Crypto lender Celsius files for bankruptcy after cash crunch

Celsius froze customer withdrawals last month, blaming "extreme market conditions". PHOTO: REUTERS

PORTLAND, Oregon (BLOOMBERG) - Crypto lender Celsius Network filed for Chapter 11 bankruptcy, a month after it froze customer withdrawals, joining other casualties battered by a rout in digital assets.

Celsius, which has US$167 million (S$234 million) cash on hand, said it took the step to stabilise its business and work out a restructuring for all stakeholders.

The company, which had amassed more than US$20 billion in assets by offering interest rates as high as 18 per cent to customers who deposited their cryptocurrencies, had paused all withdrawals as well as some other functions in mid-June, citing “extreme market conditions”.

Cryptocurrency platforms have come under increasing pressure as the Federal Reserve aggressively raises interest rates, hurting risk sentiment and squeezing funding costs.

Celsius is just one of many crypto companies suffering as risky bets turned against them in the current bear market. Crypto broker Voyager Digital filed for Chapter 11 bankruptcy protection earlier this month, while liquidators have been called in for bankrupt crypto hedge fund Three Arrows Capital.

In its statement on Wednesday, Celsius called that pause a “difficult but necessary decision”. Without the halt, it said, “the acceleration of withdrawals would have allowed certain customers - those who were first to act - to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery”.

Celsius did not immediately respond to a request for comment. Co-founder and chief executive officer Alex Mashinsky said in the statement that the move would strengthen the future of the company.

The firm has petitioned to continue to operate. It is not requesting authority to allow customer withdrawals right now, saying that customer claims would be handled through the Chapter 11 process. Both estimated assets and estimated liabilities are between US$1 billion and US$10 billion, according to the filing.

Kirkland & Ellis is serving as legal counsel, with Centerview Partners as financial adviser and Alvarez & Marsal the restructuring adviser to Celsius.

Celsius promised yields of more than 18 per cent to customers willing to lend out their crypto. In turn, it lent those coins to institutional investors, but was also a participant in a slew of decentralised-finance applications. 

When the TerraUSD (UST) stablecoin and related Luna token collapsed in May, Celsius scrambled to pull its funds out of Terra’s Anchor Protocol, which offered 20 per cent returns on UST deposits.

More recently, it suffered as another large holding - a token known as staked ETH, or stETH, which is tied to the value of Ether - became largely illiquid and more widely discounted to Ether.

In the past month, Celsius paid back all - more than US$900 million - of its debt in decentralised applications Aave, Compound and MakerDAO, according to blockchain data and tracker Zapper.

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