pull or they're somewhere in between. Do you, sorry, the only thing, do you put Ethereum in this basket of coins that will naturally fail? Yeah, yeah, absolutely. As, as safety says, it's, it's the, it's the mother-asshole from which all shit coins spring. So yeah, it's kind of the worst of all. Interesting. I just want to, maybe we come back to this point, but first I wanted to ask you regarding the current situation because it's quite alarming. So we saw the collapse of Terra, then we saw the problem with Celsius, which was exposed to Terra, to Terra Luna, as you pointed out. Now we are seeing also 3AC at risk of insolvency. And so I wanted to ask you, are we witnessing some sort of domino effect? And if so, is this going to trickle down further? And what kind of consequences this is can have at the end of the day? Yeah, I mean, I think it's, it's repricing all of the revenue or earnings, if there are any of every single one of these CFI lending platforms, you know, and they, it sucks for, if there are some that are, you know, better at risk management, it doesn't matter, they're going to get dragged down just like, you know, a Bitcoin miner with great operations that's better than the rest is still going to get dragged down when the price goes down and some of the other miners take hits. It's the same thing. So it doesn't matter if you're an amazing CFI lending platform, taking these retail deposits and lending them out the back end and giving them yield or a terrible one, they're all going to get kind of dragged down and people are going to look at this very closely and there's going to be tons and tons of research out there, articles written, national news stories, regulatory action, I think is absolutely inevitable. I think this now takes the baton from the sort of burgeoning stablecoin legislation. This is way, way, way more important. Obviously, this actually has real damages in real states with attorneys general that want to go after it and prosecute it and they will. So I think this is a huge wake up for the crypto industry. I think there's also a really important lesson to hear, a lesson to learn for just crypto fans, not Bitcoiners, but the altcoins, the crypto people, is that a lot of the people that you think are super smart were just in the right place at the right time. They actually aren't that special and they built a lot of these huge companies, essentially because of this massive arbitrage of crypto being just outside of the reach of regulation at present, kind of like online gambling was in the aughts. And so, you know, basically you just have these two factors of short time to liquidity, which means you can like pump something up and dump it on retail. And then this whole idea of like we can make our own weather, which is kind of like what crypto VCs talk to each other about all the time. It means that unlike with actual securities, these want these securities that are just outside the reach of regulation today, they can market them willy-nilly. They can make trumped up promises about what they're going to be. They're seeing a lot of fortunes made from essentially like unethical would be, will soon be criminal activity, but they'll get away with it at present. There are other major C-fi landing platforms like, for example, Nexo and then we had the BlockFi that came out and they also made some statements. Some of them have basically reassured investors that their business model is much more solid than Celsius. Do you think that these platforms are fundamentally different from Celsius? Well, again, the model is the same. It's just a matter of like how good their operations are, how good their risk management is versus obviously Celsius being terrible at both. So, you know, maybe they survive, maybe they lose some customers. Obviously, they are losing tons and tons of deposits and kind of slowing things down, slowing down withdrawals. And in some cases, it's just kind of like shutting off withdrawals for now to see if they can work through this. And you know, these are bank-like activities, looks like a bank, talks like a bank, walks like a bank, that's a bank. So my suspicion is that we'll probably just see regulation of all these things. Okay, so you seem to agree with Natalie Brunel, which I interviewed not long ago, who said that she sees all this market turmoil as the trigger for regulation to come down on everything in crypto except Bitcoin. The regulators will be just, you know, start considering the rest of crypto as securities, while Bitcoin will be considered more as digital property. And that's gonna be like the big divide in terms of regulatory framework. Well, that's what should happen. It's very possible that Ethereum and a couple of others have, you know, essentially insinuated themselves into government and banking circles and kind of given enough upside to people who matter and have enough lobbyists in DC and have sold enough stock to JP Morgan and the Saudi government and things like that to their centralized entities that actually control Ethereum, that, you know, it's very possible they somehow get away with having sold a security and marketed a security all these years. So they may get away with it. We'll see. It doesn't change the facts of what it was, but you know, maybe they'll get away with it. But yeah, almost everything else, I think, will just be regulated as a security and Coinbase and all the rest will have to register as securities exchanges. Do you welcome this outcome? I don't have an opinion one way or the other. I'm in favor of like not being a hypocrite and, you know, applying things consistently. You know, if you're Brian Armstrong and you're putting out, you know, long tweet threads, you know, talking about how crypto shouldn't be regulated where meanwhile you've enriched yourself because American stock markets are highly valued for the protections that they have for investors. And that's the whole reason you got rich with your Coinbase stock. It's the reason you were able to do a direct listing and not even have a lockup and be able to sell a ton of money at the top and buy $135 million mansion. But at the same time, you don't want them to regulate these securities that you have on your exchange and you don't want your securities exchange to be regulated. It's kind of a hypocrisy that's that's hilarious and sort of bald faced sitting there for everyone to see. Great. Thanks a lot, Corey, for coming on our show. We are going to continue following the situation very closely. Yeah, my pleasure. Happy to do it.