Celsius customers’ hopes to reclaim $2bn in assets hinge on vote for reorganisation plan

For more than a year, customers in Celsius have been hoping for a chance to recapture some of the assets they lost in the failed crypto lender.

Now they are about to get the clearest sign yet whether that will be possible.

On Friday, thousands of onetime Celsius customers face a deadline to vote for a new business plan that is designed to redistribute $2 billion in crypto assets left in the bankrupt lender, as soon as by the end of the year.

If the plan, which was drawn up by Celsius and bankruptcy lawyers, is approved, Celsius will distribute some $2 billion worth of Bitcoin and Ether between account holders of the company’s Earn and Borrow businesses.

The customers would also receive common stock in a new company focused on crypto mining and staking that will succeed the centralised lender that imploded last June.

If Celsius customers reject the plan, however, it would be back to the drawing board for Celsius and the sponsor of its plan, Fahrenheit, a consortium that won the bid to buy Celsius’ assets.

Second decision

The vote on the reorganisation plan isn’t the only decision taking place on Friday. The special committee of the board of directors now running Celsius will also select a firm to refinance the debt owed to customers, which would happen at some point after the re-org plan is approved.

Three crypto lenders — Ledn, SALT Lending, and Figure Technologies — have submitted proposals to the committee.

Refinancing their debt would enable investors to bail out of the bankruptcy process early — but it might cost them.

Buyers of distressed debt often pay a fraction of par value on assets. And there are tax benefits to be had by cashing in now, Mauricio di Bartolomeo, co-founder and chief strategy officer at Ledn, told DL News.

The assignment would be a huge boon for the firm that wins. At the time Celsius filed for bankruptcy, its lending division had some 23,000 outstanding loans to retail borrowers on its books worth $411 million. The loans were backed by digital assets with a market value of around $765.5 million, according to the plan disclosure.

“Someone that has never had a lending product could become a main player overnight,” Di Bartolomeo said. “This could very much impact dynamics in the industry, because relative to the size of the industry, it’s a big ticket.”

‘Someone that has never had a lending product could become a main player overnight.’

—  Mauricio di Bartolomeo

Cleaning up the Celsius debacle is at the top of the list in unfinished business from the crash of 2022. The six-year-old company, along with other so-called CeFi lenders such as BlockFi and Voyager, cratered after the fall of Terra that May, ushering in the worst bear market in crypto’s short history.

Even after Bitcoin’s rally this year, the total market cap of the crypto sector has shrunk 38% since May 1, 2022, to $1 trillion.

Money trap

Crypto lending was one of the bright spots in the last bull market. The business works similarly to traditional bank lending, but instead of institutions providing loans, it is other investors who underwrite debt for borrowers.

While banks were eking out single-digit yields at a time when interest rates finally started to rise again, crypto lenders were raking in double-digit paydays — Celsius promised returns up to 18% to customers of its Earn program.

And all of these transactions were denominated in cryptocurrencies, or more precisely, in Celsius’ home-grown token, CEL.

But as customers found out in the worst possible way, their capital was not insured as if it were being held at a bank. When Celsius paused withdrawals in June 2022 shortly before filing for bankruptcy, it said that under its terms of use, it did not have to return customers’ assets.

After it filed for bankruptcy and was allowed to keep running as a debtor in possession, a court backed up this view. Creditors therefore have had to sit tight while their money is locked on the platform.

Investors, many of them retirees, described their rage as they had to wait around while the bankruptcy process grinds on. In January, retired Air Force IT worker Fred Shanks told DL News how $100,000 of his savings was trapped in the ailing lender.

Under the reorganisation plan, the lawyers say, people like Shanks can expect to get back a good part of what they put in.

According to the plan disclosure, account holders in Celsius’ Earn program, which allowed customers to deposit crypto on the platform in return for annual interest, could get back 67% of their assets.

Account holders in its Borrow program, who borrowed money from Celsius against their own crypto, could get back as much as 85%.

Eligible investors can vote on the Celsius reorganisation plan until the end of today. The votes will then be tallied, and a result is expected early next week. A hearing on the plan will be held on October 3.

Have a tip about Celsius, or just want to talk about crypto bankruptcies or regulation? Reach out to the author at joanna@dlnews.com.