Celsius Network has filed for Chapter 11 bankruptcy protection in the Southern District of New York, and in the process lifted the lid on a mammoth $1.2 billion hole in its finances.
According to the listing, which names creditors like Sam Bankman-Fried’s Alameda Research, Pharos USD Fund SP, ICB Solutions, Invictus Capital, and Crypto10 SP, the company boasted $4.3 billion in assets but liabilities of $5.5bn.
These losses, claims Celsius CEO Alex Mashinsky, are due to a combination of “unanticipated losses” and poor investments.
Specifically, the filing points to the company’s early success, which saw the number of digital assets on the platform grow faster than it was prepared to deploy. This led to what the filing calls “certain poor asset deployment decisions,” (our emphasis).
These left Celsius with “disproportional liabilities when measured against the unprecedented market declines.”
The filing lists assets and liabilities in a broad range from $1-10 billion and Mashinsky has called the move necessary to stabilize the company. A press release indicates that Celsius has enough cash to support limited operations while it restructures.
Mashinsky once owned hundreds of millions of dollars worth of Celsius’ ICO token, CEL but today the price of CEL is down -91% from its peak.
The filing also lists Celsius Network subsidiaries such as Celsius KeyFi LLC, Celsius US Holding LLC, and Celsius Mining LLC as debtors.
KeyFi, also known as Battlestar Capital, was Jason Stone’s fund that lost $350 million of Celsius’ money. From 2020 through June 2022, Stone operated anonymously as 0x_b1 and his fund was once the third-wealthiest in DeFi, outranked only by Sam Bankman-Fried and Justin Sun.
Amusingly, Stone’s KeyFi is now suing Celsius.
Celsius reneges on ‘unbank yourself’ slogan, hires a bank for bankruptcy
The company originally hired bankers at Citibank to help with its restructuring.
This has raised a few eyebrows, given Celsius’ history of stridently anti-bank marketing. This has included its “Unbank yourself” and “Banks are not your friends” slogans, not to mention hours of video recordings criticizing bankers.
Soon, Celsius let Citi go and hired Kirkland & Ellis LLP to serve as legal counsel, Alvarez & Marsal for restructuring advisement, and Centerview Partners as its financial advisor during the bankruptcy process.
Customers told to wait while Celsius prioritizes paying off DeFi first
Celsius Network redeemed assets used as collateral by aggressively paying off loans. It has already repaid $900 million to decentralized finance protocols Aave, Compound, and MakerDAO. It could reclaim a higher value in assets since DeFi apps often require borrowers to put up assets of larger value than the loan amount as collateral.
This move sparked a debate regarding which creditors said Celsius Network should repay them first in the event of a bankruptcy.
It also managed to pull $535 million in assets out of Terra LUNA’s Anchor Protocol before it disintegrated.
The value of deposits on Celsius Network’s platform peaked at more than $20 billion in June 2022. The company frequently lent the deposits to institutions and claimed more than 100 institutional clients in September 2019.
Celsius’ withdrawal freeze has attracted the attention of California’s Department of Financial Protection and Innovation with the agency investigating whether Celsius made required disclosures to customers about the risks involved with depositing assets.