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Celsius bankruptcy hearing | $5.5 billion debt, plans to mine and repay, user debt priority a concern

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Celsius bankruptcy hearing | $5.5 billion debt, plans to mine and repay, user debt priority a concern

Celsius held its first bankruptcy hearing, revealing a financial shortfall of approximately $1.2 billion. The company plans to repay its debts through mining operations and encourages users to choose to "HODL" to extend the repayment pressure. However, to the disadvantage of users, Celsius appears to be attempting to classify users as unsecured creditors.

Debt of $5.5 Billion

Following a liquidity crisis, Celsius suspended withdrawals from its platform on 6/13 and filed for bankruptcy protection on 7/14, with the first bankruptcy hearing scheduled for 7/18. According to a document, Celsius owes creditors as much as $5.5 billion.

There is an overall financial shortfall of nearly $1.2 billion. The related data includes:

  • Total debt: $5.5 billion
  • Platform assets: $4.31 billion
  • Financial deficit: $1.19 billion

Details from the Document

Suspected Overvaluation of Assets by Celsius

In the aforementioned legal document, Celsius holds $1.75 billion in crypto assets, while user debts are nearly three times that amount. Additionally, it reports the value of its native token CEL at $600 million, which is higher than the total market value of $550 million, without factoring in the residual value that the tokens can be exchanged for under conditions of widespread dumping and poor liquidity.

Celsius' Liquidation Losses

The document also confirms previous reports of Celsius concealing a loss of 40,000 ETH. Celsius had exchanged over 42,000 stETH with collateral service provider Stakehound, but the latter's loss of private keys led to a collapse in stETH value and a complete loss of liquidity. This is listed in the document as a "business accident loss" on page 27.

Furthermore, on 7/8, Tether announced the liquidation of a loan overcollateralized with BTC by Celsius, resulting in a loss of nearly $100 million for the latter in this transaction.

Users Being Sold Off?

According to a presentation on page 9 provided by lawyer Pat Nash, Celsius' products "Earn" and "Borrow" mechanisms include a clause that seems unfavorable to affected users:

As per the Terms of Use, TOUs, token ownership has been transferred to Celsius, which has the right to use, sell, pledge, and re-pledge these tokens.

This part raises legal concerns as Celsius should not utilize tokens stored in custody accounts, a matter that will ultimately be decided by the court.

Celsius Service Terms

What's Next for Celsius?

Celsians and Financial Times journalist kadhim documented Celsius' key statements during the hearing, including the following highlights:

  • Emphasizing no intention for bankruptcy liquidation, intending to execute a recovery plan involving the previously introduced "HODL" mode by Celsius.
  • Celsius' mining center in Texas is still under construction and hopes to complete it through fundraising.
  • Celsius is currently seeking $6.52 million for operational costs during the transition period.

Celsius representative lawyer Pat Nash stated regarding the "HODL" plan saying:

The vast majority of our users are interested in weathering the crypto winter together, are long-term bullish on cryptocurrencies, and are taking advantage of the macroeconomic opportunities that exist for cryptocurrency appreciation, in order to restore asset values.

Furthermore, Celsius aims to achieve its recovery plan through mining operations. Nash claims that Celsius owns over 43,000 mining machines, which are expected to produce 10,100 BTC this year, with a projected scale of 112,000 machines and 15,000 BTC output by Q2 next year.

The second Celsius hearing will take place on 8/10, with users forming a creditors' committee, typically composed of seven major unsecured creditors, to assist in overseeing the bankruptcy process and formulating a financial restructuring plan.

Celsius' official Twitter announced on 7/19 that it has submitted a plan to offer users the "HODL" option, and users can also submit claims.