Jan 4, 2023 - Economy

Bankruptcy judge rules that Earn account assets belong to Celsius

Illustration of the grimacing emoji as a gold coin.

Illustration: Shoshana Gordon/Axios

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.
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