Embattled crypto lender, Celsius Network (Celsius), has filed for bankruptcy in New York. The filing follows a statement issued by the US State of Vermont's Department of Finance Regulation (DFR) earlier this week labelling the firm 'deeply insolvent'.
According to Reuters, Celsius estimated its assets and liabilities as between US$1 billion to US$10 billion and has US$167 million in cash on hand. It has more than 100,000 creditors.
In its statement on Tuesday, the DFR stated that Celsius:
deployed customer assets in a variety of risky and illiquid investments, trading, and lending activities. Celsius compounded these risks by using customer assets as collateral for additional borrowing to pursue leveraged investment strategies. Additionally, some of the assets held by Celsius are illiquid...
In June, Celsius suspended withdrawals, cut its workforce and engaged restructuring experts following the downturn in crypto markets.
On Wednesday, it was reported that Celsius had paid off its debt on the DeFi protocol, Aave, which freed up US$26 million in tokens in its restructuring strategy. Celsius also moved US$418 million in staked ether (stETH) to an unknown wallet. Last week, Celsius paid off a loan on Maker, another DeFi protocol, releasing US$440m in collateral. The pay-offs sparked controversy in some quarters that Celsius was apparently paying third party loans while customer withdrawals remained suspended. However, the pay-offs were presumably intended to release more funds from overcollateralized loans to repay creditors.
Meanwhile, Celsius is reportedly under investigation in a number of US States along with other failed crypto-lenders. In its statement, the DFR alleged that Celsius engaged in unregistered securities offerings by offering cryptocurrency interest accounts to retail investors. The DFR also noted that Celsius lacked a money transmitter license, meaning that Celsius operated largely independent of regulatory oversight.
Celsius is also currently subject to proceedings in the New York State Supreme Court brought by KeyFi for breach of contract and fraudulent misrepresentation. The proceedings commenced by KeyFi allege Celsius had been:
leveraging Celsius' customer deposits to manipulate crypto-asset markets, had failed to institute basic accounting controls which endangered those same deposits, and had failed to carry through on promises that induced the Plaintiff to undertake various trading strategies.
The lawsuit also levels allegations of gross mismanagement at Celsius and that Celsius become a Ponzi scheme after suffering heavy losses in early 2021.
Despite today's filing, the ramifications of Celsius' collapse are likely to reverberate for some time to come.