Following concerns from borrowers that Celsius would nullify the collateral it owed, the bankrupt lending protocol has been approved to liquidate its altcoin holdings for creditor repayment.
According to a US Bankruptcy Court ruling issued on June 30, 2023, Celsius can begin converting altcoin holdings to BTC or ETH to repay the $225 million it owes in customer assets.
Details of the Ruling
The ruling states that Celsius: “may sell or convert any non-BTC and non-ETH cryptocurrency, crypto tokens, or other cryptocurrency assets other than such tokens that are associated with Withhold or Custody accounts (collectively, the “Altcoins”) to BTC or ETH commencing on or after July 1, 2023, and ending prior to the effective date of the Plan.”
The US Bankruptcy Court and Celsius have heavily consulted with the SEC to allow this move, ensuring that no tokens the SEC has deemed as securities are converted to BTC or ETH.
The ruling demands that Celsius “use commercially reasonable efforts to maximize the value of the altcoins to be sold or converted to BTC or ETH.” This stipulation directly addresses concerns raised by creditors that they will not be paid back in full.
Cooling Creditor Concerns
Creditors have been worried that Celsius would sell its altcoin holdings at a loss, starting a set-off period where the lending protocol, as the debtor, enacts its right to balance mutual debts with the creditors. Any remaining balance owed to the creditors is still due but does not have to be paid because the joint debt has been set off.
The fact that the US Bankruptcy Court requires Celsius to liquidate its altcoin holdings at their maximum value should allow creditors to rest a little easier. Celsius could employ a commercial measure to ensure this happens: reducing swap fees from altcoins to ETH by liquidating ERC-20 token holdings or bridging assets to Ethereum.
Or vice versa, because Ethereum has very high swap fees, the lending protocol could bridge ERC-20 tokens to another chain; there are many ways that Celsius could maximize its listing values for repayment.
The ruling also requires Celsius to report on repayment distribution monthly to ensure that creditors receive what they are owed in full.
Conclusion
In conclusion, the recent ruling by the US Bankruptcy Court allows Celsius, a bankrupt lending protocol, to liquidate its altcoin holdings to repay its creditors. The court’s decision ensures that only non-Bitcoin and non-Ethereum cryptocurrencies can be converted to BTC or ETH, and tokens deemed as securities by the SEC are excluded from this conversion.
Overall, this ruling aims to protect the interests of creditors and transparently facilitate the repayment process.
