Jul 14, 2022 - Economy

Embattled crypto lender Celsius files for Chapter 11 bankruptcy

Illustration of a person walking off the edge of a hundred dollar bill.

Illustration: Shoshana Gordon/Axios

Celsius Network on Wednesday filed for Chapter 11 bankruptcy protection after the embattled crypto lender halted customer withdrawals in the face of insolvency. Celsius is casting its bankruptcy as a restructuring rather than a liquidation.

Why it matters: The firm is just one among several platforms in crisis amid the great debt unwinding that marks this crypto winter, leaving their customers—many of whom were regular people drawn in by the firm's promises of uber-high yields—in the lurch.

  • New Jersey-based firm Celsius Network Inc. and its units all filed for bankruptcy protections in the Southern District of New York.

Celsius has more than 100,000 creditors, seemingly in all corners of the world.

  • The largest among them is Cayman Islands-based Pharos USD Fund with a claim on roughly $81 million.
  • Ohio-based ICB Solutions and California-based the Caen Group LLC each respectively hold a claim on a little over $13 million.
  • FTX's Alameda Research has a claim on almost $13 million.
  • All of Celsius' 50 largest creditors' claims are shown as "unliquidated," unlike Voyager Digital's.

What they're saying: Celsius, via its Chapter 11 proceedings, is seeking the "opportunity to stabilize its business and consummate a comprehensive restructuring transaction that maximizes value for stakeholders."

  • Whether stakeholders refers also to their customer base of roughly 300,000 active users with account balances greater than $100 remains to be seen.

What's next: Filings reference CEO Alex Mashinsky's declaration, but it has yet to be submitted.

Flashback: The bankruptcy filing was submitted hours after Celsius paid off its last major outstanding DeFi loan, seeking to recoup roughly $1 billion in collateral.

  • On-chain activity showed a wallet associated with Celsius paying $50 million in DAI, that is MakerDAO's dollar-pegged stablecoin, to Defi lender Compound.

Catch up quick: Many crypto shops have been stretched thin as massive debt built up in the crypto ecosystem came to bear when coin prices took a swan dive, pushing firms to lay off employees—some reducing headcount by as much as 45%.

  • More than a dozen companies have reduced headcount, including Coinbase Inc., Crypto.com, the Winklevoss twins' Gemini, Coinbase-backed Vauld, BitMex and BitOasis.
  • Crypto lenders including Voyager Digital, which was the first to file for Chapter 11 bankruptcy protection, have either halted customer withdrawals or gated services. Others include CoinFlex, which is involved in a dispute with bitcoin evangelist Roger Ver over an alleged unpaid loan.
  • A judge just days ago froze Three Arrows Capital assets, saying that only the assigned liquidators have the authority to “transfer, encumber or otherwise dispose of any assets of the Debtor located within the territorial jurisdiction of the United States.”

Between the lines: A lawsuit against Celsius filed by its former investment manager last week accused the crypto lender of being a "Ponzi scheme" that allegedly used customer deposits to engage in risky DeFi strategies.

  • Celsius is requesting that its utility providers — which include AT&T, Spectrum and Verizon Wireless — "be forbidden from altering, refusing, or discontinuing service or requiring additional assurance of payment."
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