Celsius Network Files For Bankruptcy Protection

Celsius Network has filed for Chapter 11 (bankruptcy) proceedings in the US, as it seeks breathing room from its creditors in order to carry out a restructuring.

Yesterday Silicon UK reported that Vermont’s Department of Financial Regulation (DFR) said it believed Celsius was “deeply insolvent and lacks the assets and liquidity to honour its obligations to account holders and other creditors.”

Now the cryptocurrency lender has confirmed that it has “initiated voluntary Chapter 11 proceedings to provide the Company with the opportunity to stabilise its business and consummate a comprehensive restructuring transaction that maximizes value for all stakeholders.”

Chapter 11

New Jersey-based Celsius Network has filed for Chapter 11 at the US Bankruptcy Court for Southern District of New York.

It comes after Celsius Network last month froze all withdrawals, swaps, and transfers between customer accounts, citing “extreme” conditions.

That prompted a number of US state securities regulators to begin investigating the crypto lender’s decision.

“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,” said members of the Special Committee of the Board of Directors .

“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,” they stated.

“This is the right decision for our community and company,” said Alex Mashinsky, co-founder and CEO of Celsius.

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“We have a strong and experienced team in place to lead Celsius through this process. I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company,” said Mashinsky.

Celsius said it “has $167 million in cash on hand, which will provide ample liquidity to support certain operations during the restructuring process.”

But Celsius estimated its assets and liabilities as between $1 billion to $10 billion, with more than 100,000 creditors.

Troubled times

Celsius, which with a value of $12bn is one of the biggest crypto lending platforms, allows users to lend out their tokens as collateral for other crypto projects in exchange for annual yields of up to 17 percent.

But investor interest in such high-risk areas has dropped off since the collapse of the TerraUSD “stablecoin” in early May, which along with the Luna coin was linked to a similar high-yield scheme.

Celsius said last month it was pausing all withdrawals, transfers and swaps after weeks of speculation around the sustainability of its large returns.

The company’s business model, like that of Terra, in which it was an investor, depends upon a steady flow of new entrants feeding the system, or borrowing to pay the high rates.

Following Terra’s collapse, some critics likened the business model to a pyramid scheme.

“We apologise that communication with our teams and community has been very limited over the past few weeks, and we look forward to being able to offer greater transparency with everyone through our reorganisation, which encourages dialogue with all stakeholders,” the company added in a blog post about the matter.