Things are going from bad to worse for bankrupt cryptocurrency lender Celsius Network. New filings from the Vermont Department of Financial Regulation say Celsius was insolvent as early as 2019.
In its 341 bankruptcy meeting, where creditors question debtors under oath, Celsius admitted that the company never earned enough revenue to support the yields paid to investors.
Vermont regulators say this suggests Celsius probably paid yields to existing investors with assets of new investors. Regulators didn’t use the term, but that fits the definition of a Ponzi scheme.
The news comes a week after Hoboken, N.J.-based Celsius Network asked to return digital assets to some users. The company requested court permission to release cryptocurrencies in its custody program and withholding accounts, which are for storage rather than generating returns. Roughly $210 million in assets are currently in its custody program accounts and $15 million in withholding accounts, according to reports. Celsius says customers own those cryptocurrencies, not the company. The court scheduled a hearing on the request for Oct. 6. Still, it’s only a fraction of the $4.7 billion owed to users according to filings from mid-July.
Celsius Feels The Heat
Celsius Network had 1.7 million users and $11.8 billion in digital assets under management in May. And its staking services provided users attractive offers of up to 18% returns on their crypto holdings by lending them out. However, Celsius lent roughly $75 million to fellow lending service Three Arrow Capital (3AC), which collapsed with the crash of Terra (LUNA). With 3AC unable to repay the loans and fearful investors withdrawing funds, Celsius began to face a liquidity crunch.
Subsequently, Celsius froze withdrawals and transfer activity in June, citing extreme market conditions. As its financial position worsened, Celsius reportedly entered talks regarding a possible buyout by FTX. But the crypto exchange walked away due to a $2 billion hole in Celsius’ balance sheet. By July 13, the lender had filed for Chapter 11 bankruptcy protection.
CEL Price Action
Celsius’ CEL token has tumbled from its all-time-high of around $8 last June. The cryptocurrency fell following the LUNA crash and the company’s ensuing financial woes. But it popped more than 25% at the end of August after Celsius said it wanted to unlock funds for a sliver of its customers. It’s since lost most of those gains as the bankruptcy hearings proceed.
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