Crypto lending start-up Celsius in Chapter 11 deep freeze • The Register

Cryptocurrency lender Celsius Network filed for bankruptcy on Wednesday, a month after freezing all transactions, preventing Internet users from withdrawing money.

At its prime, Celsius allowed annual returns of up to 18 percent for those who store cryptocurrencies on the platform, lend these assets to hedge funds, money changers and traders, and earn interest from these loans to return to customers. People could borrow and buy digital assets from the platform as well.

A sudden drop in temperature in the cryptocurrency market after the collapse of a stack coin, lack of confidence in the digital money and broader economic instability led to Celsius and customers being out in the cold. Without notice, the company suspended all purchases, withdrawals or exchanges on the platform, which meant that customers could not pick up assets.

Now the upstart has applied for voluntary chapter 11 status filed [PDF] with the bankruptcy law of the Southern District of New York.

Documents show that Celsius owes hundreds of millions of dollars to various creditors, including the outstanding $ 81 million to Pharos USD Fund SP, a entity with ties to Sam Bankman-Fried, cryptocurrency billionaire and owner of FTX and Alameda Research, a cryptocurrency exchange and trading firm, according to Bloomberg.

“[The] submission follows the difficult but necessary decision of Celsius last month to suspend withdrawals, exchanges and transfers on the platform to stabilize the business and protect customers, “said Celsius’ special committee for the board in a statement.” Without a break. , the acceleration of withdrawals would have allowed certain customers – those who were the first to trade – to be paid in full, while others had to wait for Celsius to reap value from illiquid or long-term asset distribution activities before recovering. “

A separate revelation [PDF] revealed that Celsius currently has a $ 1.19 billion deficit on the balance sheet: it has $ 4.3 billion in assets and $ 5.5 billion in debt.

“The amount of digital assets on the company’s platform grew faster than the company was prepared to distribute,” CEO Alex Mashinsky wrote in this submission. “As a result, the company made what later turned out to be some bad asset distribution decisions.”

That said, he cast the following shadow: “The beginning of the ‘crypto winter’ combined with the well-publicized collapse of Luna and the failure of several crypto funds / exchanges led to growing reluctance to do business with companies across the industry, such as Celsius, which contained cryptocurrencies.

“This reluctance was reinforced by a series of negative media and social media comments about Celsius, a number of which were unsupported and misleading. As a result of all these factors, users began to extract crypto from Celsius’ platform in large numbers and at a fast pace. “

As a side note, the CEO’s submission mentions that biz raised loans with collateral to finance operations. According to the boss, in July 2021, “when Celsius tried to repay one of its loans, it was informed for the first time that the lender was unable to return the company’s security on time, which resulted in Celsius having an approx. $ 509 million million in claims against this party. ” The private lender has repaid this with around 5 million dollars a month.

Celsius reportedly has $ 167 million in cash on hand. It will not issue new loans, and confirmed transactions between accounts, including withdrawals, exchanges and transfers, will remain suspended. Interest income for those who had their money stored and frozen on the platform will stop accruing.

“Celsius launched a financial restructuring to stabilize the business and maximize value for all stakeholders. Acting in the best interests of stakeholders, including our entire customer community, is our top priority,” reads a blog post. “As part of the process, we intend to present a plan that restores activity across the platform, returns value to customers and provides choices.”

Six US states have launched an investigation into the company’s business practices after it prevented customers from withdrawing money. Vermont’s department for financial regulation said that Celsius operated without regulatory supervision, and appears to have sold unregistered securities and did not have a money sender license.

“The department believes Celsius is deeply insolvent and lacks the assets and liquidity to meet its obligations to account holders and other creditors. Celsius distributed customer funds in a number of risky and illiquid investments, trading and lending,” the statement said. .

“Celsius reinforced these risks by using customer assets as collateral for additional loans to pursue investment strategies with mortgaging. In addition, some of the assets held by Celsius are illiquid, which means they can be difficult to sell and a sale can result in financial losses. the company’s assets and investments are probably insufficient to cover its outstanding liabilities / “

Similar cryptocurrency lending platforms, such as Voyager, have also halted transactions and filed for bankruptcy.

The register has contacted Celsius for comment. We will update accordingly. ®