Celsius files for bankruptcy after DeFi lending closes

After a month of uncertainty since Celsius Network LLC halted withdrawals and transfers on June 13, the crypto lender and eight of its affiliates deposit for voluntary Chapter 11 bankruptcy in the Southern District of New York on Wednesday. This includes Celsius’ mining unit which announced plans to go public in May.

In a statementthe lender said filing for bankruptcy would allow it to “stabilize its business and complete a comprehensive restructuring operation that maximizes value for all stakeholders”.

Celsius said it has $167 million in cash and aims to continue operations during the restructuring process, subject to court approval. The lender, in fact, filed motions in court to be allowed to “operate in the ordinary course” and asked that Celsius be allowed to pay employees and continue to provide them with benefits, according to a statement from the company. company.

However, the lender did not ask the court to allow customer withdrawals, still leaving Celsius users in the lurch. The statement said all customer complaints will be addressed through the Chapter 11 restructuring process.

“This is the right decision for our community and our business,” said Alex Mashinsky, co-founder and CEO of Celsius.

“We have a strong and experienced team in place to lead Celsius through this process,” he said. “I am confident that when we look back on the history of Celsius, we will see this as a defining moment, where acting with determination and confidence served the community and strengthened the future of the business.”

See related article: Three Arrows Capital contagion risk weighs on Bitcoin, crypto

Members of Celsius’ special board committee said stopping withdrawals and transfers in June was “difficult but necessary”.

“Without a pause, the acceleration of withdrawals would have allowed some customers – those who were the first to act – to be paid in full while leaving others to wait for Celsius to recoup the value of asset deployment activities. illiquid or longer-term before receiving a recovery,” the committee members said in the statement.

According to the bankruptcy filing, Celsius has more than 100,000 creditors, including customers and counterparty lenders. Its estimated assets and liabilities are between US$1 billion and US$10 billion, according to filings.

Celsius’ largest unsecured claim is US$81 million from the Cayman Islands-based Pharos Fund. The list of creditors also shows that Alameda Research LLC, formed by FTX chief executive Sam Bankman-Fried, has a claim of more than $12.7 million.

Celsius was one of the largest cryptocurrency lenders with nearly $12 billion in assets under management from around 2 million customers as of May 2022.

Amid the current market turmoil, Celsius’ bankruptcy follows that of Voyager Digital and Three Arrows Capital (3AC). Crypto hedge fund 3AC was ordered into liquidation by a court in the British Virgin Islands late last month and filed for Chapter 15 bankruptcy in the United States on July 1.

Within a week, Voyager Digital filed for Chapter 11 bankruptcy due to its exposure to 3AC, which had defaulted on an approximately US$650 million loan to Voyager.

Celsius’ bankruptcy filing came immediately after it closed all of its loans on decentralized finance (DeFi) platforms. On Wednesday, the lender repaid its remaining debt of over US$50 million from DAI to DeFi platform Compound and over US$70,000 from REN to Aave, string data show. Refunds unlocked more than $200 million in collateral, according to blockchain data.

Over the past few weeks, Celsius has gradually repaid its loans on DeFi platforms. Celsius closed its debt on the MakerDAO protocol last week and its outstanding USDC loan on Aave on Monday.

Read more: Crypto firm Voyager loaned Sam Bankman-Fried’s Alameda Research $377 million

Mike Alfred, a private investor and former managing director of Digital Assets Data had predicted that the lender would file for bankruptcy soon after closing its loans on DeFi platforms. In a Twitter feed earlier this week, Alfred said he expected Celsius to fully repay DeFi loans by this week and then file for Chapter 11 bankruptcy. Alfred also alleged that Celsius was using “customer deposits” to repay their loans.

On Tuesday, Vermont became the sixth state to join an investigation against Celsius after Alabama, Kentucky, New Jersey, Texas and Washington. Vermont’s Department of Financial Regulation (DFR) said in a statement that Celsius has deployed “client assets in a variety of risky and illiquid investing, trading and lending activities” and that the lender is likely “deeply insolvent”.

The DFR added that “Celsius’ clients have not received critical information about its financial condition, investment activities, risk factors and ability to repay its obligations to depositors and other creditors.”

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