Celsius Users May Lose Their Funds Permanently, Says Economist

Even after the Celsius Network’s chapter 11 bankruptcy filing, the debacle surrounding its collapse continues to deepen. Frances Coppola, a well-known economist has asserted that the platform’s users are unlikely to recover their missing funds.

Celsius a Shadow Bank?

Earlier this month, the crypto lender collapsed amidst fraud allegations and liquidity problems that caused it to halt withdrawals. Later on, the network announced that it had applied for Chapter 11 bankruptcy in New York. At the time, the claim was that the platform would work at regaining its balance and begin restructuring operations.

The company professed to have $167 million in cash dedicated to this end. They supposedly aimed to reorganize and undertake certain moves to benefit their stakeholders. Interestingly, however, the bankruptcy application unearthed more information about the company’s finances.

Celsius’ balance sheet revealed that the company is in debt to the tune of 1.2B USD. Apparently, this was one factor that pushed crypto exchange FTX away from a suggested acquisition. The document exposed holdings worth $4.3 billion in contrast with liabilities scaling $5.5 billion. 

Coppola slammed the lending platform, tagging it a “shadow bank.” 

Celsius is not an asset manager, it’s a shadow bank. And deposits in banks aren’t even “customer assets,” let alone “assets under management.” 

Coppola goes on to claim that  Celsius imitates entities that behave similarly to banks but aren’t exactly that. They acquire short-term funds majorly through loans and use those to buy assets with longer-term maturities. 

“Depositors Have no Legal Right to their Funds”

According to Coppola, Celsius depositors will probably not get their money back. In her blog post, the crypto critic and economist delved into the company’s mess to explain her statement.  She expressed no surprise at the company going bankrupt, only highlighting that firms in similar situations had done the same. 

Asides disregarding Celsius’ claims of $12B in customer assets as misleading, the economist stated that depositors do not exactly have a legal right to their deposited funds.  The economist describes customers’ bank deposits as unsecured loans to the institution:

Celsius’s terms of use make it completely clear that customers who deposit funds in Celsius’ interest-bearing accounts are lending their funds to Celsius to do with as it pleases.” 

Hence, the funds are liabilities of the bank and thus at risk in a case of bankruptcy. Banks do not have a legally obligation to restore depositor funds, a point Celsius’ terms of use are supposedly clear about. Coppola highlighted a section of the document that addresses this. 

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It specifically notes the conditions; if Celsius becomes “bankrupt, enters liquidation or is  otherwise unable to repay its obligations.” In the event of this, users may be unable to recover a portion of or even all of their money.

Even if the terms of the account say funds can be withdrawn whenever the customer chooses, the bank can refuse to allow customers to withdraw their funds if it doesn’t have the cash to pay them.”

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