FTX creditors must read! Does depositing coins equal to giving up rights? Lessons from the Celsius bankruptcy case: Judge's ruling remains crucial

The cryptocurrency lending platform Celsius underwent bankruptcy restructuring in July this year. Previously, Celsius' legal team stated that the assets in the Earn Program belong to Celsius, not the users.

Now, Celsius plans to sell off 18 million equivalent worth of cryptocurrencies in the platform to raise funds for repaying creditors.

This seems to contradict user logic - "my money deposited into your company becomes your money." The question arises: do these cryptocurrencies belong to the depositors or Celsius?

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Celsius's Claim: Technically, I Am the Holder

Celsius, as an asset lending platform, offers three services: Earn Program, Borrow Program, and Custody. There is little controversy surrounding the Custody and Borrow services.

However, the Earn Program allows users to earn interest by depositing money with Celsius.

According to the agreement, the platform has the right to use customers' cryptocurrencies. In July, Celsius's legal team stated during the first bankruptcy hearing that technically, Celsius is the holder of these cryptocurrencies.

Analysis by Professor Yang Yueping: Should Be Judged by Two Business Models

Yang Yueping, Associate Professor of Law at National Taiwan University, believes that the legal key may lie in determining whether Celsius's business model leans towards a decentralized lending model closer to banks or a collective investment model closer to funds or full delegation.

If it is the former, then users may have similar rights to "depositors' claims" for the return of cryptocurrencies from Celsius, meaning users are unsecured creditors and must be compensated in proportion to their claims in the event of bankruptcy. Compared to users' possible claims of a custodial relationship with a typical exchange, the legal argument may be less favorable.

However, if it is the latter, users may have more room to argue that Celsius holds users' cryptocurrencies as a trustee based on a trust relationship, suggesting that the funds invested by users and the assets purchased with them could be considered independent trust assets that users can retrieve without going through the bankruptcy process. The premise is that Celsius adequately segregates its own assets from user assets, making it clear which assets belong to users and which are trust assets.

Celsius Bankruptcy Judge Has Yet to Rule on Asset Ownership

Currently, the ownership of Celsius's assets has not been determined. The responsible U.S. bankruptcy judge, Martin Glenn, stated that he will need at least until next week to make a ruling. This decision is crucial as it determines the assets that bidders will purchase and sets the standard for other bankruptcies.

He stated, "I will continue to consider and decide on asset ownership. The real issue is how to reduce significant administrative expenses and ultimately achieve our goals."

Update on 12/8: The funds belong to the users! Bankruptcy judge rules that Celsius must repay, approximately $44 million in cryptocurrency assets to be returned to users.