Celsius files for chapter 11 bankruptcy protection, removes debt with compound

Crypto lender Celsius Networks has filed for Chapter 11 bankruptcy protection, MarketWatch reported.

The disputed crypto lender also has repaid its remaining debt to decentralized finance (DeFi) Lending Protocol Composed.

Celsius co-founder and CEO Alex Mashinsky said Wednesday that the bankruptcy petition “is the right decision for society and our company.”

The controversial cryptocurrency lender filed with the US Bankruptcy Court for the Southern District of New York.

“I am convinced that when we look back at Celsius’ history, we will see this as a crucial moment, where acting with determination and confidence served society and strengthened the company’s future,” he said.

The bankruptcy declaration makes it the latest victim in the cryptocurrency sector to collapse during a dramatic fall in prices.

According to the court archives, the New Jersey-based cryptocurrency lender listed estimated assets and liabilities on a consolidated basis in the range of $ 1 billion to $ 10 billion.

Celsius had positioned itself in the market by promising more than 18% in interest on people’s holdings that deposit digital coins. The cryptocurrency lender, for its part, lent these coins, Bloomberg reported.

Crypto lenders went into market arms during the Covid-19 pandemic when the digital market became popular, attracting depositors with high interest rates and easy access to loans that traditional banks rarely provide.

However, they have experienced a gradual decline in recent months following a crash in cryptocurrency prices and the collapse of the large token TerraUSD in May.

Prior to the bankruptcy petition, the mortgage lender had repaid its remaining debt to Compound, and by doing so, Celsius released nearly $ 200 million in pledged collateral.

According to a report, early Wednesday, Celsius partially repaid $ 50 million to Compound and recovered 10,000 wrapped bitcoin (wBTC) – a bitcoin replica token retrofitted for the Ethereum blockchain.

Etherscan data shows that a wallet in connection with Celsius transferred 50 million DAI tokens to Compound in two cases. After the advance payments, Compound issued 6900, then 3100 wBTC tokens to Celsius. The wBTC tokens had been unlocked on the protocol as security.

Eventually, 10,000 wBTC was transferred by Celsius to an unmarked wallet address where the company’s 416,000 stETH share – around $ 435 million at current prices – ended up the day before.

The bankruptcy filing also comes a day after Vermont’s Department of Financial Regulation (DFR) on Tuesday said that Celsius is “deeply insolvent” and that they do not meet their obligations to customers and creditors since they do not have the assets and liquidity to do so, reported Blockchain.News.

DFR also said that Celsius has been involved in an unregistered securities offering, and sold cryptocurrency interest accounts to retail investors, including investors in Vermont. The crypto lender also lacks a money sender license.

Celsius, until recently, functioned largely without regulatory oversight.

The regulator said, “due to the lack of registration of interest-bearing accounts as securities, Celsius customers did not receive critical disclosures about its financial condition, investment activities, risk factors and ability to repay its obligations to depositors and other creditors.”

The crypto lender froze all withdrawals and transfers about a month ago, citing unfavorable market situations when the crypto market plunged, while other crypto companies, Voyager Digital Ltd. and Three Arrows Capital, recently filed for bankruptcy.

The company said at the time that bankruptcy was an option, and that it was also looking at debt restructuring, MarketWatch reported.

Despite the bankruptcy, however, Celsius has already begun work on a restructuring process, according to a report from Blockchain.News.

Celsius has hired new lawyers to advise the troubled cryptocurrency lender on restructuring, according to a recent report from the Wall Street Journal (WSJ).

The WSJ said that the much-needed restructuring plan has come as it seeks to escape the recent turmoil in the crypto markets, citing people familiar with the matter.

According to the WSJ report, Kirkland & Ellis LLP attorneys have been called on board to advise Celsius on alternatives, including a bankruptcy notice.

Celsius said they have $ 167 million in cash on hand, which will provide liquidity as it continues to operate during the restructuring process.

According to a press release from the crypto lender, the company is not asking for a power of attorney to allow customer withdrawals at this time. it further added that it has submitted a number of customary petitions to the court to allow it to continue operating as normal.

Celsius prevented 1.7 million customers from redeeming their assets by freezing withdrawals and transfers last month, prompting state securities regulators in New Jersey, Texas and Washington to investigate the decision.

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