Celsius Network exits bankruptcy

Celsius Network exits bankruptcy

The Blockchain Industry: Recovering from Bankruptcy and Building Trust

In a surprising turn of events, Celsius Network, a crypto lender, has reached two settlements that not only allow it to return assets to its customers but also put an end to its bankruptcy proceedings. These settlements, which will be analyzed by Judge Martin Glenn at a hearing on August 10, address a staggering $78.2 billion in unsecured claims. Customers and interested parties have until August 3 to submit any responses or objections to the court.

Settlement 1: Addressing Fraud and Misrepresentation Claims

The first agreement resolves claims related to accusations of fraud and misrepresentation by Celsius management. As part of this settlement, customers’ recoveries will be increased by 5%. However, it’s important to note that account holders who opt for this settlement will lose the right to pursue individual claims against Celsius. The court documents state:

“Any eligible Account Holder who does not opt out of the Settlement will receive a claim in the amount of 105% of their scheduled claim, which will supersede and extinguish any related Proofs of Claim filed by such Account Holder.”

This settlement aims to provide some compensation to customers who have been affected by the alleged fraudulent activities of Celsius Network.

Settlement 2: Resolving Funds in Celsius’ Interest-Bearing Earn

The second settlement focuses on customers who had funds in Celsius’ interest-bearing Earn. Under this proposed agreement, customers who borrowed crypto funds will have the opportunity to receive a portion of their funds in crypto assets. Additionally, they will receive compensation in shares of the new company that will emerge from the bankruptcy proceedings.

The court document explains:

“[…] creditors have agreed to support an amended Plan that will provide Holders of Retail Borrower Deposit Claims with (a) the option to repay the principal balance of their loan […] in exchange for an equivalent amount of cryptocurrency (which could lead to tax benefits for such Holders as compared to the Setoff Treatment) and (b) priority in electing a preference to exchange the NewCo Equity for Liquid Cryptocurrency at a 30% discount […].”

This settlement offers a fair resolution to customers who had entrusted their funds with Celsius Network and aims to compensate them for their losses.

Celsius Network filed for Chapter 11 bankruptcy in July 2022 following a decision to pause all withdrawals due to market turbulence caused by the collapse of the Terra ecosystem. However, the situation took a more dramatic turn when, a year later on July 13, 2023, the former CEO of Celsius Network, Alex Mashinsky, was arrested on criminal and civil charges of fraud and market manipulation. Mashinsky has pleaded not guilty to all charges.

In addition to Mashinsky’s arrest, the Securities and Exchange Commission (SEC) also filed a lawsuit against him and other Celsius executives. The lawsuit alleges that Celsius raised “billions of dollars” through unregistered and fraudulent offers and sold “crypto asset securities.” The Federal Trade Commission (FTC) also announced civil cases against Mashinsky, and the lending platform was fined a staggering $4.7 billion for allegedly “squandering billions in user deposits” after deceiving its users.

Rebuilding Trust in the Blockchain Industry

The recent developments surrounding Celsius Network highlight some of the challenges faced by the blockchain industry. While the industry holds great promise for revolutionizing various sectors and enabling decentralized financial systems, incidents like the one involving Celsius can undermine trust and confidence.

To rebuild trust in the blockchain industry, it is crucial to address issues such as fraud, misrepresentation, and regulatory compliance. Blockchain companies must prioritize transparency, accountability, and adherence to regulatory frameworks. This not only protects customers but also ensures the long-term sustainability and growth of the industry as a whole.

Moreover, blockchain technology itself presents opportunities for trust-building. The decentralized and immutable nature of blockchain networks allows for transparent and tamper-proof record-keeping. By leveraging these features, companies can provide verifiable proof of their operations, ensuring that customers’ assets are secure and transactions are conducted with integrity.

In conclusion, the recent settlements reached by Celsius Network demonstrate the ongoing efforts to resolve the fallout from its bankruptcy and restore trust in the blockchain industry. While incidents like these can shake confidence, they also serve as reminders of the importance of transparency, accountability, and regulatory compliance within the industry. By embracing these principles and leveraging the inherent trust-building capabilities of blockchain technology, the industry can continue to grow and realize its full potential.

Screenshot - Notice of Hearing on Joint Motion for Approving Settlements Source: Stretto