New Jersey-based crypto lender, Celsius, has filed for Chapter 11 bankruptcy in the Southern District of New York. Earlier this month, Celsius unexpectedly froze all withdrawals, citing ‘extreme market conditions’ as the primary reason. According to the company’s bankruptcy document, the lender has over 100,000 creditors, with millions of dollars in uncollateralized loans.
In hindsight, the company’s business model was not sustainable and heavily reliant on favorable market conditions. The company has more than $8 billion worth of loans to clients, $12 billion in assets, and nearly 2 million customers, all while offering yields of nearly 20%.
“This is the right decision for our community and company,” Alex Mashinsky, co-founder and CEO of Celsius said in a statement. “I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company.” Filing for Chapter 11 bankruptcy means that the company can still operate, however, it must propose a reorganization plan that fits the creditors’ needs. Celsius has chosen to move forward in this position as it can reorganize its debts while still operating as a company.
We see high yields within the crypto space regularly, however, while these investments may seem safe, there have been several projects which have collapsed. Terra Luna offered returns as high as 20% to customers however, soon destabilized as the bear market had begun to creep in.
While watching the collapse of a widely used lender puts a dent in the crypto space, many expected that this would happen. With the high-risk business model that Celsius had, sustainability wasn’t an option – and, in turn, their debts caught up to them. Considering that Chapter 11 bankruptcy allows a company to still operate, many wonder whether or not we will see Celsius again.