Crypto lender Celsius in Chapter 11 deep freeze
- Reference: 1657837233
- News link: https://www.theregister.co.uk/2022/07/14/frozen_cryptocurrency_lending_biz_celsius/
- Source link:
In its prime, Celsius pitched annual yields of up to 18 percent for those storing cryptocurrencies on its platform, lending those assets to hedge funds, exchangers, and traders, and earning interest from those loans to return to its customers. People could borrow and buy digital assets from the platform, too.
A sudden drop in temperature in the cryptocurrency market following the collapse of a stablecoin, a lack of confidence in the digital money, and broader economic instability left Celsius and its customers out in the cold. Without warning, the company [1]suspended all purchases, withdrawals, or swaps on its platform, leaving customers unable to retrieve assets.
[2]
Now the upstart has filed for voluntary Chapter 11 status filed
[3]PDF
with the Bankruptcy Court for the Southern District of New York.[4]
[5]
Documents show Celsius owes hundreds of millions of dollars to various creditors, including an outstanding $81 million to Pharos USD Fund SP, an entity with ties to Sam Bankman-Fried, cryptocurrency billionaire and owner of FTX and Alameda Research, a cryptocurrency exchange and trading firm, [6]according to Bloomberg.
"[The] filing follows the difficult but necessary decision by Celsius last month to pause withdrawals, swaps, and transfers on its platform to stabilize its business and protect its customers," Celsius' Special Committee of the Board of Directors [7]said in a statement. "Without a pause, 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."
[8]
A separate disclosure
[9]PDF
revealed Celsius has, right now, a $1.19 billion deficit on its balance sheet: it's holding $4.3 billion in assets, and $5.5 billion in liabilities.“The amount of digital assets on the company’s platform grew faster than the company was prepared to deploy,” CEO Alex Mashinsky wrote in that filing. "As a result, the company made what, in hindsight, proved to be certain poor asset deployment decisions."
The company made what, in hindsight, proved to be certain poor asset deployment decisions
That said, he did throw the following shade: "The onset of the 'crypto winter' combined with the well-publicized collapse of Luna and the failure of several crypto funds/exchanges led to growing industry-wide reluctance to do business with companies, such as Celsius, that held crypto assets.
"This reluctance was exacerbated by a series of negative media and social media comments about Celsius, a number of which were unsupported and misleading. As a result of all of these factors, users began withdrawing crypto from Celsius’ platform in large amounts and at a rapid pace."
As a side note, the CEO's filing mentions the biz took out a collateralized loans to help fund its operations. According to the chief exec, in July 2021, "when Celsius attempted to repay one of its loans, it was informed for the first time that the lender was unable to return the company’s collateral on a timely basis, resulting in Celsius having an approximately $509 million uncollateralized claim against this party." The private lender has been paying this back at about $5 million a month.
[10]Global financial stability regulator signals crypto rules are coming soon
[11]Now-frozen crypto-lending biz Celsius accused of devolving into a Ponzi scheme
[12]US floats framework for international crypto regulations that cement its power
[13]The return of GPUs on sale may be tech world's monkey's paw of 2022
Celsius reportedly has $167 million in cash on hand. It will not be issuing any new loans and confirmed transactions between accounts, including withdrawals, swaps, and transfers, will remain suspended. Interest earnings for those who had their funds stored and frozen on the platform will stop accruing.
"Celsius initiated a financial restructuring to stabilize the business and maximize value for all stakeholders. Acting in the best interest of our stakeholders, including our entire customer community, is our top priority," it [14]said in a blog post. "As part of the process, we intend to put forward a plan that restores activity across the platform, returns value to customers, and provides choices."
[15]
Six US states have launched an investigation into the company's business practices after it prevented customers from withdrawing funds. Vermont's Department of Financial Regulation said Celsius was operating without any regulatory oversight, and appears to have been selling unregistered securities and did not have a money transmitter license.
"The Department believes Celsius is deeply insolvent and lacks the assets and liquidity to honor its obligations to account holders and other creditors. Celsius deployed customer assets in a variety of risky and illiquid investments, trading, and lending activities," it [16]said in a statement.
"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, meaning they may be difficult to sell, and a sale may result in financial losses. The company's assets and investments are probably inadequate to cover its outstanding obligations/"
Similar cryptocurrency lending platforms, such as Voyager, have also paused transactions and filed for bankruptcy.
The Register has reached out to Celsius for comment. We will update accordingly. ®
Get our [17]Tech Resources
[1] https://www.theregister.com/2022/06/13/celsius_freeze_wipes_out_18/
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/personaltech&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YtDmYq4ZmdRr5dVlo@eLzAAAAFE&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://regmedia.co.uk/2022/07/14/celsius_bankruptcy.pdf
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/personaltech&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YtDmYq4ZmdRr5dVlo@eLzAAAAFE&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/personaltech&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YtDmYq4ZmdRr5dVlo@eLzAAAAFE&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[6] https://www.bloomberg.com/news/articles/2022-07-14/celsius-bankruptcy-filing-shows-long-reach-of-sam-bankman-fried
[7] https://www.businesswire.com/news/home/20220713005911/en/Celsius-Network-Initiates-Financial-Restructuring-to-Stabilize-Business-and-Maximize-Value-for-All-Stakeholders
[8] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/personaltech&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YtDmYq4ZmdRr5dVlo@eLzAAAAFE&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[9] https://regmedia.co.uk/2022/07/14/pacer_celsius_ceo_disclosure.pdf
[10] https://www.theregister.com/2022/07/12/fsb_crypto_regulation_soon/
[11] https://www.theregister.com/2022/07/08/frozen_cryptocurrency_lending_biz_celsius/
[12] https://www.theregister.com/2022/07/08/us_digital_asset_regulation_framework/
[13] https://www.theregister.com/2022/07/07/global_gpu_shortage/
[14] https://blog.celsius.network/updated-faq-a7b03e0caeaa
[15] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/personaltech&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YtDmYq4ZmdRr5dVlo@eLzAAAAFE&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[16] https://dfr.vermont.gov/consumer-alert/dfr-encourages-celsius-network-investors-proceed-caution
[17] https://whitepapers.theregister.com/
I imagine they will be up and running again once the 'crypto winter' is over, just under another name, and with all outstanding debts wiped out. Classic tactic used by double glazing companies in the UK, and former US presidents I believe.
18% returns?
Yeah, righto.
Celsius has, right now, a $1.19 billion deficit on its balance sheet
Yes, and all those who should have been regulating what was in effect an investment bank, but didn't because it was the new magic miracle money, and everybody said how exciting this all was, should be ashamed that they ever let these companies accrue such eye wateringly large liabilities on those balance sheets and they were too scared to move in and put a stop to it.
Their customers who aren't going to get repaid can console themselves that they've just joined the ever increasing list of suckers who had more greed than sense.
The forgot a basic rule of banking
Banks can't create money, they can only shuffle it around. The system relies on there being someone, somewhere, doing real productive effort to add new money into the system to offset shrinkage caused by overhead, dividends and what have you. So the entire system relies on us making the payments with real money earned by real productive effort (or eating into our stored capital). That's why everyone's so obsessed with credit -- if we don't make those payments then entire system collapses.
There's an exception to this rule. Organizations like the Federal Reserve are able to create money which is why that money is known as fiat currency -- its created because they say so. That's why they never go broke -- they just print some more if they're short. In theory this should be offset by revenues collected as taxes and as interest on the bonds they give consumer banks as part of the creation process but in practice the political discipline needed to do this is beyond most governments so they inevitably run a deficit. This inflation of the money supply reduces the value of money.
The only way that Celcius was going to operate was as a Ponzi scheme -- dividends are paid out of investment capital in the hope that somehow the operation can be stabilized before it collapses. It usually does. (Ponzi started out as a real scheme based on international postal coupon arbitrage, the difference in cost of these coupons in different countries yielding a small profit. It would have worked had there been an infinite demand for those coupons.)
Re: The forgot a basic rule of banking
That is a little simplistic about how money is created. Most is created by banks, not by the federal reserve or central banks. When they create a loan they do not shuffle money from somewhere else into your account, they just update the numbers for your account and their loanbook. The money didn't exist anywhere before and now it does. The bank has to maintain a fractional reserve of what they loan out. When the principal is paid back the money is destroyed, it is not shuffled somewhere else. This is not to say that the money is made up, the rules of reserve and asset backing limit the amount of loans a bank can create. It'l just a illustration of the difference between money and value - assets have value but that doesn't mean that value is in the money supply.
Physical cash is created and shuffled around. That makes up a very small % of money used by society, something like 2%.
Re: The forgot a basic rule of banking
"Banks can't create money, they can only shuffle it around. The system relies on there being someone, somewhere, doing real productive effort to add new money into the system "
My take is that being productive and creating wealth is mostly taking a raw material and making something useful from it. "Money" is an intermediary between the creation of wealth and a value being placed on the wealth. I find that I can grasp concepts better if I narrow the definitions of words and use them more precisely. I don't equate "market cap" with "value" when looking at companies. The two are very different with the former being a belief and the latter something that can be measured in a specific way. Crypto to me is the fervor of religion mixed with greed and a dash of wishful thinking. Every currency has a certain mystique, but we needed that construct to move beyond a strictly barter system.
The problem is.....
Real accounting can't real with people who create imaginary money from lots of real world money.
In the crypto accounting system there is no loss - its just called fear of hodling,
And no one was surprised