Robert Steinadler, 8 months ago
Celsius Network has been a disaster for retail investors worldwide. The company offered high-interest rates on crypto holdings and used various strategies to earn yield. When Terra collapsed the market entered full bear mode and many of those strategies didn’t work out any longer. In fact, Celsius had to liquidate more assets and some of them like the Staked Ether (stETH) holdings were highly illiquid at that time.
This was the start of Celsius’s downfall and it seems that the story will come to an end. The company has filed for chapter 11 bankruptcy.
According to a press release the company is about to restructure and has entered chapter 11 bankruptcy. This means that all debt and all court cases are handed over to the court that handles the bankruptcy filing. With the latest lawsuit from KeyFi this seems to be a good idea because the company is under protection if the court agrees with the motion.
Meaning that it will be possible for Celsius to continue its operations and pay employees and bonuses. The idea is that this would be more helpful to all investors because there is a chance that the company will make more money operating. This seems to be in the best interest of all involved parties. The alternative would be a chapter 7 bankruptcy which basically means that all assets are sold, all personnel is laid off and debt is repaid if possible.
Celsius is holding $167 million in cash to support the restructuring which is not much compared to what the company still owes. It remains to be seen if there is a successful turnaround. If not, then investors have to go through long progress until they might get at least a fraction of their money back.
The fact that Celsius has come to this point is not a surprise and what weighs heavy on many people’s minds is the poor communication of the company. Alex Mashinsky, the CEO of Celsius, engaged repeatedly on social media and called all rumors to be false. Many people foresaw that Celsius will face trouble paying their customers, yet Mashinsky rejected those fears as falsehoods and addressed this in public.
When the company stopped customer withdrawals on June 12th many people felt deceived. Mashinsky went silent for some time only to return later promising that the whole team is working continuously on a satisfying solution.
After those statements, Celsius became highly active in repaying debt. Most of the debt that was repaid flowed back into DeFi protocols like Aave, Compound, or MakerDAO. This was the logical consequence of DeFi because otherwise the positions that were still open would have been liquidated. There is a small chance that Celsius will recover from this and even if the company should ultimately fail, the chapter 11 bankruptcy is providing more transparency in what’s going on and what to expect in the future.
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