Israeli-US company Celsius, one of the world's largest cryptocurrency platforms, has filed for Chapter 11 bankruptcy in the New York court. Celsius has more than 100,000 creditors. The bankruptcy filing comes one month after Celsius announced that it was suspending all withdrawals, stressing that the measure was taken to enable it to meet commitments to customers to whom it had committed to pay 15%-17% interest rates on deposits. Celsius says it is asking for the protection so it can stabilize its business and "maximize value for all its stakeholders."
Celsius's big problem is that it has leveraged customers' deposits and put it in various non-liquid investments, and so a month ago when customers began demanding their money, in the equivalent of a 'run on the bank' there was not enough available capital to repay all their money. In explaining its decision to suspend withdrawals Celsius said, "Customers who were the first to withdraw their assets received payment in full, and this leaves others with non-liquid and less secured claims."
Celsius, which was founded by Israeli entrepreneurs Daniel Leon and CEO Alex Mashinsky operates in the decentralized finance (DeFi) sector - a field which aspires to be the "new banking." Because of this Celsius, the largest Israeli company operating in the sector, brands itself as a bank and allows customers to make deposits and accumulate returns.
The money is deposited into a 'striking' mechanism, whereby customers can lock in their money for the longer term and returns will be received accordingly. Celsius promised returns of up to 17% annually by locking in cryptocurrencies for several years. While Celsius customers could lock their deposits into a mechanism of any cryptocurrency, benefits were given to those who chose its own CEL currency.
To date Celsius has raised capital for investment worth $3 billion while its CEL cryptocurrency has lost 98% of its value over the past year.
Celsius does not possess a license to operate in Israel. In practice its core activities are banking activities and not at all in the realm of the Supervisor of the Capital Market, which examines issuing licenses for cryptocurrency activities in Israel.
Published by Globes, Israel business news - en.globes.co.il - on July 14, 2022.
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