Celsius Network has begun bankruptcy procedures, the business said late Wednesday night, making it the third prominent cryptocurrency lender to do so in the last two weeks.
The New Jersey-based company has filed for Chapter 11 bankruptcy with the Southern District of New York, citing $167 million in liquid assets to support operations through reorganization. Thus the company is a sad new addition to the list of bankrupt crypto companies.
As of Wednesday, the platform had around $4.3 billion in assets and $5.5 billion in liabilities, according to a court filing. It had a string of unanticipated losses, including the loss of 35,000 Ether coins owing to the misplacement of “keys” by its staking service provider, StakeHound.
The statement submitted to the U.S. Bankruptcy Court for the Southern District of New York indicates that Celsius has $4.3 billion in assets and $5.5 billion in liabilities. In its list of assets, Celsius stated that its CEL coin is worth around $600 million. However, the business disclosed in the filing that CEL’s market capitalization was around $170,3 million as of July 12.
“The volume of digital assets on the firm’s platform increased faster than the company was prepared to deploy,” Celsius’s CEO Alex Mashinsky said in a sworn statement outlining the events that led to the company’s bankruptcy. Consequently, the corporation made judgments about asset deployment that, in retrospect, were unquestionably unwise.
“I am convinced that when we look back on Celsius’s history, this will be a seminal milestone.”, he also said in a press statement.
After the collapse of Terra’s algorithmic stablecoin UST, crypto lending and brokerage firms have faced solvency issues, with common failures stemming from directly investing in Terra coins (LUNA, UST), lending money to firms that did – such as the now-defunct hedge fund Three Arrows Capital – or simply losing money on other risky positions involving leverage.
The company follows Three Arrows Capital and another lender, Voyager Digital, on the list of prominent crypto companies seeking bankruptcy protection.
Celsius, whose motto was “Unbank Yourself,” provided high-yield interest savings accounts to retail and institutional clients. By lending its assets to hedge funds or depositing them in higher-risk, decentralized financing transactions that depended on greater leverage, the business generated yield for its consumers.
Cryptocurrency exchange FTX allegedly stepped away from a planned proposal to purchase Celsius, citing a “$2 billion hole” on Celsius’s balance sheet, while it sought answers to its financial troubles.
But as part of a treasury-management strategy, Celsius began repaying its debt to the decentralized finance (DeFi) protocols Aave, Compound, and Maker to retrieve the assets that had been pledged as collateral for the loans.
As reported by CoinDesk, the cryptocurrency lender repaid $223 million to Maker, $235 million to Aave, and $258 million to Compound, concluding its last loan on Tuesday.
As a consequence, the company was able to recover about $1.4 billion in tokens, the majority of which were wrapped bitcoin (wBTC) and a sort of staked ether derivative (stETH).
Since there has never been a case of a crypto brokerage “trying to navigate through a reorganization as opposed to a liquidation,” Ryan Preston Dahl, a restructuring specialist at the law firm Ropes & Gray LLP, said Celsius is entering “uncharted ground” by seeking Chapter 11 bankruptcy protection.
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