In late September, the bankrupt crypto lender, Celsius Network, requested permission via the United States Bankruptcy Court for the Southern District of New York to sell $23 million worth of Stablecoins. The filing stated that Celsius would use the funds to support its ongoing business operations.
It marked a major development in the lender’s ongoing liquidity crisis after it emerged in June that it had frozen customer withdrawals. The stablecoins are held by three of its affiliate companies, which hold 11 types of stablecoins valued at $23 million. These funds were used to support its crypto lending services.
Latest Filings to Stop Sale
The latest development in the ongoing Celsius drama is a filing by its unsecured creditors to the court to deny the request to sell its stablecoins. According to the creditors, Celsius has not established the legal ownership needed for the sale to proceed. Besides the creditors, various state regulators have filed objections to the sale.
While Celsius filed to sell the stablecoins, it did not reveal which ones it owned or how it acquired them. During the filing, the lender said, “Any stablecoin held by the Debtors’ post-petition activity constitutes property of the Debtors’ estate” and the “proceeds generated by the sale of stablecoin also constitutes property of the Debtors’ estate.”
Risk of Centralized Crypto Lending Exposed
Since the lender filed for bankruptcy in July, it has exposed the risk of centralized crypto lending. It becomes painfully clear to investors that the terms of service did not favor them. One key issue that remains unsolved is whether Celsius’s crypto assets are part of its estate.
In its filing, Celsius does not state whether the digital assets it holds are the property of its customers. Celsius also stated that insolvency did not guarantee customers would get their funds back. Its terms of use state, “In the event that you, Celsius or any Third-Party Custodian becomes subject to an insolvency proceeding, it is unclear how your Digital Assets would be treated and what rights you would have to such Digital Assets.”
According to its creditors, the lender has not established that it owns the crypto assets as part of its estate. In their filing, they state that Celsius has “not met their burden to establish which (if any) crypto assets constitute property of the estate.” In short, they state Celsius must prove it owns the assets before being allowed to sell them.
According to the creditors, if it does not prove it owns the assets, it should prove an “immediate need” to justify the sale. Once approval is given, there should be a stipulation to ensure affected account holders get adequate protection. Regulators from Washington, Wisconsin, Vermont, and Texas have filed objections to the sale on similar grounds.
The issue will be heard on November 1, 2022, at 11.00 AM ET.
The creditors have been outspoken against Celsius. They have been seeking to have an investigation against its former CEO, Alex Mashinsky, instituted, as well as other key insiders. Mashinsky stepped down after the creditors called for his removal in September. The creditors have expressed an interest in examining the action of other Celsius insiders.
