Shalini Nagarajan

<div id="highlights-block_62bac1813dbfa" class="highlights">
 <ul>
 <li>Celsius reportedly wants users to activate &#8220;HODL mode&#8221; to win an argument with lawyers</li>
 <li>Withdrawals and transfers on the platform have been frozen since June 12</li>
 </ul>
 
</div>



Embattled crypto lender Celsius Network is hoping that a show of support from its users will save it from bankruptcy.



Celsius, dogged by a liquidity crisis for weeks, has been resisting guidance from its own lawyers to file for Chapter 11 bankruptcy, <a href="https://www.theblock.co/post/154368/celsius-seeks-show-of-client-support-as-lawyers-push-for-chapter-11-bankruptcy" target="_blank" rel="noreferrer noopener">The Block</a> reported on Monday, citing people familiar with the matter.



Under a Chapter 11 bankruptcy, a court helps a business restructure its debt and obligations while it continues to operate — it is also among the most expensive of bankruptcy proceedings.



In a bid to win an internal argument with its lawyers, Celsius now wants to prove that most users would prefer the company dodge bankruptcy altogether.&nbsp;



Users can reportedly demonstrate their support by activating “<a href="https://support.celsius.network/hc/en-us/articles/360007608077-What-is-the-HODL-Mode-" target="_blank" rel="noreferrer noopener">HODL Mode</a>” in their Celsius accounts — a security feature for customers who don’t wish to withdraw or transfer funds for an extended period.



Celsius has <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">blocked withdrawals</a> and transfers on the platform since June 12, but users can still display trust in the network by initiating the HODL feature, the report said. Despite withdrawal restrictions, Celsius has continued to receive some client deposits.



The company is said to be unable to publicly announce its stance on the matter due to legalities. CEO Alex Mashinsky, who is currently in the US, reportedly isn’t able to comment on the firm’s position either.



Celsius’ situation initially sparked fears the rout might affect other companies in the crypto industry in an already tough market environment. Rival BlockFi was struck by <a href="https://cms.blockworks.co/blockfi-inks-250m-credit-deal-with-ftx-to-ease-liquidity-fears/" target="_blank" rel="noreferrer noopener">liquidity concerns</a> shortly after Celsius as <a href="https://cms.blockworks.co/crypto-fund-three-arrows-capital-facing-potential-insolvency-report/" target="_blank" rel="noreferrer noopener">insolvency rumors swirled</a> around crypto hedge fund firm Three Arrows Capital.



“We are experiencing the biggest crypto crash in history,” Louis Schoeman, managing director at <a href="https://forexsuggest.com/">Forexsuggest</a>, said. “With massive inflation data and the semi-collapse of the Celsius network driving the downward spiral, I think only the best fundamentally strong crypto projects will survive this bear market.”



To explore potential financing options, Celsius has reportedly <a href="https://cms.blockworks.co/celsius-calls-on-citigroup-for-options-after-liquidity-squeeze-report-says/" target="_blank" rel="noreferrer noopener">hired</a> banking giant Citigroup, law firm Akin Gump Strauss Hauer &amp; Feld, and management consultants from Alvarez &amp; Marsal.



<h3 class="wp-block-heading">High yield, high risk</h3>



Launched in 2017, Celsius became popular among retail investors for paying <a href="https://cms.blockworks.co/wheres-the-liquidity-crypto-lending-explained/" target="_blank" rel="noreferrer noopener">lucrative interest rates on crypto</a> as high as 18.6%. The interest rate is earned by allegedly lending cryptocurrency to institutional investors and through decentralized finance protocols.&nbsp;



Celsius would&#8217;ve had to take on severe risk to offer such high returns in a low interest rate environment.



Data on its <a href="https://celsius.network/about-us" target="_blank" rel="noreferrer noopener">website</a>, which calls on users to “Borrow like a Billionaire,” shows the firm lent out more than $8 billion to clients and held nearly $12 billion in assets under management as of May.



“If Celsius is insolvent, it will be a harsh hit to the industry, particularly in terms of the trust of retail investors in the industry alongside a potential contagion across the industry,” Mads Eberhardt, cryptocurrency analyst at Saxo Bank, said.



Celsius’ CEL token currently changes hands for around $0.74, having lost half of its value over the past week, according to data from <a href="https://www.blockworksresearch.com/assets/cel/" target="_blank" rel="noreferrer noopener">Blockworks Research</a>. CEL plunged to $0.24 just after it froze withdrawals — 97% below its record high of $8.05 posted one year earlier.



The troubles at Celsius means the US could soon provide more clarity on regulation towards custodial providers and lenders, said Marcus Sotiriou, analyst at digital asset broker GlobalBlock, in hope of bringing more stability to the crypto space.&nbsp;



Celsius didn’t immediately return Blockworks’ request for comment.



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Celsius Clashes With Lawyers Over Chapter 11 Bankruptcy: Report

<div id="highlights-block_62aaed53cdd11" class="highlights">
 <ul>
 <li>Citigroup will also advise on offers, including Nexo’s bid to buy some of Celsius’ assets</li>
 <li>Abrupt user withdrawals echo the Mt. Gox meltdown in 2014, a crypto exec told Blockworks</li>
 </ul>
 
</div>



After freezing user accounts on Sunday, <a href="https://cms.blockworks.co/tag/celsius/" target="_blank" rel="noreferrer noopener">Celsius</a> has recruited Citigroup to advise the crypto lender on its next steps.



Celsius has brought on the bank in an advisory role, <a href="https://www.theblock.co/post/152230/citigroup-celsius-advising-after-withdrawal-freeze" target="_blank" rel="noreferrer noopener">The Block</a> reported on Wednesday. While Citigroup won’t directly provide any funds to Celsius, it will lay out possible financing routes, the report said.



In addition to its advisory role, Citigroup will reportedly help Celsius evaluate offers, including one made by rival lender Nexo, which formally approached its competitor to buy some of its distressed assets, at the time Celsius signaled liquidity issues. 



Nexo <a href="https://cms.blockworks.co/nexo-knew-celsius-was-in-trouble-before-lenders-withdrawal-freeze/" target="_blank" rel="noreferrer noopener">told Blockworks</a> it was aware Celsius had trouble with its withdrawal obligations and its findings pointed to the “unsustainability” of its business, even before the lender publicly admitted to it.



Celsius’ move to pause user withdrawals and transfers due to “extreme market conditions” triggered a fearful crypto market sell-off reminiscent of Mt. Gox’s catastrophic <a href="https://www.reuters.com/article/us-bitcoin-mtgox-bankruptcy/mt-gox-files-for-bankruptcy-hit-with-lawsuit-idUSBREA1R0FX20140228" target="_blank" rel="noreferrer noopener">bankruptcy</a> in 2014, said Youwei Yang, director of financial analytics at StoneX. At the time, the Tokyo-based crypto exchange lost about 850,000 bitcoin in a hack, leading to the firm’s collapse.



In a <a href="https://blog.kaiko.com/celsius-reaches-boiling-point-c9b258f4474f" target="_blank" rel="noreferrer noopener">report</a> Wednesday, crypto research firm Kaiko said Celsius suffered from a combination of poor risk management, bearish market conditions, and overexposure to stETH (<a href="https://cms.blockworks.co/will-lido-staked-ether-trigger-the-next-big-crypto-crash/" target="_blank" rel="noreferrer noopener">staked ether</a>, a derivative of ether locked in the Ethereum Beacon Chain), which drove the firm into a “Lehman-esque” position.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Even if they do survive this onslaught, I don’t see how anyone can trust the likes of Celsius to keep their assets safe going forward,” Conor Ryder, research analyst at Kaiko, wrote.</blockquote>



Citigroup declined to comment, while Celsius didn’t respond to a request for comment by Blockworks. On Wednesday, Celsius CEO Alex Mashinsky did <a href="https://twitter.com/Mashinsky/status/1537147449088872449" target="_blank" rel="noreferrer noopener">post a brief note</a> on Twitter — his first since his company suspended withdrawals — thanking the Celsius community for their patience.



Citigroup’s appointment wouldn’t be a new one for the crypto lender. The bank reportedly advised Celsius on taking its bitcoin mining subsidiary business public. In May, the network <a href="https://www.prnewswire.com/news-releases/celsius-network-announces-confidential-submission-of-draft-registration-statement-by-bitcoin-mining-subsidiary-celsius-mining-llc-301547547.html" target="_blank" rel="noreferrer noopener">submitted</a> a confidential S-1 draft registration for the subsidiary’s initial public offering — expected to become effective after the SEC’s review.



<h3 class="wp-block-heading">Prospects for reorganization</h3>



Celsius has also <a href="https://cms.blockworks.co/celsius-lawyers-up-following-account-freeze-liquidity-crunch/" target="_blank" rel="noreferrer noopener">tapped</a> Washington, DC-based law firm Akin Gump Strauss Hauer &amp; Feld to explore potential financing options from investors, the Wall Street Journal reported.



Dane Lund of DeFi Alliance sees that as a move to head off potential small claims court actions from its customers, which would become impossible if the company files for bankruptcy protection.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Yesterday, the WSJ reported that Celsius engaged Akin Gump for restructuring advice. This tells unsecured creditors that efforts to seek judgments in court are unlikely to unlock liquidity soon enough to beat the automatic stay.&mdash; Dane Lund (@lund_dane) <a href="https://twitter.com/lund_dane/status/1537091805061296130?ref_src=twsrc%5Etfw">June 15, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The chaos triggered by Celsius is proof that not all lending platforms are equal, according to Mauricio Di Bartolomeo, cofounder of Canada-based crypto lender Ledn.



Clients will be further incentivized to ask the right questions to gain more information on how the yield they are paid is generated, he told Blockworks. “If they are not satisfied with the answers they receive, they could proactively choose to withdraw their assets or close their loans at that particular platform,” he added.



When asked how sustainable companies in the crypto lending space are, Bartolomeo said the models used to generate yield by each vary widely, and it would be unfair to characterize them under the same umbrella.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“There are significant differences in the risk management policies and in the yield generation strategies being employed by the various lenders,” he said.</blockquote>



“Those lenders who took significant risks [such as] generating yield in DeFi with their depositors’ assets, lending uncollateralized to low credit quality borrowers, taking directional market risk with client assets may be finding themselves in some trouble now,” he added.



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Celsius Calls on Citigroup for Options After Liquidity Squeeze, Report Says

Sebastian Sinclair

<div id="highlights-block_62a9643c8c20f" class="highlights">
 <ul>
 <li>Akin Gump Strauss Hauer &amp; Feld, a top US law firm, has reportedly been hired by Celsius to help navigate its ongoing crisis</li>
 <li>Celsius paused user withdrawals and transfers, citing &#8220;extreme market conditions&#8221;</li>
 </ul>
 
</div>



Cryptocurrency lender Celsius has hired a top US law firm to help navigate its financial headaches following a decision to freeze users&#8217; accounts.



Due to its ongoing liquidity crunch, Celsius has tapped Washington, DC-based unit Akin Gump Strauss Hauer &amp; Feld to assist in seeking out potential financing options from investors, the <a href="https://www.wsj.com/articles/crypto-lender-celsius-hires-restructuring-lawyers-after-account-freeze-11655250575" target="_blank" rel="noreferrer noopener">Wall Street Journal</a> reported Tuesday.



Financial restructuring of Celsius could also be in the cards, according to the report that cited people familiar with the matter. Akin is an international law firm and one of the largest lobbying firms in the US by total revenue.



Celsius, which as of May boasted <a href="https://celsius.network/about-us" target="_blank" rel="noreferrer noopener">$11.8 billion</a> in digital assets under management, made the decision Sunday to <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">pause withdrawals</a>, swaps and transfers between user accounts, citing “extreme market conditions.&#8221; 



Early rumors of its financial trouble, alongside tepid crypto markets, had triggered the lender&#8217;s native token CEL to collapse 90% since April, from $3.15 to $0.40 when accounts were locked.



Celsius earns revenue by <a href="https://www.investopedia.com/terms/r/rehypothecation.asp" target="_blank" rel="noreferrer noopener">rehypothecating</a> customers&#8217; deposited funds. As demand for redemptions increased during the market downturn and exceeded Celsius&#8217; liquid reserves on hand, the lender was forced to unwind its positions. As such, Celsius has faced a liquidity crisis as it fails to meet customer demand.



The Hoboken-headquartered company has said it decided to pause withdrawals to “stabilize liquidity and operations” — a move that has effectively shaken confidence in lenders among institutional and retail investors alike.



Prior to the lender&#8217;s decision to freeze accounts, it promised users annual percentage yields of up to 18.6% on crypto deposits, according to its website.



Blockworks attempted to contact Celsius and Akin but did not receive a reply by press time.



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<li><a href="https://blockworks.co/newsletter/onthemargin">Forward Guidance</a>: Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin.</li>



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