{"id":6619,"date":"2021-01-27T13:43:17","date_gmt":"2021-01-27T18:43:17","guid":{"rendered":"https:\/\/cointelegraph.com\/magazine\/?p=6619"},"modified":"2021-01-28T15:56:52","modified_gmt":"2021-01-28T20:56:52","slug":"the-adventures-of-the-inventive-alex-mashinky","status":"publish","type":"post","link":"https:\/\/cointelegraph.com\/magazine\/2021\/01\/27\/the-adventures-of-the-inventive-alex-mashinky","title":{"rendered":"The adventures of the inventive Alex Mashinsky\u00a0"},"content":{"rendered":"

The way Celsius founder Alex Mashinsky tells it, he not only invented DeFi, but also Uber and VoIP \u2014 and he even had a crack at creating Bitcoin, four years before Satoshi Nakamoto.<\/strong><\/p>\n

Weirdly enough, there\u2019s some truth to all these claims.<\/strong><\/p>\n

“I tried to create electronic money in 2003, 2004,” he says, as if inventing a groundbreaking new system of money transfer is something you might knock up after dinner one night in your shed. \u201cObviously it never took off. But I always believed that the Internet should have its own money. I just didn’t figure out how to solve this double spend problem.\u201d<\/p>\n

Unlike many crypto leaders, Mashinsky had a successful career long before blockchain. A tinkerer and inventor since he was a kid, Mashinsky holds 50 patents<\/a> covering aspects of the tech behind Skype, Netflix video streaming and Twitter among others. He\u2019s raised more than a billion in funds, headed eight companies since the 1990s and overseen $3 billion in exits. Mashinsky even talked the New York Metropolitan Transportation Authority into hiring his company, Transit Wireless, to install WiFi and cell phone coverage throughout the subway<\/a> system.<\/p>\n

He attributes his success to being able to recognize the potential of disruptive, transformative technology long before the mainstream has caught on.<\/p>\n

“My wife claims that I live in the future all by myself. And once in a while, society ends up coming to where I have been sitting on the road and waiting for them for a long time. But sometimes they go in a completely different direction.”<\/p><\/blockquote>\n

It\u2019s somewhat ironic then, that when he finally did read the Bitcoin white paper, he says he thought it would never work. \u201cSomebody showed me Satoshi\u2019s paper, I read it quickly and said, \u2018Ah, such a waste of computing power and electricity and communication. This will never take off.\u2019”<\/p>\n

Inventing DeFi
\n<\/b><\/h4>\n

Mashinsky\u2019s crypto lending and borrowing platform Celsius, can legitimately claim to have pioneered the \u2018yield for staked assets\u2019 concept that powers much of decentralized finance today. The idea was first scrawled on a napkin in 2017 and Celsius went on to raise $50 million in an ICO in early 2018.<\/p>\n

\u201cWe think we invented DeFi right? If you think about \u2018what is decentralized finance\u2019 it’s your ability to take an asset, put it into a wallet and have it earn yield,\u201d he says, adding:<\/p>\n

\u201cThe first time in history that happened was when we launched our Celsius wallet in June of 2018. Before Compound before and before Uniswap, the first time over a year before any of these companies.\u201d<\/p><\/blockquote>\n

DeFi degens will no doubt object that Celsius misses out on the crucial \u2018decentralized\u2019 aspect of DeFi as it\u2019s a company firmly controlled by Mashinsky himself. Indeed, Celsius is often referred to as ‘centralized finance’ or CeFi. “DeFi, CeFi, it doesn’t matter what you call it. Everybody is chasing yield because central banks and commercial banks are just not paying you anything for your money.”<\/p>\n

Inventing VoIP and MoIP<\/h4>\n

Mashinsky has tried hard to get his own name for DeFi to take off: \u2018MoIP\u2019, or Money Over Internet Protocol. It\u2019s a reference to his key role in the mid-1990s when he began developing the Voice Over Internet Protocol (VOIP) technology that revolutionized telecommunications and remains a key component of apps like Skype, WhatsApp and Telegram. At the time though he was better known for reselling telecommunications capacity<\/a> via his company Arbinet, which eventually rose to a billion dollar valuation following its IPO in 2004.<\/p>\n

Mashinsky says he faces the same challenges today in getting people to see the revolutionary potential of crypto as he did convincing people back then that the entire telecommunications industry \u2013 then charging $3 a minute for international or cell phone calls \u2013 would be utterly disrupted by new technology:<\/p>\n

\u201cPeople thought that the internet would never scale. Right? They were basically saying, look, the internet is a dial-up network running on the phone network. So how can it be bigger than the phone network?\u201d<\/p>\n

Of course as we now know, the internet grew to not only swallow up the phone network but almost everything else too. He adds:<\/p>\n

\u201cSame thing today, most people discount crypto or cryptocurrencies as experiments for geeks and eccentrics, but I think we will one day discover that all the money runs upon this infrastructure. It’s just a question of time.”<\/p><\/blockquote>\n

Calling all cars<\/h4>\n

Seeing the future however, and being able to take advantage of it, are two very different propositions. Around the same time he was tinkering with electronic money, he got stood up by his driver at an airport while he was waiting with a client he was trying to impress.<\/p>\n

That\u2019s when he had the brainwave for something very similar to Uber, five years before Garrett Camp came up with Ubercab. Mashinsky\u2019s version was called Groundlink (formerly LimoRes) and it was essentially the same concept, but so much earlier that you had to order the car using a Blackberry, as the iPhone hadn\u2019t even been invented yet. Having a five year head start and still seeing the $100 billion idea slip through his fingers is the biggest, most soul-crushing regret of his life according to Mashinsky:<\/p>\n

“Uber copied everything we had, we didn’t own a single car, we were cars on demand, we were the first app you could order a car on,\u201d he says. \u201cAnd yet we lost it all to Uber because they subsidized $14 billion worth of rides for millennials. So for me it was a very difficult time for me as an entrepreneur, as somebody who won so many times, to completely lose it.\u201d He explains Uber\u2019s approach seemed to turn out to be better:<\/p>\n

\u201cThe slogan was \u2018happy drivers equals happy customers.\u2019 And obviously that was the wrong proposition because subsidized customers and unhappy drivers was the winning strategy, right? Even if you’ve got the concept right the business model and the execution is just as important.”<\/p>\n

In 2010, when Groundlink was operating across 5,000 locations and was still bigger than Uber in New York, Mashinsky told the board that the company needed to match Uber\u2019s ride subsidies in order to compete. But the major investors weren\u2019t keen on losing money the way Uber did back then, and still does today (it lost $8.5 billion in 2019). “They basically told me now you don’t understand what you’re talking about, then we\u2019re just going to replace you with some other CEO,\u201d he says.<\/p>\n

Mashinsky left in 2011 and Groundlink kept motoring on until a few months ago, when it finally fell victim to the pandemic inspired slowdown in August. Mashinsky said he\u2019d become depressed in the aftermath as Uber took off.<\/p>\n

“It was definitely a very painful experience for me. I don’t take any medication, but I think I should have taken some medication. Let’s put it that way,” he says, adding:<\/p>\n

\u201cIt was more about the size of the loss, right? The fact that everything that we tried to do came true and, and this company was worth tens of billions of dollars.\u201d<\/p><\/blockquote>\n

In between his departure from Groundlink and founding Celsius, Mashinsky also spent 18 months as a CEO turning around the fortunes of a company called Novatel Wireless (now Inseego). He even attempted to retire, before discovering he wasn\u2019t cut out for a life of leisure. \u201cI realized that I can’t retire and then crypto really gave me the passion that I was looking for,\u201d he explains.<\/p>\n

Back in the USSR<\/h4>\n

Alex Mashinsky was born in the Ukraine, when it was still part of the Soviet Union, and\u00a0 emigrated with his family to Israel in 1972. As a teenager he’d buy up confiscated goods like hairdryers and VCRs from customs auctions and sell them at a profit. He went to three different universities, never quite finishing his electrical engineering degree, served a compulsory stint in the army, and set off for New York at the end of the 1980s.<\/p>\n

He\u2019s lived under communism, socialism and capitalism and says each has its advantages and disadvantages. \u201cIn the United states the system here works exceptionally well for people like me who, even though I’m an immigrant, allowed me to express my ideas and my thinking and build companies and create jobs and earn a lot of wealth for myself. But it doesn’t work for 99% of the population,\u201d pointing out that many Americans can\u2019t even pull together $500 in the event of an emergency.<\/p>\n

\u201cMy perspective of living through the three systems has allowed me to appreciate much more these blessings that I was given and not forget where I came from \u2013 to not forget the suffering and misery a lot of people around the world go through.\u201d<\/p>\n

Mashinsky says he\u2019s financially very comfortable and that he thought long and hard about what he wants to do with the rest of his career. He looked at the Forbes 400 richest people, all of whom had reached the point where they never had to worry about money again and were just making more money for the sake of it or: “to measure their success by how much of these dollars or whatever else we’re accumulating” He adds: “I didn’t want to end up like one of those guys, I wanted to make sure that my yardstick or my measurement is going to be on how many lives did I impact.\u201d<\/p>\n

“We wanted to not give people fish, or teach them how to fish, but rather explain to people that there is a way to create a sustainable fishing farm.”<\/p><\/blockquote>\n

Fishing farm for the fam<\/h4>\n

Mashinsky\u2019s sustainable fishing farm is achieved via blockchain. He says that the big banks pool a bunch of ordinary folks\u2019 deposits into multi-billion dollar lots and then lend it out to make 18% profit without giving the depositors a cut.<\/p>\n

Celsius aims to disrupt this by using blockchain to aggregate small value deposits into large pools, and to make money in similar ways to the banks, but provide 80% of the returns back to depositors, while keeping 20% for the business.<\/p>\n

“Money makes money. Most people don’t understand that, most people think that when you put money in the bank, it just sits there.” he says. “But really, when you give bankers your money, they immediately turn around and lend it to their other customers.\u201d<\/p>\n

\u201cAll we’ve done is basically use some of the best ways that Wall Street created to earn yield or extract value out of capital.” Mashinsky talks at length about how the banks are ripping off ordinary folk by keeping all the profits, and how the Federal Reserve printing 20% of all U.S. dollars in existence in the past year is whittling away people\u2019s savings, and so on.<\/p>\n

Listening to him talk, he appears to have taken the Anti-Fed, anti-Bank ideology beloved by Bitcoiners and transformed it into a series of compelling reasons to hand over your crypto to Celsius.<\/p>\n

Mission accomplished<\/h4>\n

He\u2019s obviously pretty convincing, as according to Celsius it’s signed up more than 246,000 users in 150 countries, 84,000 of which are currently active. It has processed around $8.2 billion in loans and has over $3.3 billion assets<\/a>, according to a December audit by Chainlink.<\/p>\n

While that\u2019s a long way from Grayscale\u2019s AUM, it\u2019s spread across more investors with the typical Celsian wallet worth around $13,000. Across 2020, community members earned a cumulative $220M via yields on 40 different cryptocurrencies at rates up to 21.5%. Half of users choose to earn via the CEL token \u2014 which grew in value by 3500% in 2020, despite not being listed on a major exchange that year. However FTX opened up CEL trading in early January.<\/p>\n

Reeling off a list of stats, Mashinsky says proudly “no one in crypto has ever been able to achieve something like that.” He adds: “You’re not going to find the bank or another financial institution who can look you in the eye and say, \u2018I always act in your best interest, I never charge you fees.\u2019 So I do think that we have a unique value proposition.”<\/p>\n