Blockchain-based lending platform Celsius Network announced on July 13 that it has initiated voluntary Chapter 11 proceedings to protect the company. The Chapter 11 bankruptcy filing comes a month after the platform paused all withdrawals as crypto continued its downward spiral. It cited extreme market conditions as the reason behind its rigid decision.
What does Celsius Network do?
On their website, Celsius crypto reveals that more than 1.7 million people call them their home for crypto.
One of the world’s largest cryptocurrency lenders, the platform was valued at $3.25 billion when it extended its Series B financing round to $750 million in November, up from $400 million at a $3.25 billion valuation announced in October.
The New Jersey-headquartered startup communicated in November that it had paid more than $1 billion in digital assets to its community of 1.2 million users. It achieved this feat within a span of three years, and at the time was worth more than $25 billion. The earning and borrowing platform amassed huge popularity as it was paying out yield at a paying out yield at a rate of $15 million per week while banks paid on average 0.01%. The lender attracted a huge number of customers as it paid out a high yield every week on 46 different assets, including Bitcoin, Ethereum, and stablecoins.
Alex Mashinsky, founder and CEO of Celsius Network, took to Twitter to continually reassure investors and customers that the lender had minimal exposure to the falling $LUNA and $UST, and that it remained unaffected by the crypto crisis. The company even ran a promotion in May wherein they offered rewards to potential customers if they transferred assets into Celsius accounts and kept them there for up to 180 days.
The Celsius network coin is called CEL. In May, it had plunged to around 80 cents down from the peak rate of $8 it commanded in June 2021.
In a written statement, Celsius Network mentioned that the Chapter 11 bankruptcy filing will allow it to “to stabilize its business and consummate a comprehensive restructuring transaction that maximizes value for all stakeholders.” The firm has urged the court to allow it to continue operations as usual.
Will Celsius customers get money back?
Celsius Network estimated assets and liabilities on a consolidated basis in the range of $1 billion to $10 billion in its filing at the United States Bankruptcy Court for the Southern District of New York.
Members of the Special Committee of the Board of Directors justified the move saying, “Today’s filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps, and transfers on its platform to stabilize its business and protect its customers. 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.”
For now, Celsius has $167 million in cash on hand, which will provide it with ample liquidity to support the restructuring process. However, the company has not made any comments on how and when it will pay back its customers. The lender stated that customer claims will be addressed through the Chapter 11 process.
Celsius’ filing comes close on the heels of another crypto lender Voyager’s fall. On July 5, Voyager Digital Ltd. commenced bankruptcy proceedings after the crypto crisis decimated its fortunes. In the initial hearing, the company stated that it had received threats after freezing customers’ crypto accounts. It also admitted that customers may not fully recover their crypto assets.
Furthermore, a former investment manager at Celsius crypto sued the lender on July 7 alleging mismanagement of funds. The plaintiff alleged that Celsius ran a Ponzi scheme to benefit itself through “gross mismanagement of customer deposits.”
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