Dec 1, 2022 - Economy

Celsius creditors wage war over stablecoin ownership

Illustration of a bomb with lit fuse and Celsius logo

Illustration: Natalie Peeples/Axios

Celsius Network's bankruptcy proceeding took an interesting turn this week.

Driving the news: Terms of Use, a topic that's becoming increasingly popular in crypto bankruptcy cases, could determine who ends up with $18 million in stablecoins.

  • The crypto lender wants to sell that stockpile to keep the lights on, while customers with trapped funds on the halted platform say those assets belong to them.

The latest: The committee formed to represent Celsius' account holders is now saying that those stablecoins might belong to Celsius, and not customers of its Earn program that were promised yield for keeping coins on the platform.

Details: Seven Celsius account holders were appointed to the Official Committee of Unsecured Creditors (UCC), to represent the interests of the debtor's account holders as well as unsecured creditors by the U.S. Trustee's office in July.

  • That group said that based on their interpretation of the contractual agreement struck per the platform's Terms of Use, allowing Celsius to sell stablecoins made sense, according to court documents filed Tuesday.

What they're saying: "The Committee is mindful that its position on these issues may not be popular among certain (or many) Account Holders who contend they have ongoing ownership of Earn Assets," they said.

What others are saying: Other creditors object; they object a lot.

  • Some Earn account holders have argued that a version of Terms of Use was ambiguous because it described the transaction between Celsius and the account holders as a "loan."

The intrigue: A loan and a transfer in title aren't "mutually exclusive" concepts, the UCC said, explaining that those terms can be used interchangeably in the context of securities.

  • "It is common for a loan of securities to a broker to also constitute a transfer of title thereto (or the incidents of ownership thereof) so that the broker can sell, lend, hypothecate, or rehypothecate the securities," according to the filing submitted by the UCC.

The bottom line: The sale of the $18 million in stablecoins would, however, only extend Celsius' operational runway by one month to April 2023.

  • That is time the firm needs to make sure "the Debtors are not pressured to accept a low offer with respect to any reorganization or sale" the UCC said.

What's next: Celsius' sale hearing on Dec. 8.

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