Celsius Repaid $900 Million Debt After Withdrawal Halt, Now Is Filing For Bankruptcy
Not long ago we wrote how Celsius was pausing withdrawals and transfers. It did not take long for them to file for bankruptcy. News comes from a source of CNBC.
For those not familiar with Celsius, it is one of the largest crypto lending companies in the world with well over $20 billion in assets. The liquidity issue they were having lately, did not take them long to go insolvent. This due to their staking and ETH merge not happening as well as the massive sell off we have seen in the crypto space.
If you are curious to learn how specifically Celsius become insolvent although they had billions of AUM (assets under management), let me break it down for you.
The issue is that they have a lot of money locked up in stETH (staked ETH). They used Lido (a tool for staking), to take the ETH invested from customers and staked it on ETH 2.0. The issue is that Celsius now won’t be able to sell this as it is locked until the merge of ETH and ETH 2.0 happens. This might happen by the end of August.
Until then, Lido, the platform used for the staking, issues stETH which is basically a token that proves that you are eligible to claim ETH 2.0 when merge happens.
Not to mention that Celsius had interest-bearing accounts and yields which were higher than 15%, which has proven to be a very risky, especially in market turndowns like we have seen recently.
Celsius joins 3AC, and Voyager and a few other DeFi projects who filed for bankruptcy already.
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😯 Celsius Filed For Chapter 11 Bankruptcy
Whenever you hear the word bankruptcy, it is pretty standard to think that they are going out of business. However, that is not the case with Chapter 11 type of bankruptcy. In such cases, company wants to continue their operations by restructuring debt and moving forward. Chapter 7 bankruptcy is the case when a business wants to go out of business and fully liquidate.
One thing that caught the attention even from the regulators is that Celsius, while in the period of freezing withdrawals, they repaid over $900 million in DeFi debt as per Bloomberg. They have made repayments in stablecoins to Aave, Compound and Maker.
In every case of liquidation from the bankruptcy, order in which creditors are paid back is as follows:
unsecured creditors and
If you read their T&C, it is said that the treatment of customers’ digital assets in the event of such an insolvency proceeding is unsettled, not guaranteed, and may result in you being treated as an unsecured creditor.
What this means is that in the case of their liquidation, you are most likely going to get nothing out of your staked crypto with Celsius platform, assuming the issues they have, there will be nothing left after paying secured creditors.
This will definitely not be taken lightly from regulators. While they paused withdrawals and transfers, yet they repaid some of their debt worth $900 million.
How do we know that those were secured creditors and how come they were paid before they even filed for bankruptcy?! Only time will tell. One thing is for sure, regulators will still keep an eye on this even after the filing for bankruptcy. A professor from Harvard said for Bloomberg that “I would tell everybody getting money from Celsius to consult with an attorney before making decisions that they may regret.”
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