This week, another major player in the cryptocurrency space, Celsius, filed for Chapter 11 bankruptcy. The move comes after the company froze customers' accounts, leaving their funds in a black hole outside of their control. The company's additional business units, including Celsius Mining, also filed for bankruptcy despite recent discussions to take the division public.
What is Celsius?
Celsius is a distributed finance company that offers lending and borrowing services through cryptocurrency. Similar to how a bank works, the company allows deposits from customers in certain cryptocurrencies and gives returns on that investment. The company then takes that currency and lends it to others, charging interest on that loan. That interest then gets split between the lenders and the company.
The problem with the company appears to be based on some of its other investment models. Celsius invested in various other platforms, hoping for a large gain on those investments. Unfortunately, the entire cryptocurrency market has been in freefall as of late, with values dropping significantly. Since its 1-year high in November, Bitcoin has dropped from over $67k to just over $20k today (and just under $20k as the low). At the same time, Ethereum has dropped from nearly $4800 to just over $1200 today (and just over $1k as the low).
What does the bankruptcy filing mean?
The filing brought certain information to light. First, the company lists both its assets and liabilities as between $1 billion and $10 billion. However, thanks to some payments to a few large debtors, the company is in a very precarious financial position. According to a report, the company has $167 million in liquid assets (money) versus the more than $4 billion in currency deposited by 1.7 million users. On average, each user deposited around $2,300, and the company currently has about $100 left for each user.
While this sounds terrible for users, it gets worse. These liquid assets don't mean much, as the company has locked customer accounts. No users are able to withdraw or transfer any funds from their accounts. The locks went into effect a month ago (June 11, 2022) almost immediately following a tweet from co-founder Alex Mashinsky (June 12, 2022), which said,
Mike do you know even one person who has a problem withdrawing from Celsius?,
why spread FUD and misinformation.
If you are paid for this then let everyone know you are picking sides otherwise our job is to fight Tradfi together...
To make it even worse, the deposit system didn't get suspended at the same time and the withdraws, leaving users with the ability to quite literally throw their money into a hole from which it may never return. This act, as well as a few others within the company's history, suggest that the entire company was actually a Ponzi scheme. This allegation is being made public through a lawsuit filed by Jason Stone, a former employee of the company and current CEO of KeyFi, another DeFi platform. He claims that the goal of the scheme was to defraud customers and to manipulate the cryptocurrency market.