Celsius ‘Deeply Insolvent’, US State Regulator

Vermont regulator warns crypto lending firm Celsius “lacks the assets and liquidity to meet its obligations to account holders and other creditors”

A US state financial regulator has effectively declared bankruptcy of a major US cryptocurrency lending company, Celsius Network.

Vermont’s Department of Financial Regulation (DFR) on Tuesday warned it believes cryptocurrency lender Celsius Network is “deeply insolvent and lacks the assets and liquidity to meet its obligations to account holders and other creditors.”

The warning comes after Celsius Network froze all withdrawals, swaps and transfers between customer accounts last month, citing “extreme” terms.

Celsius problems

Celsius, which is one of the largest crypto lending platforms worth $12 billion, allows users to lend their tokens as collateral for other crypto projects in exchange for annual returns of up to 17 percent.

But investor interest in such risky areas has waned since the collapse of the TerraUSD “stablecoin” in early May, which was linked to a similar high-yield scheme along with the Luna coin.

Celsius last month said it paused all withdrawals, transfers and swaps after weeks of speculation about the sustainability of its large returns.

The company’s business model, like that of Terra, in which it was an investor, depends on a steady stream of new entrants feeding or borrowing the system to pay the high rates.

After Terra’s collapse, some critics compared the business model to a pyramid scheme.

And now the Vermont DFR has weighed in on the company, which is not licensed in Vermont but does sell to investors in the US state.

It said Celsius had freezes on all withdrawals and transfers for hundreds of thousands of customers and billions of dollars worth of cryptocurrencies, including accounts of some Vermonters.

“Celsius has deployed client assets in a variety of risky and illiquid investment, trading and lending activities,” DFR claimed. “Celsius exacerbated these risks by using client assets as collateral for additional loans to pursue leveraged investment strategies.”

In addition, some Celsius assets are illiquid, which means they are difficult to sell, and a sale could lead to financial losses, DFR said. “The company’s assets and investments are likely to be insufficient to cover its outstanding liabilities.”

Insolvent lender?

And DRF warned that Celsius is very likely insolvent.

“Celsius Network operates in multiple jurisdictions, including Vermont,” said DFR. “The ministry believes that Celsius has been involved in an unregistered securities offering by offering cryptocurrency interest accounts to retail investors. Celsius also lacks a money transmitter license. This means that until recently Celsius operated largely without regulatory oversight.”

“Because it did not register its interest accounts as securities, Celsius customers did not receive critical disclosures about its financial condition, investing activities, risk factors and ability to repay its obligations to depositors and other creditors,” it added.

“The ministry has joined a multi-static Celsius inquiry that stems from the above concerns,” it said. “Previous statements by the company, its CEO and other Celsius representatives about the safety of customer funds and the company’s ability to meet withdrawal obligations are not true.”

“The ministry is aware of reports that Celsius has consulted with the insolvency lawyer and is considering filing for bankruptcy,” it added. “If you are a Celsius customer, a bankruptcy filing could affect your investor rights and the value of your Celsius interest account balances. Please consult your own counsel if you have any questions about your individual situation and how bankruptcy proceedings could affect your investment in Celsius.”

It is reported That state regulators in Alabama, Kentucky, New Jersey, Texas and Washington are investigating Celsius’s decision to suspend customer buybacks.

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