Celsius Platform Withdrawals Paused

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Celsius Network

Celsius Network is a cryptocurrency lending platform, where you can deposit your cryptocurrency and take out a loan against it. After a series of risky investments using customer funds, the platform closed all customer withdrawals and transfers after June 12th, 2022. Customers are even unable to transfer existing assets to add collateral to loans. Celsius is reportedly looking into different options to restructure the service. It remains to be seen what portion of the $11.8b in customer assets will be retrievable.

About Celsius Network

Celsius was founded in 2017 and was registered as a limited liability company in Delaware with offices at 221 River Street, 9th Floor, Hoboken, New Jersey[1].

"Celsius Network is a cryptocurrency loan company." "Celsius was founded in 2017 with the mission to harness blockchain technology to provide unprecedented financial freedom, economic opportunity, and income equality for the 99%." "Celsius Network was founded in 2017 by Alex Mashinsky, Daniel Leon, and Nuke Goldstein." "Celsius Network Limited was incorporated on 9 February 2018."

"Celsius is proud to provide a platform of curated services that have been abandoned by big banks – things like fair interest, zero fees, and lightning quick transactions. Our goal is to disrupt the financial industry, one happy user at a time, and introduce financial freedom through crypto." "Access your coins whenever, keep them safe forever."

"If you don't have free and unlimited access to your own funds, are they really *your* funds? #UnbankYourself with Celsius and join the next generation of financial services - no fees, no penalties, no lockups, just profit."

"New Jersey-based Celsius, which has around $11.8 billion in assets, offers interest-bearing products to customers who deposit cryptocurrencies with its platform. It then lends out cryptocurrencies to earn a return." "Celsius allows users to deposit their Bitcoin, Ethereum, and Tether and receive weekly interest payments. Depending on the period and the token, the platform offers an interest rate of 18% yearly. On its website, Celsius says 1.7 million people call “Celsius their home for crypto.”"

Homepage: [2][3]

Third Party Review: [4][5]

Wikipedia: [6]

The Reality

Celsius offered an "Earn Rewards" program which allowed customers to set up accounts with fixed interest rates in crypto-assets. These assets were not backed on the platform, and instead would be provided to third parties who invested them in various ways. Customers received limited visibility into how their assets were being invested behind the scenes, and saw only the balance of their original assets plus interest earned.

Celsius made clear on many occasions and prominently in marketing that they were not a bank. Many users would likely not have been aware of the lack of protections to their deposits implied by this statement.

No Legal Protections for Users

"Celsius is not a bank, depository institution, custodian or fiduciary and the assets in your Celsius account are not insured by any private or governmental insurance plan (including FDIC or SIPC), nor are they covered by any compensation scheme (including FSCS)."

"[T]he platform began pursuing increasingly risky strategies starting in early 2021, including sending client funds to volatile DeFi “yield farms,” later including Luna’s Anchor protocol. Though Celsius apparently withdrew funds from Anchor before the Terra collapse, the general investment strategy could face scrutiny in court."

New Jersey Cease and Desist Order

"In September 2021, authorities in a number of US states said that Celsius's interest-bearing cryptocurrency accounts constitute an unregistered securities offering. The attorney general of New Jersey ordered Celsius to stop issuing interest-bearing cryptocurrency products via a cease-and-desist order. Texas state regulators filed a notice seeking a hearing in February 2022 to determine whether to take similar action. Kentucky's securities regulator told Celsius to cease and desist from offering its interest paying accounts in the state. Celsius CEO Alex Mashinsky said he was "very confident" that none of Celsius's products in the United States were securities. Celsius said it was working with US states in order to provide clarity about its business operations."

Warnings By Prominent Community Members

"”In regard to Celsius, if yield generation strategies are too good to be true, that is because they probably are," FSInsight said, adding that the crypto lender was “notorious for promoting ‘risk-free’ yields on client assets” that required huge amounts of leverage coupled with risky and illiquid staking mechanisms."

What Happened

On June 12th, 2022, customers abruptly found that they could no longer withdraw their funds and the platform started down a bankruptcy route.

Key Event Timeline - Celsius Platform Withdrawals Paused
Date Event Description
June 2018 Start of Earn Rewards Platform According to the State of New Jersey Bureau of Securities, Celsius first started their "Earn Rewards" accounts in June 2018[1].
November 14th, 2019 4:03:00 AM MST Celsius Promotion Celsius posts a promotion on Twitter "If you don't have free and unlimited access to your own funds, are they really *your* funds? #UnbankYourself with Celsius and join the next generation of financial services - no fees, no penalties, no lockups, just profit"[7].
July 28th, 2020 1:05:00 PM MDT CoinDesk Article Warning Investors A CoinDesk article is published[8] warning investors about the extra risks of investing with Celsius. It states that Celsius Network has not shared with depositors all of the risks associated with the unsecured lending it undertakes, according to a CoinDesk article. Despite CEO Alex Mashinsky claiming the company "strictly demands collateral when making a loan," a spokesperson confirmed to CoinDesk that Celsius also issues uncollateralised loans on a limited basis. While this accounts for a small percentage of its loans, it is one of several salient items the company has downplayed or not shared with depositors, the article said. The majority of Celsius’ loans appear to be collateralised but the company has invested in perpetual swaps, futures-like contracts with no expiry date, which increases its vulnerability to sell-offs, according to anonymous sources[9]. TBD follow up on article changes over time.
March 7th, 2021 Assets Are Lent Out To Institutions Celsius founder Alex Mashinsky reportedly states that "[u]sers transfer assets with Celsius, Celsius lends funds to institutions and returns up to 80% of earnings to users."
June 14th, 2021 Delaware Company Registration Celsius is registered as a limited liability company with offices at 221 River Street, 9th Floor, Hoboken, New Jersey[1].
August 18th, 2021 Unregistered Securities Totalled According to the state of New Jersey Bureau of Securities, Celsius at this time held the equivalent of more than $14b USD[1].
September 17th, 2021 New Jersey Cease and Desist The State of New Jersey Bureau of Securities publishes a Cease and Desist order against Celsius[1].
November 1st, 2021 New Jersey Cease and Desist According to a Cease and Desist order from New Jersey[1], Celsius is to stop all activity as of this date.
May 15th, 2022 Alex Mashinsky Withdrawing Funds According to an article later published by Gizmodo[10], CEO Alex Mashinsky withdraws a total of 1,792,258.766134 USDC ($1,792,258.77 USD), 426.324440288121 ETH ($902,967.18 USD), and 6.00000017 BTC ($186,166.17 USD), which adds up to a total value of $2,881,392.12 USD.
May 31st, 2022 Kristine Mashinsky Wtithdrawal Alex Mashinsky's wife Kristine withdraws a reported $2m worth of CEL tokens from the platform[10].
June 9th, 2022 CoinYar Speculation A CoinYar article mentioned that Celsius may have been part of the collapse of Terra/Luna by pulling assets from the platform prior to it's collapse. “Celsius said that its risk-management group recognized “shifts in the stability” of the platform that prompted it to remove its assets only for the sake of protecting its customers’ money. The company didn’t profit from the instability, it said.”[11]. TBD More on this article.
June 12th, 2022 8:10:00 PM MDT Withdrawal Pause Announcement Celsius announces they are "pausing all withdrawals, Swap, and transfers between accounts" on Twitter[12]. A more detailed announcement is also posted to their blog[13]. TBD populate community reactions.
June 12th, 2022 8:41:00 PM MDT Twitter Comment Twitter user ledgerstatus comments "There must be many users who are in a position of leverage and desperately need those funds from Celsius, now locked away. I’m sad we’ve gotten here. Protect yourselves."[14].
June 12th, 2022 9:22:00 PM MDT Reuters Publishes Short Celsius Summary Reuters publishes a short summary of the situation. Crypto lender Celsius Network Ltd said on Sunday it was pausing all swaps, transfers and withdrawals between accounts, due to extreme market conditions. "We are taking this necessary action... in order to stabilize liquidity and operations while we take steps to preserve and protect assets," the company said in a blog post."Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers."[15]
June 12th, 2022 9:35:39 PM MDT CoinCu Article CoinCu reports that Celsius Network has halted withdrawals, swaps, and transfers between accounts, citing "extreme market conditions."[16] [17]This move has sparked concerns and rumors of a potential default. The CEL token's price has seen a 76% drop in the last seven days. Celsius, valued at around $3 billion, stated that the action aims to position C Network better to meet its cash-out obligations over time. The announcement comes amid a challenging period for the crypto market, with significant liquidations and leading assets like Bitcoin and Ethereum experiencing substantial declines. Celsius allows users to deposit Bitcoin, Ethereum, and Tether, earning interest payments, and has 1.7 million users. The move has led to concerns among users in leveraged positions who urgently need access to their funds.
June 13th, 2022 1:19:00 AM MDT CoinMarketCap Article Published CoinMarketCap publishes an article on Celsius suspending all withdrawals[18].
June 13th, 2022 2:28:03 AM MDT Tether Issues Blog Post Popular stablecoin Tether posts a blog post[19] indicating that their reserves remain strong despite the situation[20].
June 13th, 2022 11:55:00 PM MDT Reuters Publishes Article On Celsius Reuters publishes a full article[21], attributing the drop in the price of bitcoin (by as much as 14% on Monday) to Celsius Network freezing withdrawals and transfers citing "extreme" market conditions, in the latest sign of the financial market downturn hitting the cryptosphere. New Jersey-based Celsius, which has around $11.8 billion in assets, offers interest-bearing products to customers who deposit cryptocurrencies with its platform. It then lends out cryptocurrencies to earn a return. After Celsius's announcement, bitcoin touched an 18-month low of $22,725, before rebounding slightly to around $23,265. Companies exposed to cryptocurrencies have previously warned that declines in token prices could have ripple effects, including by triggering margin calls[22]. TBD further review and
June 14th, 2022 FAQ Article Published Celsius publishes a FAQ article on their blog, which answers many questions[23][24]. Celsius Network has paused withdrawals, swaps, and transfers between accounts, citing the need to stabilize liquidity and operations to protect customer assets. The move has raised concerns among users, prompting the team to address frequently asked questions (FAQs). The FAQ assures users that the team is working diligently to meet obligations and stabilize operations while reiterating that all coins in Earn accounts will continue to accrue rewards. It also advises users facing margin calls to respond promptly and assures the community that updates will be provided through various channels, including Twitter, customer notifications, and the website.
June 15th, 2022 4:16:00 AM MDT CoinDesk Article CoinDesk publishes an article including the Celsius collapse. ”In regard to Celsius, if yield generation strategies are too good to be true, that is because they probably are," FSInsight said, adding that the crypto lender was “notorious for promoting ‘risk-free’ yields on client assets” that required huge amounts of leverage coupled with risky and illiquid staking mechanisms."[25] TBD More on this article.
June 15th, 2022 10:05:17 AM MDT Mariah Money Update YouTuber Mariah Monetize discusses her experience with Celsius Network and why she will not be depositing new funds to cover her current loan. She explains that she was unable to withdraw her funds in time before the withdrawal restriction was implemented, leaving her with $30,000 on the platform. Additionally, she received an email regarding a $3,000 loan that she was unable to pay back due to a restriction on transferring funds. Celsius Network asked her to add collateral to her existing loan, but she was unable to use her existing Ethereum as collateral due to the withdrawal restriction. Mariah expresses her frustration with the situation and explains that she will not deposit any more funds into Celsius Network. She also mentions that she will be making another video to provide more information about what has been happening with Celsius Network[26][27].
June 16th, 2022 4:56:51 AM MDT Outrage On Reddit Customers take to Reddit to express their outrage. "Unregulated does not mean that you can scam anyone and just get away with it."[28] Various users offer their perspectives. Some users argue that the cryptocurrency market is not entirely unregulated, pointing out that fraud laws and wire fraud laws still apply. They suggest that Celsius Network's issues might not be a result of a lack of regulation but rather mismanagement. Some users express concerns about corporations in the crypto market making their own rules in the absence of regulatory oversight, potentially harming customers. Users discuss Celsius Network's situation, acknowledging that it might not be a scam but rather a case of poor decisions and bad luck. They mention that Celsius Network's terms and conditions outline the risks involved. A recurring theme in the discussion is the importance of users understanding the risks and reading the terms and conditions of the platforms they use. Celsius Network users are reminded that they are essentially unsecured creditors and should have understood this before using the platform[28].
June 16th, 2022 11:47:11 AM MDT Mariah Money Update YouTube producer Mariah Monetize gives an update on Celsius, after the platform that has paused withdrawals, swaps, and transfers. She states that Celsius has not given any substantial information about the situation and that she is presenting potential possibilities based on Twitter speculations. She believes that there are two possible scenarios for the upcoming Celsius AMA: either Celsius will cancel the AMA, which will negatively impact people's faith in Celsius, or they will not provide any substantial answers to questions. Mariah speculates that Celsius may be facing a targeted attack or that they overleveraged their funds. She goes over some frequently asked questions on Celsius's website and believes that the situation may be a long, drawn-out process that could go through a legal process, which could take years. Finally, Mariah questions whether Celsius should continue to pay out rewards if they cannot pay back people's principal balance[29][30].
June 18th, 2022 1:12:37 PM MDT Coffeezilla Video Coffeezilla publishes their "Why Celsius Fell Apart" video on YouTube[31].
June 19th, 2022 5:59:24 PM MDT Celsius Blog Post Celsius publishes a blog post stating that its priority remains to stabilize its liquidity and operations after pausing withdrawals, Swap and transfers for a week. The company will continue to work with regulators and officials to find a resolution and has paused Twitter Spaces and AMAs to focus on navigating the challenges it is currently facing[32].
June 24th, 2022 10:58:00 AM MDT CoinDesk Case For Suing Celsius CoinDesk publishes an article on the developing situation, reporting that as defaults, collapses, and liquidity crises hit protocols such as Terra and Celsius, there are likely to be waves of legal action from users and investors who have lost money. However, questions remain as lending protocols have been vague in describing the nature of their services. Marcelo Diaz-Cortes, a securities litigation lawyer, explains that while the jury is still out on whether crypto lenders have a duty of care for customer deposits, a court might examine whether the creators of these cryptocurrencies had extra knowledge that they didn't disclose to the public. He adds that lending platforms like Celsius could be accused of exaggerated claims as it tied itself rhetorically to DeFi, while it is entirely centralized. Diaz-Cortes believes that Celsius and similar platforms may be facing lawsuits as they have avoided clear classification and regulation[33]. TBD more thorough review, anything missed?
June 30th, 2022 10:44:21 AM MDT Celsius Blog Post Celsius publishes another blog post. They state the team at Celsius is working diligently to stabilize their liquidity and operations, exploring various options including strategic transactions and restructuring of liabilities. They are working with experts from different disciplines and are committed to maintaining an open dialogue with their community and clients. Celsius provides an FAQ and contact information for those needing assistance[34].
July 4th, 2022 8:42:00 AM MDT MakerDAO Debt Position Repaid According to an article by Proactive Research, Celsius repaid another $50m USD of their debt in the MakerDAO protocol, which totaled $200m USD. This was necessary to avoid a margin call situation on the bitcoin held there[35]. Withdrawals remain frozen on the Celsius website at this time. "Despite Mashinsky’s repeated and vocal jabs at the traditional finance sector (“Banks are not your friend” being his personal motto), Celsius appears to be in talks with Goldman Sachs (NYSE:GS) regarding a US$2bln buy up of distressed assets."
July 10th, 2022 Customer Fund Update The account holds approximately $4.2 billion in crypto as of July 10, 2022[36].
July 12th, 2022 11:09:00 AM MDT CoffeeZilla Tweet About Chapter 11 CoffeeZilla tweets about the type of bankruptcy being pursued[37]. "Voyager is trying to sell people this "chapter 11 bankruptcy-reorg", and hide the fact that under bankruptcy law, a company that describes itself as a "BROKER", cannot do CH11. They should be required to liquidate under SIPA. (Securities Investor Protection Act)."
July 15th, 2022 4:15:00 PM MDT Andrei Jikh Video on Celsius Andrei Jikh shares a video including information about the bankruptcy of Celsius, a major player in the cryptocurrency space. Celsius reported assets under management of $12 billion as of May 2021, had 1.7 million customers in June, and raised $750 million in series B funding last year, valuing the company at $3.25 billion. One of the entities that gave them money was Quebec, Canada's second-largest pension fund, which could potentially hurt Canadian retirees. Celsius declared chapter 11 bankruptcy, with over 100,000 creditors owed money. Celsius froze all customer withdrawals last month, stating it was due to extreme market conditions, but it was likely because they lent money to or borrowed money from Three Arrows Capital, who were not conservative with people's money. Celsius took out collateralized term loans from a private lending platform after running out of ways to make money, and the lender was unable to return the company's collateral on time when Celsius tried to repay the loan. Vermont launched a private investigation into Celsius, alleging that they are deeply insolvent, possibly due to their failure to register their interest accounts as securities, and their customers did not receive critical disclosures about their financial condition. "[P]ersonally I stand to lose potentially multiple six figures which is a lot and it hurts it's not fun that still represents roughly 10 percent of my current net worth so yes it's a lot but i'm young and hopefully I can recover"[38].
July 18th, 2022 9:20:37 PM MDT Customers Lost Custody of Asset Arguments Lawyers for Celsius, the bankrupt crypto lender, asserted that the 1.7 million registered users globally had relinquished ownership rights to the crypto they deposited into Earn and Borrow accounts, as per the company's terms of service[39]. Celsius claimed the freedom to use, sell, pledge, and rehypothecate these coins. While the Custody program launched for non-accredited US investors was supposedly distinct, a legal question arose about whether Custody account holders retained title to their assets. Celsius paused withdrawals for all users on June 13 and ceased issuing new loans on July 13[39]. The firm argued that it could sell Bitcoin mined through its subsidiary mining operation to settle debts, planning to generate around 15,000 BTC through 2023[39]. Critics, like attorney David Silver, expressed skepticism about Celsius's claim of being a Bitcoin mining company[39].
September 13th, 2022 10:29:28 AM MDT Celsius Plotting a Comeback According to the New York Times, Celsius is plotting a comeback[40]. "The chief executive of the experimental crypto bank Celsius has told employees about an audacious plan to revive the firm, which filed for bankruptcy in July." CEO Alex Mashinsky and another executive outlined a plan to rebuild the company, focusing on custody services – storing users' cryptocurrencies and charging fees on certain transactions, a project codenamed "Kelvin."[40] The exact details of Celsius's revival plan are unclear, but it appears that the company may shift toward charging fees for custody and other services instead of its previous zero-fee approach[40]. While Mr. Mashinsky compared the situation to corporate turnarounds of famous brands, employees expressed skepticism about the revival plan[40].

Many customers still have assets trapped on the platform, with Celsius reporting a debt of $4.7 billion in court[40]. The fate of Celsius depends on federal bankruptcy judge Martin Glenn's approval of any proposal[40]. The company is working with the Committee of Unsecured Creditors (U.C.C.) to develop a plan for restarting operations, although the committee reportedly has concerns about Mr. Mashinsky's involvement and the feasibility of the Kelvin proposal[40]. Customers who have been trying to retrieve their crypto assets from Celsius have formed groups to strategize their actions, and the company is planning a "unique crypto solution" to compensate them[40]. Celsius executives have described this as a "hero's journey" toward redemption, aiming for success despite previous setbacks[40].

September 13th, 2022 1:16:31 PM MDT Reddit Pessimism A Reddit thread discusses Alex Mashinsky, CEO of Celsius, proposing a fee-based custody program as part of restructuring efforts, sparking criticism from users who accuse him of fraud and advocate for his imprisonment[41]. Many express distrust in Celsius following its loss of customer funds, likening Mashinsky's actions to those of a sociopath or narcissist. Some suggest that his proposals are akin to running a Ponzi scheme and express disbelief that anyone would trust him again. Overall, the sentiment towards Mashinsky and Celsius is overwhelmingly negative, with calls for accountability and restitution for affected users[41].
October 2nd, 2022 2:06:44 PM MDT Jail He Should Be Reddit The Reddit community is outraged after learning about the withdrawal of funds prior to the bankruptcy[42].
October 4th, 2022 12:30:33 PM MDT Asset Sale Scheduled A report by Bitcoin News shares that the Celsius bankruptcy asset sale is scheduled. There is speculation that the CEO of FTX may bid[43].
October 6th, 2022 4:30:00 AM MDT Celsius Executives Cashed Out Funds News reports from Gizmodo allege that multiple Celsius executives cashed out funds in anticipation of the collapse. It's reported that between $17m USD and $23m USD worth of funds were cashed out in the days just prior to the collapse of the platform[10]. "The two execs who pulled out the combined $17 million in crypto were former CEO Alex Mashinsky and former Chief Strategy Officer Daniel Leon. Mashinsky resigned as CEO in September, but is still at the center of the investigation over whether Celsius was little more than a Ponzi Scheme—something that over 40 states are currently looking into. Leon resigned just yesterday."
October 16th, 2022 1:00:08 AM MDT CryptoKwam Video Posted The incident is featured in a CryptoKwam video on YouTube as an argument for holding your own private keys[44].
January 4th, 2023 2:29:00 PM MST Celsius Granted Ownership Rights The United States Bankruptcy Court for the Southern District of New York rules that funds in Celsius's Earn account are the property of the bankrupt crypto lender, not investors[36][45]. Celsius Earn customers had filed lawsuits requesting the return of their funds, but the court ruled that Celsius's terms of service made it clear that the company took ownership of customer deposits in the Earn accounts[36]. The ruling means that Celsius customers with non-interest-bearing accounts and other secured creditors will be treated with higher priority during repayments than those with Earn accounts[36]. Earn customers, now classified as unsecured creditors, will be taken care of after Celsius repays higher-priority customers[36]. The court also authorized Celsius to sell approximately $18 million in stablecoins held in customers' Earn accounts to fund administrative costs[36]. According to the Wall Street Journal, "Judge Martin Glenn said Wednesday that $4.2 billion in cryptocurrency deposits are the property of Celsius, clearing the way for the company to use its digital assets as it sees fit, while also dealing a blow to the hopes of thousands of customers by declaring them unsecured creditors."[46]

Technical Details

TBD

Total Amount Lost

The total amount lost has been estimated at $11,800,000,000 USD.

Immediate Reactions

Celsius Network halted withdrawals, swaps, and transfers between accounts, and cited "extreme market conditions."[16][17] This move has sparked concerns and rumors of a potential default. The CEL token's price saw a 76% drop within seven days[16]. Celsius, valued at around $3 billion, stated that the action aims to position their network better to meet its cash-out obligations over time[17]. The announcement comes amid a challenging period for the crypto market, with significant liquidations and leading assets like Bitcoin and Ethereum experiencing substantial declines[16]. Celsius allows users to deposit Bitcoin, Ethereum, and Tether, earning interest payments, and has 1.7 million users[17]. The move has led to concerns among users in leveraged positions who urgently need access to their funds[16].


"@CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority. Our operations continue and we will continue to share information with the community."

"“We take this action today to put C Netwwork in a better position to honor, over time, its cash-out obligations,” wrote Celsius, stablecoin issuer Tether International and pension fund Canada Caisse de Dépôt et Placement du Québec among its investors."

“Action for the benefit of the community is our top priority. To support that commitment and comply with our risk management framework, we have activated a provision in our Terms of Use to allow this process to take place. Celsius has valuable assets, and we are working diligently to meet our obligations.”

"We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets. Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers."

"We understand that this news is difficult, but we believe that our decision to pause withdrawals, Swap, and transfers between accounts is the most responsible action we can take to protect our community. We are working with a singular focus: to protect and preserve assets to meet our obligations to customers. Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible. There is a lot of work ahead as we consider various options, this process will take time, and there may be delays."

"Almost anything can be systemic in crypto ... because the whole space is over-levered," said Cory Klippsten, chief executive of Swan Bitcoin, a bitcoin savings platform. "It's all a house of cards."

"There must be many users who are in a position of leverage and desperately need those funds from Celsius, now locked away. I’m sad we’ve gotten here. Protect yourselves."

"I have USDC in my account that I want to use to repay my loan that has a margin call right now, but I can't even repay the damn loan because of the transfer freeze. That's ridiculous. If the market tanks, celsius will liquidate my collateral even though I can pay off my loan!!!"

"One early, if flaccid, signal came from YouTube influencer BitBoy, who last week announced his intent to file a class action against Celsius after it froze his funds. Just days later, BitBoy withdrew the proposal after remembering that he had been paid to promote Celsius."

"In a blog post on Monday, Tether said that while it has invested in Celsius, its lending activity with the crypto platform has "always been overcollateralized" and has no impact on Tether's reserves. The token was last trading flat at $1."

"While Tether’s investment portfolio does include an investment in the company, representing a minimal part of our shareholders equity, there is no correlation between this investment and our own reserves or stability. Also Tether lending activity with Celsius (as with any other borrower) has always been overcollateralized and has no impact on our reserves."

Celsius Tweet and Memo Posted

Celsius posted to Twitter[12] and on their blog to announce that withdrawals were paused, along with swaps and transfers between accounts[13].

We are writing with a very important message for our community.

Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts. We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations.

Acting in the interest of our community is our top priority. In service of that commitment and to adhere to our risk management framework, we have activated a clause in our Terms of Use that will allow for this process to take place. Celsius has valuable assets and we are working diligently to meet our obligations.

We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets. Furthermore, customers will continue to accrue rewards during the pause in line with our commitment to our customers.

We understand that this news is difficult, but we believe that our decision to pause withdrawals, Swap, and transfers between accounts is the most responsible action we can take to protect our community. We are working with a singular focus: to protect and preserve assets to meet our obligations to customers. Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible. There is a lot of work ahead as we consider various options, this process will take time, and there may be delays.

We thank the incredible Celsius community for your support today. It is our pleasure to serve you. Our operations continue and we will continue to share information with the community as it becomes available.

Outrage And Reactions On Reddit

A Reddit discussion at the time of the collapse revolved around the balance between user responsibility, the need for crypto regulation, and the specific situation with Celsius Network. Many users emphasized the importance of understanding the risks associated with cryptocurrency platforms and urge caution when investing in the crypto market. Some users argue that the cryptocurrency market is not entirely unregulated, pointing out that fraud laws and wire fraud laws still apply. They suggest that Celsius Network's issues might not be a result of a lack of regulation but rather mismanagement. Some users express concerns about corporations in the crypto market making their own rules in the absence of regulatory oversight, potentially harming customers. Some users discuss Celsius as a case of poor decisions and bad luck. They mention that Celsius Network's terms and conditions outline the risks involved. A recurring theme in the discussion is the importance of users understanding the risks and reading the terms and conditions of the platforms they use. Celsius Network users are reminded that they are essentially unsecured creditors and should have understood this before using the platform[28].

Ultimate Outcome

"Celsius's token has fallen about 97% in the last 12 months, from $7 to around 20 cents, based on CoinGecko data." "While short traders attempted to capitalise on the struggling CEL token, #celshortsqueeze started trending on Twitter as Celsius community members attempted to resuscitate the value of the token." "As of Monday July 4, CEL was 36% up over the two-day period."

"Rival crypto lender Nexo said on Monday it had offered to buy Celsius' outstanding assets. "We reached out to Celsius Sunday morning to discuss the acquisition of its collateralised loan portfolio. So far, Celsius has chosen not to engage," said Nexo co-founder Antoni Trenchev."

"Embattled crypto lending platform Celsius Network paid back another $50mln of its nearly $200m debt tied up in MakerDAO, effectively increasing its collateralisation ratio by 80% as of July 4." "The UK-registered enterprise was at risk of having its position liquidated as Bitcoin (BTC)’s price continued to plummet by 60% in the first two quarters of 2022."

"Despite lowering its liquidation price to US$11,865 (the price that BTC needs to fall to for Celsius to default), users’ funds remain trapped in the lending platform."

"Despite Mashinsky’s repeated and vocal jabs at the traditional finance sector (“Banks are not your friend” being his personal motto), Celsius appears to be in talks with Goldman Sachs (NYSE:GS) regarding a US$2bln buy up of distressed assets."

"Celsius has engaged restructuring consultants Alvarez & Marsal on the matter."

"Celsius is considering all of its options, including strategic transactions, as well as a restructuring of its liabilities." "We plan to continue working with regulators and officials regarding this pause and our company’s determination to find a resolution." "[It] was also reported that Celsius laid off approximately 150 employees as the company fought off insolvency." "Proactive Investors learned that Celsius’ London office was vacant when approached for comment."

Blog Post After One Week

After a week of withdrawals remaining offline, Celsius posted to their blog to update the community further[32].

It has been one week since we paused withdrawals, Swap, and transfers. We want our community to know that our objective continues to be stabilizing our liquidity and operations. This process will take time.

As has been a priority since our company’s inception, we maintain an open dialogue with regulators and officials. We plan to continue working with regulators and officials regarding this pause and our company’s determination to find a resolution.

We are pausing our Twitter Spaces and AMAs to focus on navigating these unprecedented challenges and seeking to fulfill our responsibilities to our community.

Acting in the interest of our community remains our priority and we will continue to work around the clock.

We are grateful for your continued support.

Chapter 11 Bankruptcy And Controversy

CoffeeZilla posts about the Chapter 11 distinction[37].

Voyager is trying to sell people this "chapter 11 bankruptcy-reorg", and hide the fact that under bankruptcy law, a company that describes itself as a "BROKER", cannot do CH11.

They should be required to liquidate under SIPA. (Securities Investor Protection Act).

SIPA liquidation stands a good chance of being BETTER for investors, since under SIPA, investors have protections and would be the first to get paid...but get this...

VOYAGERS LAWYERS ARE TRYING TO STOP THIS. THEY SAY IT WOULD "BENEFIT NO ONE".

Instead, the lawyers of Voyager argue their customers NEVER OWNED THEIR OWN CRYPTO--- despite Voyager's own app LITERALLY SAYING "You own" your crypto.

This is self-serving masquerading as "helping investors"

All of this hinges on whether Voyager was selling people 'securities' or not when they sold crypto. Voyager is arguing they weren't, therefore have no protections offered to regular investors.

Plot For Celsius Comeback

In September 2022, CEO Alex Mashinsky and another executive outlined a plan to rebuild the company, focusing on custody services – storing users' cryptocurrencies and charging fees on certain transactions. This project is codenamed "Kelvin." While Mr. Mashinsky compared the situation to corporate turnarounds of famous brands, employees expressed skepticism about the revival plan.[40]

The fate of Celsius Network depends on federal bankruptcy judge Martin Glenn's approval of any proposal. The company is working with the Committee of Unsecured Creditors (U.C.C.) to develop a plan for restarting operations, although the committee reportedly has concerns about Mr. Mashinsky's involvement and the feasibility of the Kelvin proposal.[40]

The exact details of Celsius's revival plan are unclear, but it appears that the company may shift toward charging fees for custody and other services instead of its previous zero-fee approach. Customers who have been trying to retrieve their crypto assets from Celsius have formed groups to strategize their actions, and the company is planning a "unique crypto solution" to compensate them. Celsius executives view this as a "hero's journey" toward redemption, aiming for success despite their previous setbacks.[40]

Customer Funds Declared As Celsius Property

From the early stages of the bankruptcy, lawyers for Celsius asserted that the 1.7 million registered users globally had relinquished ownership rights to the crypto they deposited into Earn and Borrow accounts, as per the company's terms of service[39]. Celsius claimed the freedom to use, sell, pledge, and rehypothecate these coins. While the Custody program launched for non-accredited US investors was supposedly distinct, a legal question arose about whether Custody account holders retained title to their assets. Celsius paused withdrawals for all users on June 13 and ceased issuing new loans on July 13[39]. The firm argued that it could sell Bitcoin mined through its subsidiary mining operation to settle debts, planning to generate around 15,000 BTC through 2023[39].

The United States Bankruptcy Court for the Southern District of New York ultimately ruled that funds in Celsius's Earn account are the property of the bankrupt crypto lender, not the investors who deposited them[36]. The account holds approximately $4.2 billion in crypto as of July 10, 2022. Celsius Earn customers had filed lawsuits requesting the return of their funds, but the court ruled that Celsius's terms of service made it clear that the company took ownership of customer deposits in the Earn accounts[36]. The ruling means that Celsius customers with non-interest-bearing accounts and other secured creditors will be treated with higher priority during repayments than those with Earn accounts[36]. Earn customers, now classified as unsecured creditors, will be taken care of after Celsius repays higher-priority customers[36]. The court also authorized Celsius to sell approximately $18 million in stablecoins held in customers' Earn accounts to fund administrative costs[36].

In January 2023, funds remaining in Celsius accounts were confirmed legally to be the property of Celsius, based largely on the Terms of Use which customers agreed to when setting up their accounts[45][36].

“The Court concludes, based on Celsius’s unambiguous Terms of Use, and subject to any reserved defences, that when the cryptocurrency assets (including stablecoins, discussed in detail below) were deposited in Earn Accounts, the cryptocurrency assets became Celsius’s property; and the cryptocurrency assets remaining in the Earn Accounts on the Petition Date became property of the Debtors’ bankruptcy estates (the “Estates”),” the ruling document stated.

According to the Wall Street Journal, "Judge Martin Glenn said Wednesday that $4.2 billion in cryptocurrency deposits are the property of Celsius, clearing the way for the company to use its digital assets as it sees fit, while also dealing a blow to the hopes of thousands of customers by declaring them unsecured creditors."[46]

Total Amount Recovered

As the bankruptcy is still ongoing, the total amount recovered is presently unknown.

Ongoing Developments

"Celsius [and] its outspoken founder and chief executive officer Alex Mashinky have been relatively moot on the company’s roadmap out of the quagmire, leading to a conversation rife with rumour and speculation."

"We continue to take important steps to preserve and protect assets and explore options available to us. These options include pursuing strategic transactions as well as a restructuring of our liabilities, among other avenues. These exhaustive explorations are complex and take time, but we want the community to know that our teams are working with experts from many different disciplines."

"Our team is working diligently around the clock. We will continue to update the community and our clients as and when it becomes appropriate." "We are pausing our Twitter Spaces and AMAs to focus on navigating these unprecedented challenges and seeking to fulfill our responsibilities to our community."

"We thank the incredible Celsius community for your support today. It is our pleasure to serve you. Our operations continue and we will continue to share information with the community as it becomes available."

Individual Prevention Policies

The Celsius platform did not have a proper backing of customer funds. There was no visibility into the fund backing outside of the company itself, and it certainly falls short of multiple rotating validators.

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

Any time that you are promised any profit or benefit in exchange for an initial payment, smart contract approval, or deposit, pay special care as to whether the entity making that offer is trustworthy, actually who they say they are, and has the means to fulfill what they're promising. There are no magic algorithms providing guaranteed returns from trading or mining. Trading on average will lose money. Mining is expensive and complex. No one is going to immediately send back more than you sent them. NFT projects will rarely announce a surprise mint in only a single location. Are you fully prepared for the event your money is kept and nothing is delivered in return?

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Do not take customer assets and performing highly risky trades and investments without giving visibility to customers.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

The use of a multi-signature wallet could also provide additional scrutiny to reduce the risk. Presently, it is unclear how such decisions were made.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

Create a standard tutorial and quiz for all new cryptocurrency participants, which is required to be completed once per participant. This tutorial and quiz should cover the basics of proper seed phrase protection, strong password generation, secure two-factor authentication, common fraud schemes, how to detect and guard against phishing attacks, how ponzi schemes work, as well as other risks which are unique to the cryptocurrency space.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.

References

  1. 1.0 1.1 1.2 1.3 1.4 1.5 Celsius Cease and Desist Order - State of New Jersey Bureau of Securities (Dec 15, 2022)
  2. Celsius Network | Earn Crypto, Borrow Cash and Unbank Yourself (Jan 30, 2022)
  3. About Us | Unbank Yourself (Jan 30, 2022)
  4. Is Celsius Network Safe To Put Your Money (Updated Dec'21 on BadgerDAO) (Jan 30, 2022)
  5. Celsius Network Review: Safe Platform? This You NEED To Know!! (Jul 12, 2022)
  6. Celsius Network - Wikipedia (Jan 30, 2022)
  7. CelsiusNetwork - "If you don't have free and unlimited access to your own funds, are they really *your* funds?" - Twitter (Jul 12, 2022)
  8. What Crypto Lender Celsius Isn’t Telling Its Depositors - CoinDesk Archive July 28th, 2020 6:33:46 PM MDT (Apr 28, 2023)
  9. What Crypto Lender Celsius Isn’t Telling Its Depositors - CoinDesk (Jul 12, 2022)
  10. 10.0 10.1 10.2 Celsius Execs Cashed out $17 Million Before Halting Withdrawals - Gizmodo (Dec 15, 2022)
  11. Did Celsius’ Withdrawal Trigger The Terra/ LUNA Collapse? Claim & Response - CoinYar (Jun 19, 2022)
  12. 12.0 12.1 CelsiusNetwork - "CelsiusNetwork is pausing all withdrawals, Swap, and transfers between accounts. Acting in the interest of our community is our top priority." - Twitter (Jul 12, 2022)
  13. 13.0 13.1 A Memo to the Celsius Community - Celsius Network Blog (Jul 12, 2022)
  14. ledgerstatus - "There must be many users who are in a position of leverage and desperately need those funds from Celsius, now locked away. I’m sad we’ve gotten here. Protect yourselves." - Twitter (Jul 12, 2022)
  15. Crypto firm Celsius pauses all transfers and withdrawals between accounts - Reuters Archive June 12th, 2022 9:41:36 PM MDT (Apr 28, 2023)
  16. 16.0 16.1 16.2 16.3 16.4 Celsius Facing "Default"? - CoinCu News (Jul 12, 2022)
  17. 17.0 17.1 17.2 17.3 Celsius Facing “Default”? - CoinCu News Archive June 12th, 2022 9:35:39 PM MDT (Apr 12, 2023)
  18. CoinMarketCap - "Celsius has suspended ALL withdrawals, swaps and transfers — blaming 'extreme market conditions'" - Twitter (Jan 6, 2023)
  19. Celsius Feels Impact of Market Volatility, Tether Reserves Hold Strong - Tether Blog Archive June 13th, 2022 2:28:03 AM MDT (Apr 28, 2023)
  20. Celsius Feels Impact of Market Volatility, Tether Reserves Hold Strong - Tether Blog (Jul 12, 2022)
  21. Crypto contagion fears spread after Celsius Network freezes withdrawals - Reuters Archive June 14th, 2022 12:14:13 AM MDT (Apr 28, 2023)
  22. Crypto contagion fears spread after Celsius Network freezes withdrawals - Reuters (Jul 12, 2022)
  23. Community FAQ - Celsius Blog (Jul 12, 2022)
  24. Community FAQ - Celsius Network Medium Archive June 15th, 2022 4:47:13 AM MDT (Nov 15, 2023)
  25. Celsius Troubles, UST Collapse May Help Crypto Long Term, FSInsight Says - CoinDesk (Jun 19, 2022)
  26. Why I'm allowing my Celsius loan to default... - CoinMarketBag (Jul 12, 2022)
  27. Mariah Monetize - Why I'm allowing my Celsius loan to default... - YouTube (Apr 28, 2023)
  28. 28.0 28.1 28.2 Content-Advisor5256 - No regulation doesn't justify a scam - Reddit (Aug 18, 2023)
  29. Celsius Network update 6/16/22 - Mariah Monetize (May 5, 2023)
  30. Mariah Monetize - Celsius Network update 6/16/22 - YouTube (May 5, 2023)
  31. Why Celsius Fell Apart - YouTube (Jun 19, 2022)
  32. 32.0 32.1 A note to the Celsius community - Celsius Blog (Jul 12, 2022)
  33. The Case for Suing Celsius, Terraform Labs - CoinDesk (Jul 12, 2022)
  34. Across Celsius today - Celsius Blog (Jul 12, 2022)
  35. Celsius’ user funds remain in the balance as partial debt repaid - Proactive Research (Oct 19, 2022)
  36. 36.00 36.01 36.02 36.03 36.04 36.05 36.06 36.07 36.08 36.09 36.10 36.11 U.S. Judge Grants Celsius Ownership Rights to $4.2B of Users Assets - CryptoSavingExpert Medium (Nov 15, 202#)
  37. 37.0 37.1 CoffeeZilla - "Voyager is trying to sell people this "chapter 11 bankruptcy-reorg", and hide the fact that under bankruptcy law, a company that describes itself as a "BROKER", cannot do CH11." - Twitter (Aug 31, 2022)
  38. Andrei Jikh - The Crypto Collapse Just Got Worse - YouTube (Jul 16, 2022)
  39. 39.0 39.1 39.2 39.3 39.4 39.5 39.6 Celsius lawyers claim users gave up legal rights to their crypto - CoinTelegraph Archive July 18th, 2022 9:20:37 PM MDT (Nov 15, 2023)
  40. 40.00 40.01 40.02 40.03 40.04 40.05 40.06 40.07 40.08 40.09 40.10 40.11 Celsius Network Plots a Comeback After a Crypto Crash - The New York Times (Nov 30, 2022)
  41. 41.0 41.1 Alex Mashinsky, Celsius CEO, Imagines ‘A Fee-Based Custody Program’ For Restructuring - Reddit (Feb 13, 2024)
  42. Jail he should be. - Reddit Archive October 2nd, 2022 11:04:01 PM MDT (Oct 3, 2022)
  43. Bankrupt Crypto Lender Celsius' Asset Sale Is Scheduled, Sources Say FTX CEO May Bid – Bitcoin News (Dec 15, 2022)
  44. CryptoKwam - Vauld, Celsius, and Voyager suspend Withdrawals. Why you should own your Private Keys! Ledger Nano X - YouTube (Oct 19, 2022)
  45. 45.0 45.1 WatcherGuru - "JUST IN: Judge grants Celsius Network ownership rights to $4.2 billion in customer #crypto deposits." - Twitter (Nov 15, 2023)
  46. 46.0 46.1 Celsius Network Wins Ownership Rights to Customer Crypto Deposits - Wall Street Journal (Nov 15, 2023)

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