After about a month of hemming and hawing, Celsius Network recently filed for Chapter 11 bankruptcy protection. In the month leading up to the pretense dropping, customers’ access to their funds was cut off while the lender looked for ways to stay afloat.
Now, following the first bankruptcy hearing on the 18th of July, Celsius’ legal team has allegedly floated a novel idea aimed at preventing a total collapse – claiming ownership over users’ funds.
Not Your Keys, Not Your Crypto
This line has been repeated ad nauseam ever since the MtGox days years ago. Unfortunately, the warning seems to have been well-placed yet again. A few days ago, economists predicted that Celsius investors might be left empty-handed after court proceedings are over, intimating that Celsius was less of an asset manager and more of an unregulated bank.
It didn’t take long for this prediction to manifest itself in the real world. According to documents from the court case, the company’s lawyers argue that many of the funds users deposited on the platform were effectively at Celsius’ disposal, not their own.
Over 77% of Funds at Celsius’s Disposal
In the retail section of Celsius’s business operations, three key segments are identified – the Earn Program, the Borrow Program, and the Custody Program. Out of these, the last one is the only section in which deposited funds are declared wholly under the purview of the user who made the deposit.
Unfortunately for Celsius users, the custody section only accounts for about 4% of all deposits on the platform. The lion’s share was made in the Earn program, accounting for a whopping 77% of all deposits.
The underlying legal language was helpfully explained by attorney David Silver on Twitter, who lambasted Celsius’ defense and the hesitation to clearly define itself as a type of financial entity or other – noting the company’s pivot towards allegedly redefining itself as more of a Bitcoin mining entity than anything else.
Today was the First Day hearing for the @CelsiusNetwork bankruptcy. I want to take a shower after having listened. Celsius blamed everyone except itself. Celsius has pivoted in how it describes itself, from banking the unbanked to basically being a bitcoin mining company. #ComeOn pic.twitter.com/cWpHzppvll
— David Silver (SILVER MILLER) (@dcsilver) July 18, 2022
For now, no statement has been made by the court regarding Celsius’ claims in the current bankruptcy filing.