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what’s next for its customers?

The cryptocurrency lending platform with 1.7 million customers has declared bankruptcy. What about the fate of its customers, who are its main creditors? BFM Crypto takes stock.

It’s a disappointing time for Celsius customers. The cryptocurrency lending platform, which froze withdrawals and transfers from its users on June 12 amid high market tension, has just declared bankruptcy.

It plunges its 1.7 million customers, spread over more than 100 countries, into the uncertainty of one day recovering their funds.

Last Wednesday, Celsius announced that it had filed for Chapter 11 bankruptcy, allowing it to restructure while continuing to operate. Celsius “has initiated a financial restructuring to stabilize the business and maximize value for all stakeholders,” its blog reads.

Without the withdrawal freeze decided on June 12, “their acceleration would have allowed some customers – the first to act – to be fully reimbursed, leaving the others behind to wait”, said the special committee of the board of directors of Celsius. , which has therefore chosen to treat its customers on the same footing.

“This is the right decision for our community and our business,” said Alex Mashinsky, co-founder and CEO of Celsius. “I am confident that when we look back on Celsius’ history, we will see this as a watershed moment, where acting with determination and confidence served the community and strengthened the future of the business,” he added.

Celsius services are even less operational

The company will be heard for the first time by justice this Monday at 2:00 p.m. American time. In a thread posted to Twitter on Friday, Celsius explained that she would explain the reasons for filing for bankruptcy, while confirming that the vast majority of her “creditors” were her customers.

What is the current situation for its customers? At this stage, its bankruptcy allows it to continue to pay its employees, but the reimbursement of its customers seems more uncertain.

Celsius did not ask the New York court for “authorization” to “authorize customer withdrawals”. “Customer complaints will be handled through the Chapter 11 process,” the company said.

Since June 12, and despite the company’s bankruptcy, Celsius customers can no longer access their funds, creating many panic situations as evidenced by the many comments on the Reddit platform.

As a reminder, Celsius was one of the main lending platforms (or lending/staking of cryptocurrencies), which consists in lending its cryptocurrencies on a blockchain against interest. The company offered interest rates over 18% for savers, but only 0.1% for borrowers.

Since the announcement of its bankruptcy, certain services have been restricted according to a document published by the company. In fact, while customers could continue to earn interest on cryptocurrency deposited on the platform, this option is discontinued. Similarly, if until now customers could still take out loans on the platform, this is no longer possible.

“Recover money at a reduced price”

But an interesting point emerges from this same document. Among the “next steps” considered by the company, the latter mentions that of arriving at a “plan” under Chapter 11 which concerns its customers.

This plan “will give clients the option of either cashing back at a reduced price or staying in a long-term cryptocurrency strategy (ii) maximizing returns for stakeholders and (iii) reorganizing the Celsius business,” the company points out.

A hole of 1.2 billion dollars to reimburse its customers

But in order to be able to reimburse customers, it is important to know what the company’s current reserves are.

In its official press release, the company claims to have $167 million in cash which “will allow it to have sufficient liquidity to support certain operations during the restructuring process”.

But the same document mentioned above mentions its financial health, and things are not encouraging.

Indeed, the company has seen its assets shrink by 17.8 billion since March 30, from 22.1 billion during this period, to only… 4.3 billion on July 13. At this stage, the company owes 5.5 billion dollars to its creditors, including 4.7 billion just to its customers. However, the calculation is quickly made: if it only has 4.3 billion dollars and must repay 5.5 billion dollars, that makes a “hole” of 1.2 billion dollars in the reserves of Celsius.

Concretely, this means that Celsius is already short $1.2 billion to repay its creditors. The company should seek to fill this gap by finding investors or new creditors. But such a hole in its reserves could cause it to lose credibility even further.

It is in particular the mismanagement of its reserves that had cooled the boss of the FTX trading platform, Sam Bankman-Fried, who wanted to “save” Celsius a few weeks ago.

A history of bankruptcy reminiscent of that of Mt Gox

Given these elements, the procedure for customers to find their funds will undoubtedly be long and tedious.

This story is reminiscent of the case of the centralized cryptocurrency exchange platform Mt Gox, which went bankrupt in 2014 following a hack of 750,000 bitcoins. She left her clients with no certainty of ever recovering their funds.

Although the fate of Celsius, which is in turmoil following the collapse of the Terra blockchain (first crypto-crash in mid-May) and the Mt Gox platform are different, one can find similarities on the question of the return the funds to their customers.

Both platforms were so-called centralized platforms, that is to say that their customers trusted them to manage their cryptocurrencies themselves, which they thus deposited on the platform.

MtGox had also initiated a bankruptcy process in 2014, after also freezing access to funds for its customers following the piracy of bitcoins on the platform. Two years after its bankruptcy, it had told its customers that they would one day find their cryptocurrencies, offering them to request the return of their cryptocurrencies.

Last week, eight years after the company’s bankruptcy, a glimmer of hope appeared for its customers. MtGox has indeed offered them the possibility of recovering their lost cryptocurrencies either in bitcoins, in bitcoins cash or in dollars.

However, the company has not given any precise date for reimbursement, which could take place within the year, as in several years to come, still leaving its customers in uncertainty.

But this announcement still gives a glimmer of hope for its former customers who still want to believe it: see our investigation on this subject of these French people who are fighting to recover their bitcoins.

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