• L Misthos and M Bacina

Tether loan to Celsius could be tested by crypto creditors

Updated: Sep 1



The application of insolvency principles to digital assets has come under speculation after stablecoin issuer Tether recovered a USD$840 million loan from Celsius Networks, which is currently under Chapter 11 Bankruptcy protection in the US.


Tether, the company behind the widely used USDT stablecoin, recovered the amount before Celsius filed for bankruptcy last month. This was done by selling a vast amount of bitcoin that Celsius Network had provided to Tether as collateral for a loan agreement.


As Bitcoin prices fell, Celsius was apparently unable to post more collateral to continue the loan agreement resulting in Tether selling the Bitcoin to cover the loan, which led to further losses for Celsius.


We will now see whether the Tether loan transaction will be attacked and if Celsius can recover some of the USD$840 million which would then become available to pay other creditors, many of whom have suffered losses as a result of Celsius' bankruptcy. A key issue, should an action arise, could be whether Tether has "perfected" its security over the Bitcoin which was sold.


In Australia, a security interest is an interest in property granted to a person as security for a debt or another obligation and a "perfected" security interest has priority over "unperfected" interests, meaning parties with perfected interests will have priority over assets. Should Tether be able to demonstrate it has perfected it's security then it may not have to refund the security taken.


To perfect a security interest in Australia, a secured party must:

  1. Attach the security interest to collateral property - for example by a lender advancing a loan amount to a borrower under loan terms, establishing a security interest in the collateral, say Bitcoin;

  2. Entering into an agreement documenting the granting of the security - such as a properly documented loan agreement; and

  3. Register the security interest on the Personal Properties Securities Register (PPSR) to perfect the interest.

Any action seeking to recover money from Tether raises important and interesting questions of law over when and how security interests over crypto-assets can be perfected and if that follows the same path as traditional security interests.


Any lawsuit will be closely watched by crypto lenders around the world and may lead to changes in their processes. How it would play into self executing smart contract lending Dapps is also an interesting question. In Australia at least a self-executing smart contract couldn't perfect a security interest as it would be unable to register a security interest on the PPSR.


Practical matters around the identification of parties to such arrangements may pose an initial hurdle, but tracing of crypto transactions is only becoming more widespread and easier.