back to article Crypto lender Celsius in Chapter 11 deep freeze

Cryptocurrency lender Celsius Network filed for bankruptcy on Wednesday, a month after it froze all transactions, which prevented netizens from withdrawing funds. In its prime, Celsius pitched annual yields of up to 18 percent for those storing cryptocurrencies on its platform, lending those assets to hedge funds, exchangers, …

  1. Tom Chiverton 1

    And no one was surprised

  2. John D'oh!

    I imagine they will be up and running again once the 'crypto winter' is over, just under another name, and with all outstanding debts wiped out. Classic tactic used by double glazing companies in the UK, and former US presidents I believe.

    1. Doctor Syntax Silver badge

      Over?

      It's just not cricket.

  3. Phil Kingston

    18% returns?

    Yeah, righto.

    1. simonlb
      FAIL

      For a limited time, but only in a Ponzi scheme.

  4. Howard Sway Silver badge

    Celsius has, right now, a $1.19 billion deficit on its balance sheet

    Yes, and all those who should have been regulating what was in effect an investment bank, but didn't because it was the new magic miracle money, and everybody said how exciting this all was, should be ashamed that they ever let these companies accrue such eye wateringly large liabilities on those balance sheets and they were too scared to move in and put a stop to it.

    Their customers who aren't going to get repaid can console themselves that they've just joined the ever increasing list of suckers who had more greed than sense.

    1. Joe W Silver badge

      Re: Celsius has, right now, a $1.19 billion deficit on its balance sheet

      Yes and no. The crypto market is "free" as its supporters always argue, and should remain free from oversight, as this just stifles innovation... (yeah, and all of the things that happened in the crypto world did happen in the banking world before there was regulation, and this is why we do have all of these pesky rules "that just serve to stifle innovation").

      The point is that it was not registered as a bank and the world of crypto-whatevers is not under the regulations that cover real financial institutions. Should the same rules apply? I would think so. Laws need to be written and / or extended to cover these cases as well. Ultimately it is up to the legislative to do so. Until then it is unregulated. Anybody investing in that stuff has to remember that, and be aware that you can lose everything, like when gambling with trade options. When you do lose everything it is no bloody use crying, you had it coming.

      1. Anonymous Coward
        Anonymous Coward

        Re: Celsius has, right now, a $1.19 billion deficit on its balance sheet

        Why doesn't anybody complain towards the lenders who did not (or cannot) pay back their loans. THEY are the culprit here. Not the "bank" that has lended the money. Sure, Celsius could have investigated their clients better before giving that loan. But I would complain as much to Celsius as to their clients whom didn't pay back their loans.

        "...as this just stifles innovation..."

        You mean: " ...is skimming the profits."

        1. julian.smith
          FAIL

          Re: Celsius has, right now, a $1.19 billion deficit on its balance sheet

          Celcius has "an approximately $509 million uncollateralized claim against this party"

          They loaned $500 million to a "party" WITHOUT collateral!

          No wonder they've got a $1 BILLION+ hole in their balance sheet

          Sam Bankman-Fried took one look and said they were uncooperative and had a $2 billlion hole... and walked away

          LMAO

          The hole in the balance sheet is because they didn't properly hedge their USD / crypto exposure

          Gone in a puff of smoke

          Just waiting for TETHER (which won't provide audited financials) to implode

          Tether Market Cap $65.33B

          Tether 24H Volume $44.81B

          Watch that space

          1. Kernel

            Re: Celsius has, right now, a $1.19 billion deficit on its balance sheet

            "Celcius has "an approximately $509 million uncollateralized claim against this party"

            They loaned $500 million to a "party" WITHOUT collateral!"

            No, Celsius didn't loan $500 million to a "party" without collateral. What they did was BORROW $500 million from the "party", providing appropriate collateral for the amount borrowed. Presumably the collateral was in some form which the lending party was then able to redeploy for purposes of their own.

            Subsequently, when Celsius repaid the $500 million the "party" was unable to return the collateral to Celsius, leaving Celsius with the uncollateralized claim, hence the Celsius CEO's statement

            "when Celsius attempted to repay one of its loans, it was informed for the first time that the lender was unable to return the company’s collateral on a timely basis, resulting in Celsius having an approximately $509 million uncollateralized claim against this party."

            This part of Celsius' woes, at least, is due to dodgy behaviour by the lender rather than their own incompetence.

            1. Anonymous Coward
              Anonymous Coward

              Re: Celsius has, right now, a $1.19 billion deficit on its balance sheet

              "This part of Celsius' woes, at least, is due to dodgy behaviour by the lender rather than their own incompetence."

              If $500 million became a $509 million hole then they were lending it at profit, or at best swapping it.

              What you describe is more like a swap, and the purpose of that is obvious. You cannot pump Crypto #1 by buying it with Crypto #1, you have to buy it with another crypto, so someone swapped some of their crypto #1 for something else, so they can pump it, buying when trading is thin. Swap it back, and sure you get fewer of Crypto #1 back, but the Crypto #1 you were holding appears to be worth more because you pumped it. The swap didn't affect the price because it was off market.

              Sell your newly inflated Crypto #1 to actual suckers that spend actual dollars (thinking the 'asset' is 'increasing' when it is just pumped) and take those dollars to buy house and yachts.

              And if the market crashes, there is no money in there. The suckers money has been extracted already, there is nothing behind that price but a pump and dump. To cash out would require more suckers coming in, and they only come in for the perceived increase of price caused by the pump, which just collapsed.

              They fold their worthless crap and go bankrupt. Rinse and repeat no doubt like so many have done before them. Seemingly without prosecution.

        2. Ian 55

          Re: Celsius has, right now, a $1.19 billion deficit on its balance sheet

          Sure, we could have looked at what was in those CDOs before we bought billions of dollars of them, but the financial crisis is the fault of all those households that stopped paying the mortgage...

          The latest trend in the Ponzi / cryptocurrency world is to deposit a load of shitcoins as collateral for a big loan of something you can convert into actual dollars and then never repay the 'loan'.

          The real world equivalent would be a lender accepting a billion dollars of Imperial Russian bonds at face value and letting someone borrow half a billion dollars. 'But the loan was over-collateralised, how could we have known it would go bad' they will cry.

  5. martinusher Silver badge

    The forgot a basic rule of banking

    Banks can't create money, they can only shuffle it around. The system relies on there being someone, somewhere, doing real productive effort to add new money into the system to offset shrinkage caused by overhead, dividends and what have you. So the entire system relies on us making the payments with real money earned by real productive effort (or eating into our stored capital). That's why everyone's so obsessed with credit -- if we don't make those payments then entire system collapses.

    There's an exception to this rule. Organizations like the Federal Reserve are able to create money which is why that money is known as fiat currency -- its created because they say so. That's why they never go broke -- they just print some more if they're short. In theory this should be offset by revenues collected as taxes and as interest on the bonds they give consumer banks as part of the creation process but in practice the political discipline needed to do this is beyond most governments so they inevitably run a deficit. This inflation of the money supply reduces the value of money.

    The only way that Celcius was going to operate was as a Ponzi scheme -- dividends are paid out of investment capital in the hope that somehow the operation can be stabilized before it collapses. It usually does. (Ponzi started out as a real scheme based on international postal coupon arbitrage, the difference in cost of these coupons in different countries yielding a small profit. It would have worked had there been an infinite demand for those coupons.)

    1. jemmyww

      Re: The forgot a basic rule of banking

      That is a little simplistic about how money is created. Most is created by banks, not by the federal reserve or central banks. When they create a loan they do not shuffle money from somewhere else into your account, they just update the numbers for your account and their loanbook. The money didn't exist anywhere before and now it does. The bank has to maintain a fractional reserve of what they loan out. When the principal is paid back the money is destroyed, it is not shuffled somewhere else. This is not to say that the money is made up, the rules of reserve and asset backing limit the amount of loans a bank can create. It'l just a illustration of the difference between money and value - assets have value but that doesn't mean that value is in the money supply.

      Physical cash is created and shuffled around. That makes up a very small % of money used by society, something like 2%.

      1. Pascal Monett Silver badge

        Banks cannot loan money they don't have.

        The interest might seem like creating money, but the loaner still needs to be productive in the real world in order to pay it.

        1. Anonymous Coward
          Anonymous Coward

          @Pascal Monett - Correction

          Banks should not loan money they don't have.

      2. doublelayer Silver badge

        Re: The forgot a basic rule of banking

        You're correct, but I think they were using "money" just to mean "value", as in the creation of money by a bank does not correspond to an increase in value unless someone creates external utility through their spending of it. Since we don't really have a unit for value, money has often been used as the closest blunt measuring tool, and with that modification in terminology, their points are understandable if a bit simplified.

      3. katrinab Silver badge
        Boffin

        Re: The forgot a basic rule of banking

        That’s not how fractional reserve banking works. It works like this:

        Federal Reserve prints $100, it gets deposited in a bank.

        Bank lends out $90, that money gets spent, and deposited in a bank.

        Bank lends out $81,[…]

        […]

        You end up with $1000 of deposits and $900 of loans

        1. jemmyww

          Re: The forgot a basic rule of banking

          Ah no sorry that's not how it works. Otherwise there would be printed money representing all available money. I don't think I can convince you in a comment so I suggest you look up money creation. There's plenty of resources online, just avoid the simplistic explanations and look for the ones that are for the actual current system.

          1. katrinab Silver badge
            Meh

            Re: The forgot a basic rule of banking

            Obviously "printing" can be electronically "printed" cash on the Federal Reserve's computer.

            But either way, there isn't printed money representing all available money, because most of the assets backing the bank deposits are not "money", they are loans to customers. But, nevertheless, people do accept bank deposits as being equivalent to cash.

    2. MachDiamond Silver badge

      Re: The forgot a basic rule of banking

      "Banks can't create money, they can only shuffle it around. The system relies on there being someone, somewhere, doing real productive effort to add new money into the system "

      My take is that being productive and creating wealth is mostly taking a raw material and making something useful from it. "Money" is an intermediary between the creation of wealth and a value being placed on the wealth. I find that I can grasp concepts better if I narrow the definitions of words and use them more precisely. I don't equate "market cap" with "value" when looking at companies. The two are very different with the former being a belief and the latter something that can be measured in a specific way. Crypto to me is the fervor of religion mixed with greed and a dash of wishful thinking. Every currency has a certain mystique, but we needed that construct to move beyond a strictly barter system.

  6. sreynolds Silver badge

    The problem is.....

    Real accounting can't real with people who create imaginary money from lots of real world money.

    In the crypto accounting system there is no loss - its just called fear of hodling,

  7. Pascal Monett Silver badge

    "Without warning, the company suspended all purchases, withdrawals, or swaps on its platform"

    I'm so glad for all those people who wanted to stick it to The Man.

    What a shame they chose a company that didn't have a banking charter, which would have guaranteed their money.

    I wonder how many more morons losing everything it will take before they finally grok that you put your trust and money in a bone fide bank, and stop listening to siren calls ?

    Life is work. Deal with it.

    1. Anonymous Coward
      Anonymous Coward

      Re: "Without warning, the company suspended all purchases, withdrawals, or swaps on its platform"

      Sure, like those companies (banks) that keep the profits for themselves and their governmental palls. Under the disguise of safety and regularization. Just what we need more rules and restrictions, to make the rich richer and make the poor poorer.

      I admit we need less "cowboys and indians" in the crypto-wild-west. But that is as well a problem in the real world with our real (fiat) money. Perhaps even more so.

  8. Mayday Silver badge
    Childcatcher

    I am misunderstanding something (please dont shoot)

    IANAA (I am not an accountant) - I'm an IT guy who is crap at these things, so please help me understand -

    From the article, and the linked court document:

    $1.19 billion deficit

    $4.3 billion in assets, and

    $5.5 billion in liabilities.

    $4.7B of these liabilities are "user liabilities" which I presume are user account funds (??) so for the bit I'm not getting, can they be returned to the account holders to relinquish? Unless its been "spent" which would be VERY bad.

    As for the rest, there's a $1.19B deficit, $4.3B in assets. Can ~1/4 of the assets by liquidated/sold/messed with to reduce the deficit?

    Like I said, Im a proper n00b in this department, so please be nice :). The icon is for me as I have NFI as to what Im on about.

    1. doublelayer Silver badge

      Re: I am misunderstanding something (please dont shoot)

      The deficit is just liabilities minus assets (5.5-4.3 billion). If they liquidated all their assets right now, that's how much stuff they wouldn't be able to pay back. If they were forced into dissolution, that's basically what would happen, with a court and a bunch of lawyers deciding exactly which people weren't getting their money (usually with most groups only getting a fraction of what their owed). Therefore, the assets cannot be liquidated to decrease the deficit. They could be invested with the hope that they'll gain value faster than the debts do, but that's one of the ways they got into the current mess.

      As for returning the assets to the users, not exactly. The users have 4.7 billion invested and the company has 4.3 billion to give out. If they used all of it to pay the users, they'd have a 400M shortfall. They also have 800M they have to pay to non-users, and the non-users wouldn't be happy if they got wiped out. They would sue to block that plan in the hopes they get more, and a court would probably uphold the challenge and force a bankruptcy proceeding to properly divide the cash. Who gets paid often relies on contract details. For example, there is a concept of senior and junior debts which determines who gets paid first if there's not enough money for everyone, and some of their loans may have explicitly set that up. Other ones won't, which is why bankruptcy takes a long time.

      1. LybsterRoy Silver badge

        Re: I am misunderstanding something (please dont shoot)

        I wonder what the "assets" are?

        Back when I were a boy the company's assets were mainly actual physical things (OK there was "goodwill" as well) and if a company went under you could take a good guess as to how much these things could be sold for, and had a fair chance of selling them.

        So if a lot of these assets are crypto currency whose value wobbles alarmingly who decided they had 4.3 billion of assets? Who is going to buy wadges of crypto, and with what?

        1. Flocke Kroes Silver badge

          Re: Who is going to buy wadges of crypto

          It is more a matter of when than who. Half of when is when the bankruptcy court has decided who is owed money, and with what priority. The other half is when the price of crypto has fallen to slightly below its perceived value. The good news is by that time if perceived value is .1% of the current price you only need to find a bunch of fools worth $4.3M.

    2. Charlie Clark Silver badge

      Re: I am misunderstanding something (please dont shoot)

      Bankruptcy is about protection from creditor demands, including account holders. This will go to so much per dollar payouts. Expect at least 20% write downs, possibly more depending on precedence.

      1. katrinab Silver badge
        Mushroom

        Re: I am misunderstanding something (please dont shoot)

        I believe quite a lot of their "assets" are in Terra, so expect a 100% write-down on them.

        Then there's loans to 3 Arrows Capital, who have also gone bust. Expect a 100% write-down on those as well.

  9. Anonymous Coward
    Anonymous Coward

    Frozen magic beans

    Aisle 11 near the Has Beans

  10. Anonymous Coward
    Anonymous Coward

    2 ponzi schemas in 1 company

    "This reluctance was exacerbated by a series of negative media and social media comments about Celsius, a number of which were unsupported and misleading. As a result of all of these factors, users began withdrawing crypto from Celsius’ platform in large amounts and at a rapid pace."

    Ah, right, this is all the press' fault, got it. So, if I badmouth any bank in a youtube largely seen vid, it will all collapse ? Don't think so.

    Cryptos are in themselves a ponzi schema, but cryptos lending ??? This sounds like 2 ponzi schemas combined together.

    They can equally burn customers' money by 1) having cryptos collapse or 2) not having sufficient funds available.

    This is crazy stuff. How could potentially people believe this is sane ?

    1. Jimmy2Cows Silver badge

      Re: This is crazy stuff. How could potentially people believe this is sane ?

      Stupid / ignorant / ill-informed / greedy (or any combination thereof) people who ignored the "if it looks too good to be true" mantra.

      Sane people avoid this shit like the plague. Trouble is, they're massively outnumbered by greedy suckers who think they've seen what everyone else has missed, and put their hard-earned into what's obviously a ponzi.

  11. fxkeh

    "the lender was unable to return the company’s collateral on a timely basis"

    Welcome to cryptoland, where you borrow some money from another lender with collateral, and then that lender goes and spends your collateral!

    Can you imagine taking out a mortgage on a house from a bank and when you try to repay it the bank goes "actually, we sold your house, sorry, lolz, but we'll repay you at 1% a month"

    1. Valeyard

      Re: "the lender was unable to return the company’s collateral on a timely basis"

      to the tune of billions as well, yet if i tried that with a couple of hundred I'd be called a loanshark

  12. breakfast
    Coat

    Avoiding negative effects

    Perhaps Celsius could avoid going below zero in future by rebranding themselves as Kelvin?

    1. TimMaher Silver badge
      Pint

      Re: Kelvin

      Sounds a bit south of the river.

      How’s about Fahrenheit? Could be Swiss or German. Solid, reliable.

      1. TimMaher Silver badge
        Pint

        Re: Kelvin

        And 0 Celsius is still 32 Fahrenheit. Trebles all round.

  13. Surrey Veteran

    We told you so ....

    Celsius pretty much created the conditions to trade at margin which with real money is incredible risky at least. Add the fact that Cryptos don't have an intrinsic value and you have the perfect storm.

    Is clear after reading the post-mortem of various crypto funds and platforms that the only priority was to make cash whilst they go enough people to fleece, security and sustainability were not in their plans.

    Take the NFT's for instance, so only the transaction gets in the ledger ....is cost prohibited to store a small JPEG in the ledger .... Take the airdrops when they give you free digital assets (on the exposure of your wallet ID) then you pay more for the "Gas" to process the transaction that the actual asset value, is a industry designed for scammers.

    Stay away from it, is not such thing as a free lunch ....

  14. YetAnotherJoeBlow
    Flame

    What I want to know is why the judge gave Celsius so much money for operating expenses and to retain their employees. What exactly is everyone going to be doing? It sounds like another expense that will come out of their customers pocket - but hey, they keep their jobs.

    It seems that the principals were made mostly whole already with their customers funds as well - that is the real reason for halting withdrawals - so those in on the "deal" can exit nicely.

    As an aside, I hate that they call these scams crypto. I work with cryptography quite a bit. If someone asks what kind of software do I write - I have to bother to explain that no I'm not one of the scammers.

  15. Sceptic Tank
    Pirate

    I assume the proprietors of this business feathered their own nests comfortably before the scheme collapsed.

  16. Ian 55

    LOL

    "the company made what, in hindsight, proved to be certain poor asset deployment decisions"

    Yeah, it held cryptocurrencies.

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