We wrote an article back in July last year where we covered the topic of Celsius filing for bankruptcy. If you want to read that article, click on the link below.
If you are too lazy to read that, here’s a recap. Back in July they did pause withdrawals first and then shortly after that, they filed for bankruptcy. There was no way for you to get your funds back if you were holding your crypto with the cryptocurrency lender called Celsius. It was the times when lot of other DeFi projects failed such as 3AC and Voyager.
So what happened today?
U.S. judge came out with a decision today. Apparently, Celsius Network owns most customer crypto deposits. What this means is that if you had crypto with Celsius, then chances are extremely low that you will get a penny for a dollar back. As per ruling from the Judge Martin Glenn, this would affect over 600k accounts which held assets with Celsius valued at $4.2 billion when Celsius filed for bankruptcy back in July. They did not have enough funds to pay people back so they filed for bankruptcy.
One thing to note is that, this does not mean that Celsius team gets the chance to hold this crypto for themselves. In fact all of it will be used towards paying creditors and other debtors they might have owned money to. In most of the cases you fall into the ‘unsecured creditors’ category as a user. Let me show you how it works.
Here’s how Chapter 11 bankruptcy works
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.
In every case of liquidation from the bankruptcy, order in which creditors are paid back is as follows:
secured creditors
creditors
unsecured creditors and
company shareholders/investors.
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.
What’s the lesson from all this?
Lesson is pretty clear my friend.
NOT YOUR KEYS, NOT YOUR CRYPTO!
Do not store your crypto with any crypto exchange or any other DeFi protocol. Instead, store them in a cold wallet. Some of the reasons why a cold wallet is better than holding your tokens with an exchange:
You control your own keys, meaning even if there is a hack in any of the exchanges you trade , you are still safe.
It does not require KYC/AML procedures which might take forever with centralized exchanges where lot of peoples' accounts have been frozen for days or even months with no specific reason.
In case of bankruptcy, your assets could be gone too. In fact if you read the Coinbase Terms & Conditions (which you didn’t, you just hit Agree 🤣), you would see the statement below:
“..because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors”.
Stay safe!