The cryptocurrency lender Celsius Network filed for Chapter 11 bankruptcy, the latest casualty of a $2 trillion crash that has wiped out some of the industry’s biggest names and exposed hundreds of thousands of individual investors to steep losses.
Celsius, which has more than 100,000 creditors, said it took the step to stabilize its business and work out a restructuring for all stakeholders. The
The company, one of the largest cryptocurrency lenders, had amassed more than $20 billion in assets by offering interest rates as high as 18% to depositors before it
Celsius’s troubles are emblematic of the problems plaguing the digital asset space, where rising U.S. interest rates have sent investors fleeing and triggered the collapse of lenders and hedge funds. The crypto broker
Cryptocurrency markets took Celsius’s bankruptcy filing in stride, with bitcoin advancing 1.7% to just below $20,000 on Thursday morning in London, even as European equities declined.
Doubts about the sky-high yields backing products such as those Celsius offers intensified after the collapse of the TerraUSD algorithmic stablecoin in May. Another centralized lender, Babel, has also halted withdrawals and crypto prices have slumped, with bitcoin and ether losing half their value since the end of December.
For Celsius, its business was built on loaning crypto borrowed from its customers to institutional investors. It was also a participant in a slew of decentralized-finance applications.
In a statement Wednesday, Celsius said it needed to halt withdrawals as without it, an acceleration of the pullouts “would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery.”
Celsius didn’t respond to a request for comment. Co-founder and CEO Alex Mashinsky said in the statement that the move would strengthen the future of the company.
The firm has petitioned to continue to operate. It isn’t requesting authority to allow customer withdrawals right now, saying that claims would be handled through the Chapter 11 process.
Bankruptcy processes
Kirkland & Ellis is serving as legal counsel, with Centerview Partners as financial advisor and Alvarez & Marsal the restructuring adviser to Celsius.
Bankruptcy processes can take a while to resolve. Creditors of Mt. Gox, at one time the world’s biggest bitcoin exchange that closed doors in 2014 and began liquidation proceedings, have yet to be paid.
Whether Celsius’s users will get anything is unclear. Under its terms of service, treatment of its customers’ digital assets in case of insolvency is “unsettled” and “not guaranteed,” which may result in customers being treated as unsecured creditors.
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When the TerraUSD (UST) stablecoin and related Luna token collapsed in May, Celsius scrambled to pull its funds out of Terra’s Anchor Protocol, which offered 20% returns on UST deposits. More recently, it suffered as another large holding — a token known as staked ETH, or stETH, which is tied to the value of ether — became largely illiquid and more widely discounted to ether.
In the past month, Celsius paid back all — more than $900 million — of its debt in the decentralized applications Aave, Compound and MakerDAO, according to the blockchain tracker Zapper. The paydowns have raised the specter of a legal debate on how and in what order should distressed crypto companies pay back creditors — whether they are actual people or platforms governed by computer code referred to as smart contracts.
— With assistance from Yueqi Yang and Katherine Doherty.
