Celsius DeFi lender files for bankruptcy with $1.2 billion hole in its balance sheet

    16 Jul 2022

    Celsius Network, a crypto lending services provider, announced on July 13 that it has filed for Chapter 11 bankruptcy. The bankruptcy filing says the platform made “certain poor asset deployment decisions” when the platform grew faster than it anticipated. It also confirms its liabilities outweigh its assets by $1.2 billion.

    After a series of descending cryptocurrency price swings that saw the crypto market bleed around 60% of its valuation in six months – and a number of miscalculated risks – the provider says its bankruptcy filing aims to enable a “comprehensive restructuring plan” to the benefit of “all stakeholders”. As is often the case, shark and whale lenders have started feeding on the bloodbath before other, less leveraged investors do.

    Celsius has separately issued motions with the New York court asking for it to be allowed to continue operating “in the normal course” in order to bring in the profits that would allow it to pay employees and continue benefits.

    The bankruptcy filing comes after the Decentralized Finance (DeFi) player froze all withdrawals, swaps, and transfers on its platform “to stabilize its business and protect its customers” on June 12.

    As Reuters reported, the Celsius Chapter 11 bankruptcy filing confirms its liabilities outweigh its assets by $1.2 billion.

    The filing shows that the company owes clients and creditors $5.5 billion. But its assets, even after paying off three large loans from DeFi protocols Maker, Aave, and Compound in the last week, which allowed it to reclaim roughly $1 billion worth of collateral, total only $4.3 billion.

    That means Celsius is $1.2 billion short and insolvent. It’s what remains of the “$2 billion hole” that kept FTX CEO Sam Bankman-Fried from wanting to do a deal with the company, unnamed sources told The Block in late June. Without the $1 billion in recently reclaimed collateral, its debts would have outstripped its assets by $2 billion around the time Bankman-Fried was rumored to have met with Celsius along with Voyager Digital and BlockFi.

    Celsius Mining, the company’s cryptocurrency mining unit that announced intentions of undergoing an IPO as early as this March, filed for bankruptcy as well.

    According to the court documents, and after a series of high-profile payments to other crypto lenders, Celsius currently has approximately $167 million in liquidity against the $4,153,380,951.91 of its 1.7 million customers originally deposited. And just this Monday, July 12, Vermont’s Department of Financial Regulation said Celsius Network was “deeply insolvent and lacks the assets and liquidity to honor its obligations to account holders.” The writing was on the wall.

    Laura Shin, a crypto journalist and podcaster who wrote The Cryptopians, a book analyzing the emergence days of crypto – and Ethereum in particular – told the Washington Post that Celsius “engaged in risky strategies for generating a yield on their depositor’s funds.” Celsius’ claim to fame rested on returns that could sometimes soar above 18% – just for users depositing (in the crypto world, staking) their tokens with the service.

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