The bankrupt crypto lender had asked the U.S. Bankruptcy Court for the Southern District of New York for permission to sell its stablecoin holdings in the latest chapter of Celsius‘ ongoing liquidity crisis, which first became public when the lender froze customer withdrawals in June.
According to court filings, the crypto lender requested permission to sell its stablecoins to pay for operations
According to court filings from yesterday, Celsius has requested permission to sell its stablecoins to pay for operations. The company previously released a coin report on Wednesday, revealing that it has more than $2 billion in liabilities from various cryptocurrencies; its stablecoin holdings total approximately $23 million, spread across 11 stablecoins.
If Judge Martin Glenn, the Chief U.S. Bankruptcy Judge, grants the motion, Celsius will have the liquidity to continue its daily operations “without court or creditor oversight.”
Paying back its creditors (aka customers) is a separate ongoing legal process. However, Celsius’ filing argues that it is in everyone’s best interests for Celsius to monetize its stablecoin holdings to continue operations without the need for additional funding.
Stablecoins, unlike Bitcoin, Ethereum, and other leading cryptocurrencies, have a fixed value because they are pegged to fiat currencies, making them a relatively reliable source of liquidity in crypto.
Celsius’s liquidity crisis
Celsius’ ongoing Chapter 11 bankruptcy proceedings are one high-profile example of what some call a “crypto winter” or “liquidity crisis.”
Several high-profile crypto companies had filed for bankruptcy since the Terra ecosystem collapsed in May when Terra’s dollar-pegged UST stablecoin lost its peg. Celsius was first in June, followed by Voyager and Three Arrows Capital in July.
Celsius stated in a court filing on September 1 that it was seeking to return some of its customers’ funds. The company offered to release nearly $50 million in cryptocurrency belonging to customers in the “custody” program—accounts that stored crypto but did not generate returns.
If Celsius’ proposal is approved, the returned funds would only cover a portion of the lender’s obligations: custody accounts account for $210.02 million in cryptocurrency, according to the filing. In addition, customers who invested cryptocurrency in Celsius’ popular “earn” program, which accounts for $4.3 billion in assets, have yet to be repaid.
A week later, a U.S. Bankruptcy Court filing revealed that Vermont state officials had requested broader powers to investigate Celsius, alleging that the insolvent crypto exchange had artificially inflated the price of its CEL token at the expense of retail investors for the previous three years.
“By increasing its Net Position in CEL by hundreds of millions of dollars, Celsius increased and supported the market price of CEL, artificially inflating the company’s CEL holdings on its balance sheet and financial statements,” Vermont Assistant General Counsel Ethan McLaughlin explained.
Judge Martin Glenn appointed an independent examiner to oversee the Celsius bankruptcy case on Wednesday. The examiner will investigate Celsius’ crypto holdings, the utility obligations of its crypto mining business, recent changes to its account offerings, and compliance with tax and bankruptcy proceedings.