After a month of uncertainty since Celsius Network LLC halted withdrawals and transfers on June 13, the crypto lender and eight of its subsidiaries filed for voluntary Chapter 11 bankruptcy in the Southern District of New York on Wednesday. This includes Celsius’ mining unit which had announced intentions of going public in May.
In a statement, the lender said that the bankruptcy filing will allow it to “stabilize its business and consummate a comprehensive restructuring transaction that maximizes value for all stakeholders.”
Celsius said that it has US$167 million in cash at hand and aims to continue operating during the restructuring process, subject to court approval. The lender, in fact, has filed petitions in court to be allowed to “operate in the normal course” and has requested that Celsius be allowed to pay employees and continue providing them benefits, according to a company statement.
However, the lender has not asked the court to allow customer withdrawals, still leaving Celsius users in the lurch. The statement said that all customer claims will be addressed through the Chapter 11 restructuring process.
“This is the right decision for our community and company,” said Alex Mashinsky, cofounder and chief executive officer 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 at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.”
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Members of the Special Committee of the Board of Directors at Celsius said that the halting of withdrawals and transfers in June was “difficult but necessary.”
“Without a pause, the acceleration of withdrawals 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,” the committee members said in the statement.
According to the bankruptcy filing, Celsius has over 100,000 creditors, including customers and lending counterparties. Its estimated assets and liabilities fall in the range of between US$1 billion to US$10 billion, the filings showed.
Celsius’s largest unsecured claim is the US$81 million from Cayman Islands-based Pharos Fund. The list of creditors also shows Alameda Research LLC, formed by FTX chief executive officer Sam Bankman-Fried, has a claim of over US$12.7 million.
Celsius used to be one of the largest cryptocurrency lenders with nearly US$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 to liquidate by a British Virgin Islands court late last month and filed for Chapter 15 bankruptcy in the U.S. on July 1.
In less than a week, Voyager Digital filed for Chapter 11 bankruptcy owing to its exposure to 3AC, which had defaulted on a loan of around US$650 million to Voyager.
Celsius’ bankruptcy filing came immediately after it closed all its loans on decentralized finance (DeFi) platforms. On Wednesday, the lender paid off its remaining debt of over US$50 million worth of DAI to DeFi platform Compound and over US$70,000 worth of REN to Aave, on-chain data showed. The repayments unlocked over US$200 million in collateral, the blockchain data showed.
Over the past few weeks, Celsius has been progressively paying off 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: Voyager crypto firm loaned US$377 mln to Sam Bankman-Fried’s Alameda Research
Mike Alfred, a private investor and former chief executive officer of Digital Assets Data had predicted that the lender will be filing for bankruptcy soon after it closed its loans on DeFi platforms. In a Twitter thread earlier this week, Alfred said that he expected Celsius to completely pay off DeFi loans by this week and then file for Chapter 11 bankruptcy. Alfred also alleged that Celsius used “customer deposits” to pay off its 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 deployed “customer assets in a variety of risky and illiquid investments, trading, and lending activities” and that the lender is likely “deeply insolvent.”
The DFR added that “Celsius customers did not receive critical disclosures about its financial condition, investing activities, risk factors, and ability to repay its obligations to depositors and other creditors.”
