Celsius Network is planning a comeback after a crypto crash

The collapse of the experimental cryptocurrency bank Celsius Network was one of the main causes of this spring’s crypto crash, which wiped almost $1 trillion from the market and devastated thousands of investors.

Celsius filed for bankruptcy in July. Now they are fishing for a comeback.

At a Sept. 8 meeting with employees, Alex Mashinsky, CEO of Celsius, outlined a bold plan to revive the firm, according to a recording of the event shared with The New York Times. He and Oren Blonstein, another Celsius executive, said they hoped to rebuild the company with a focus on custody — storing people’s cryptocurrencies for them, then charging fees on certain types of transactions. They said the project was codenamed Kelvin, after the unit of temperature.

Mr. Mashinsky, 56, faced skeptical questions from employees. He compared the rebuilding process to the company’s turnaround of some of the world’s most famous brands, including Pepsi, which went bankrupt in 1923 and 1931.

“Does that make Pepsi taste less good?” Mr. Mashinsky asked employees. “Delta filed for bankruptcy. Are you not flying Delta because they filed for bankruptcy?”

A recording of the meeting was sent to Tiffany Fong, a Celsius customer who has made YouTube videos about the spring crash. She shared the recording with The Times, which independently confirmed its authenticity.

In a statement, a spokeswoman for Celsius said the company regularly holds internal meetings for “prepare for all scenarios.”

“Our employees are central to our efforts,” the statement said. “We will continue to rely on them to help prepare the requirements that may be necessary to implement the final recovery plan as quickly as possible.”

Celsius’ revival efforts come at a transitional moment for the crypto industry, as startups whose reckless practices triggered the decline seek to regroup. In recent months, other drivers of the crash — including Do Kwon, the trash-talking founder of failed cryptocurrency Luna — have also pursued new crypto ventures.

Celsius rose to prominence with a marketing promise that ultimately proved impossible to keep: Deposit your digital assets and receive interest rates as high as 18 percent. The company also allows customers to take out loans using their deposits as collateral and participate in “staking,” an investment maneuver that allows users to earn rewards on crypto holdings. By 2021, Celsius controlled assets worth $20 billion and had one million customers.

But Celsius generated its high returns by making risky investments that quickly turned sour when the crypto market crashed. Tens of thousands of customers still have digital assets captured on the platform. In court this summer, Celsius reported that it owed customers $4.7 billion.

Celsius’ fate is not really in Mr. Mashinsky’s hands. Any proposal would require the approval of New York federal bankruptcy judge Martin Glenn, who is overseeing the process. The result can take a number of forms, for example a buyer buying parts of the company.

At the employee meeting, Mr. Mashinsky said Celsius was working with a legal entity representing the company’s creditors — a group known as the Committee of Unsecured Creditors, or UCC — to devise a plan to restart operations.

“Most of our community, including UCC, has asked us to continue the services,” he said. “They believe that these services are valuable and they want to continue to use the loans and the efforts and the custody and things like that.”

But after meeting with Celsius representatives, the committee had concerns about Mr. Mashinsky’s continued involvement in the company and major questions about the feasibility of the Kelvin proposal, according to a person with knowledge of the matter.

Lawyers for the committee declined to comment.

The exact details of Celsius’ plan to restart are still unclear. The company has a Bitcoin mining operation, which may become part of the reorganized business. But at the meeting, Mr. Mashinsky and Mr. Blonstein focused on the possibility of storing crypto assets for Celsius’ users. Mr. Mashinsky said he could envision charging customers a fee to access a special, highly secure crypto wallet.

Previously had Celsius marketed itself as a zero-fee service as part of its pitch that customers should “decline” traditional finance. Managers are now considering a new approach.

“If the basis of our business is custody, and our clients choose to do things like bet somewhere or trade one asset for another, or take out a loan against an asset as collateral, we should have the ability to charge a commission, ” Mr. Blonstein told employees.

Since Celsius filed for bankruptcy, customers have been fighting to get back crypto assets, raising money to hire lawyers and strategizing in Telegram group chats. At the meeting, Mr. Blonstein said the company was planning a “unique crypto solution” to compensate customers, but he declined to go into specifics.

Mr. Blonstein also said Celsius was at a crucial point in a “hero’s journey” toward redemption.

“This hero has a mission – something they want to achieve. They experience an initial success, they stumble, fall short in some way and have this dark moment,” he said. “If we succeed, it’s going to be a success story like one that has never been seen before.”

Even Apple, Mr. Mashinsky said, once considered bankruptcy as an option.

“Are we going to be in the dustbin of companies that were big or almost big or big for a while but are disappearing?” he said. – The community stands behind us.

Kitty Bennett contributed research.