Court rules that user deposits belong to the bankrupt lending platform Celsius

The judge ruled in favor of Celsius, granting ownership of the funds from the Earn product, totaling up to $4 billion, based on the "user terms," indicating that affected users may only be able to recover some remaining funds. However, this precedent could potentially benefit FTX users, as the FTX user terms explicitly state: "Ownership of any digital assets always belongs to the user and cannot be transferred or lent to FTX Trading."

Previous reports indicated that assets in non-interest-bearing accounts and custody accounts of the bankrupt lending platform Celsius Network, amounting to around $44 million, should belong to the users, but ownership of the crypto assets in Celsius's products "Earn" and "Borrow" remained unresolved.

According to documents from the United States Southern District of New York Bankruptcy Court, the ruling has determined that the $4.2 billion in crypto assets from the "Earn" product belong to Celsius Network.

Advertisement - Please scroll down for more content

"Earn" User Deposits Belong to Celsius

The document states that due to the clear terms of Celsius, any encrypted assets deposited into the Earn account belong to Celsius.

According to the Terms of Use (TOUs), token ownership has been transferred to Celsius, and Celsius has the right to use, sell, pledge, and re-pledge these tokens.

Will Be Used as Operational Funds by Celsius

Previously, Celsius had disputes regarding user fund ownership and decided to sell $18 million stablecoins from the Earn account as operational funds. After a court ruling on ownership, Celsius instantly had sufficient capital.

Users Defined as Unsecured Creditors

Earn users will be defined as unsecured creditors. In a previous report, Yang Yueping, an associate professor of law at National Taiwan University, pointed out that this means users will be compensated according to the bankruptcy process and order based on the proportion of their claims.

In bankruptcy proceedings, secured or preferential creditors are usually compensated first. Documents from the Southern District of New York Court also mentioned that there is not enough funds available to repay all Earn users, and if the majority of users are unsecured creditors, only a small portion of funds can be recovered in the end.

However, the judge emphasized that creditors still have rights to defend and claim, with the opportunity to convene a hearing based on this.

What About FTX Users?

Products under FTX's Blockfolio are similar to Earn, but the judge mainly made the ruling based on the "Terms of Service." FTX's terms of service are very clear and opposite to Earn:

Ownership of any digital assets always belongs to the user and cannot be transferred or lent to FTX Trading.

Therefore, the precedent set by Celsius may be beneficial to FTX creditors for future claims.

Furthermore, this case also highlights the importance of terms of service for user rights, indicating that users will definitely need to read them carefully before engaging with any encrypted products in the future.