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Crypto Lender Celsius Network Raises $400m

Alex Mashinsky, the Chief Executive of Celsius Network. Cryptocurrency lending platform Celsius Network has raised $400m in new equity fundi...

Alex Mashinsky, the Chief Executive of Celsius Network.
Cryptocurrency lending platform Celsius Network has raised $400m in new equity funding from investors as it grapples with mounting scrutiny from US regulators towards crypto businesses.

The funding round was led by WestCap, the fund set up by former Airbnb and Blackstone executive Laurence Tosi, and Caisse de dépôt et placement du Québec (CDPQ), Canada’s second largest pension fund. The backing from major investors comes a month after Celsius was drawn into a broad US regulatory crackdown on crypto companies that offer customers yields on deposits of digital assets. State authorities in Texas and New Jersey said that Celsius’ yield-bearing accounts amount to an unregistered securities offering.

Alex Mashinsky, Celsius chief executive, told the Financial Times he hoped the fundraise would reassure regulators about the stability of his crypto lending business and help open doors in the mainstream financial markets. “It’s not the $400m. It’s the credibility that comes with the people who wrote those cheques,” he said.

Celsius, founded in 2017, offers its customers interest of as much as 17 per cent on deposits of cryptocurrencies. The company pays the interest in crypto, including in its own token. The latest funding round values the company at more than $3bn, Celsius said, marking a substantial increase from a small equity raise last year led by Tether, the company behind the eponymous $69bn stablecoin, that valued Celsius at $120m.

The company has grown rapidly in the last year as the popularity of crypto lending and yield strategies surged. Celsius said the total assets on its platform hit $25bn this month, up from $10bn in March, with more than 1m registered users. But in September, the New Jersey attorney-general’s office ordered the company to stop issuing interest-bearing cryptocurrency products. Texas state regulators filed a notice seeking a hearing in February to assess whether to take similar action.

Celsius said all its operations are wholly compliant with US law. The clampdown came after the Securities and Exchange Commission threatened to sue the crypto exchange Coinbase if it launched a yield-bearing product and as authorities in five states pursue another crypto lender, BlockFi.

In addition to scrutiny over compliance with securities rules, authorities have also raised questions about the level of transparency around what crypto platforms do with investors’ deposits in order to generate the yields they pay. Texas and New Jersey officials claim Celsius engages in “proprietary trading” while the company insists it uses deposits only for lending and crypto mining.

The regulatory pressure on Celsius did not deter its new investors. Tosi of WestCap said: “It’s quite typical for [regulators] to begin examining some of the market leaders in order to clarify their own rules. This is part of the process of regulating a new market.” 

Tosi said his company had spent nine months doing due diligence on Celsius and was confident in the viability of Celsius’ institutional business, even in the event that retail crypto lending is curtailed by regulators. Celsius initially operated from the UK, but said in June that it intended to relocate to the US, and withdrew its application for the Financial Conduct Authority’s registration regime for crypto asset firms.

UK-filed accounts for the year to February 2020, the most recent available, showed $356m of customer deposits and income of $29m for the year, driven by profits from changes in the valuation of its cryptocurrency holdings.

The accounts say that Celsius generates revenue from token sales, lending crypto and from “discretionary trading” of cryptocurrencies, including “speculative trades” on price movements. Mashinsky said the trading disclosures were included out of an abundance of caution.

“We do not, in any circumstance, take customer assets and buy more of them or sell them because that’s not our business. Our business is to earn yield and . . . how we earn yield does not involve trading the asset itself,” he said.

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