Bankruptcy judge rules that Earn account assets belong to Celsius
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Celsius Network's bankruptcy might have just set a precedent in determining what crypto assets belong to whom when stored on a centralized platform.
Driving the news: The judge in a 45-page written decision on Wednesday concluded that the deposits in the lender's yield-bearing Earn accounts belong to the estate — that is Celsius — and not the individual holders of those accounts.
Why it matters: Celsius had 600,000 accounts in its Earn program when it filed for Chapter 11 mid-2022, which collectively held roughly $4.2 billion in assets as of July 2022.
- Part of that included stablecoins then-valued at around $20 million. All of that is property of the estate, or Celsius.
Between the lines: Investors with Earn accounts have been and remain creditors of Celsius. That means Celsius still owes them. Exactly how much they'll recover, is the unknown.
The big picture: Crypto platforms' Terms of Service could be central to how other bankruptcy proceedings shake out.
- Judge Martin Glenn in his decision said the issue of ownership is "a contract law issue."
- "The Court finds that there was a valid contract between Celsius Account Holders and Celsius and that the contract terms unambiguously transferred all right and title of digital assets to Celsius," the decision reads.
Be smart: Crypto investors who parked their assets on platforms like Celsius with the expectation of earning interest, while enjoying the protections afforded to bank depositors, were mistaken.
- At a bank, deposits are guaranteed by the Federal Deposit Insurance Corporation. In the event the bank couldn't return a customer's deposits — the FDIC will.
- Crypto platform deposits have no such protections.
Yes, but: Account holders who previously objected in the Celsius case argued that changed language in the Terms of Use, such as "loan" and "lending," made the contract ambiguous.
- The judge says such terms don't contradict the transfer of ownership of crypto assets to Celsius.
The bottom line: The writing was on the wall when a group of unsecured creditors in December said as much.
- Now Celsius can sell those stablecoins to keep the lights on, though state regulators as well as the U.S. Trustee have argued against such a sale.
