Payback? Celsius may Issue New Token for Debts

Insolvent cryptocurrency lender Celsius may issue a new token to pay back its creditors, as reported by Bloomberg. Upon the company’s restructuring plan, the new proposal is aimed at raising fund and repay customers and creditors.

According to Celsius attorney Ross M. Kwasteniet, the company can be restructured as a properly licensed and publicly-traded company and repay debts to creditors by the issuance of new tokens. Instead of selling off assets to clear debts, this payout plan will protect assets.

Named Asset Share Token (AST), the new token is for creditors with at least a $5,000 loan.

An Interesting Idea

A number of creditors also suggested Celsius to follow Bitfinex’s repayment plan. The crypto exchange was under severe attack in 2016 with loss of 120000 BTC. To repay customers, Bitfinex issued a token UNUS SED LEO and the platform completed the payout in 2017.

CoinFLEX, a crypto exchange in close connection with Celsius, issued token rvUSD in 2022 in efforts to to clear bad debts following a move to suspend withdrawals in June. CoinFLEX’s USD-pegged token comes with 20% APY for holders.

Celsius may follow suit, however, it is important to note that the company’s restructuring plan needs to be approved by the court. Apart from that, the plan is additionally subject to approval by creditors, which will be determined through a vote.

Will Creditors Accept?

If approved, the creditors will have discretion in deciding whether to sell tokens for instant profit or hold them to get annual interest. The remaining retail investors will be compensated in standard cryptocurrency for a portion of their losses.

Celsius is a centralized lending platform that allows users to deposit funds for high annual interest. In addition to lending intermediaries, the platform uses deposits to invest in other models in order to earn profits and sustain announced interest rates. Things worked well when the market was not overly volatile, but when the market fell, difficulties resurfaced.

Withdrawal requests soared as the bitcoin market underwent a prolonged decline. The assets available for withdrawal on Celsius were insufficient, and liquidity was depleted.

Hard Times

Celsius eventually declared bankruptcy and is being investigated for fraud. Members claimed that Celsius was a Ponzi scam that used funds deposited by new customers to pay back funds contributed by previous users.

Since the beginning of June, Celsius Network has been freezing the accounts of millions of users, leaving them in a state of frustration because they do not know whether or not they will be able to retrieve their money.

An additional period of time has been allotted for Celsius to submit a chapter 11 reorganization plan. Customers still maintained a sense of optimism, at least up until the point where the case was heard in court.

The court’s decision on Jan. 4 failed customers. Judge Martin Glenn concluded that the $4.2 billion deposited into the Earnings Account belonged to Celsius, not the investor.

Celsius had approximately 600,000 accounts in the Earn when the account holder brought a case, according to the document. As of July 10, 2022, deposits into these accounts totaled $4.2 billion.

Many account holders claimed they were entitled to their money and wanted a complete return. If the Judge rules in favor of the account holder, their recovery would be linked to payouts to unsecured creditors under the chapter 11 plan.

In a new update of the case, judge has denied motions against Celsius. Three users previously filed motions against the embattled crypto lender. These users claimed that former Celsius CEO Alex Mashinsky made deceptive statements and the assets on the platform belong to users.

The judge disapproved the claims, saying that the Earn program made it clear that “the cryptocurrency deposited in Earn Accounts became property of Celsius.”