After recovering $1 billion in collateral, Celsius Network filed for Chapter 11 bankruptcy protection last night in the U.S. Bankruptcy Court for the Southern District of New York. The struggling cryptocurrency lender had just recently repaid debts to a number of decentralized finance (DeFi) protocols.
The initial filing estimated Celsius’ assets and liabilities at between $1 billion and $10 billion.
Signs of trouble emerged when the crypto lender suspended withdrawals from client accounts in early June citing “market conditions.” Investors were offered interest rates of up to 18% to provide capital. He then proceeded to repay debts to major DeFi companies, which allowed him to recover $1 billion in cryptocurrency collateral. At least some of those loans were significantly over-collateralized, allowing him to recover more than he paid to close them.
“It seems like a way to at least get more cash or simplify their finances before filing for bankruptcy,” says Miguel Morel, CEO of Arkham Intelligence. The Austin-based blockchain intelligence firm found that Celsius owed over $500 million worth of crypto to three of the biggest DeFi lenders – Compound, Aave and Maker.
morel said Forbes that the recent crypto market crash may have forced Celsius to use liquid assets to repay debt and release collateral rather than honor customer withdrawals. In its bankruptcy filings, Celsius sought approval to pay up to $3.76 million in liens and sellers’ claims, and it said it had $167 million in cash to support business operations. . The crypto lender did not seek to refund customers.
In a blog post Last night the company said it halted withdrawals last month to prevent ‘certain customers – those who were the first to act’ from being paid in full ‘while letting others wait for Celsius to recover the value of illiquid or long-lived asset deployment activities before they receive reinstatement.
The filing comes a week after KeyFi, which previously provided asset management services to Celsius, for follow-up the company. KeyFi claimed it was not paid for its work and that Celsius mismanaged client funds. The suit went so far as to call Celsius a “classic Ponzi scheme”.
Celsius listed more than 100,000 creditors located around the world on file, including Pharos USD Fund, with more than $81 million owed. Alameda Research, funded by billionaire FTX CEO Sam Bankman-Fried, owes nearly $13 million. Bankman-Fried made headlines earlier this month for providing capital to struggling crypto lenders Voyager Digital and Celsius.
Celsius’ crypto-mining unit has been included in bankruptcy, just months after filing documents for an initial public offering. In March, Celsius Mining announced that it had confidentially submitted a draft S-1 registration to the Securities and Exchange ahead of the crypto market downturn.
Celsius joins crypto lender Voyager Digital in filing for bankruptcy. Both are represented by the law firm Kirkland & Ellis.
Celsius native token CEL fell 48% after the announcement, but has risen 4% since last night’s filing. CEL hit a record high of $8.03 last year, then fell to a record low of 28 cents in early June after customer withdrawals were suspended. It is currently 79 cents, according to nomic.