According to WSJ, Celsius Network has just taken ownership of the cryptocurrency assets worth $4.2 billion that were deposited by its customers. Because of this action, the defunct platform is now free to use the funds in any way it sees fit. Notable was the fact that almost 600,000 Earn program participants owned this fund. Initially, customers were able to earn interest on their crypto deposits through the use of this program.
The ruling stated that
“when the cryptocurrency assets (including stablecoins, discussed in detail below) were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property; and the cryptocurrency assets remaining in the Earn Accounts on the Petition Date became property of the Debtors’ bankruptcy estates”
Customers of Earn are now considered to fall under the category of unsecured debtors under the law governing bankruptcy. In addition, the document submitted to the court stated that there will not be sufficient funds to fully reimburse all of the customers. On top of that, customers will need to “prevail with their arguments that they own the cryptocurrency assets in their accounts, they hope to recover 100% of their claims” in order to get their claims paid in full.
In addition, the ruling mentioned the decision made by the platform to sell the 18 million stablecoins that it had held in Earn accounts. The states in the United States had tried to prevent this sale by arguing that it was unnecessary given that Celsius Network still had enough money to continue operations for a few more months. They were unsuccessful in their efforts. In spite of this, the judge sided with Celsius and rendered the following ruling:
“it is unnecessary to resolve whether the proposed sale of stablecoins would be in the ordinary course of business because the sale should be approved outside the ordinary course of business”
Notably, the cryptocurrency lending platform was shut down in July 2022, a month after it had temporarily halted withdrawals due to extreme market conditions. The reason given was that the platform had lost too much money. The platform had customer cryptocurrency holdings that were worth $4.2 billion at the time, but its liabilities stood at $5.5 billion at the time. In addition, the stablecoin associated with the Earn program had a value of $23 million as of September 2022.
This case has the potential to serve as a precedent for future bankruptcy proceedings in the United States regarding the treatment of customers’ cryptocurrency holdings. It is also important to note that Celsius is not the only cryptocurrency company in the United States that is in the process of filing for bankruptcy at the present time. Notably, FTX US was the most recent crypto platform to join the list of companies that have filed for bankruptcy.
