Celsius demands billions of dollars from Tether: What’s going on

Bankrupt lending platform Celsius has filed a lawsuit against Tether, demanding 39,542 BTC.

According to the lawsuit, the amount was collateral for a loan from the issuer of the stablecoin Tether (USDT). Tether requested more collateral after the price of Bitcoin (BTC) crashed in early 2022.

Celsius agreed to Tether’s request, but the collateral was still threatened. The lawsuit states that the lending platform collected funds for the period specified in the contract, but the USDT issuer liquidated all the collateral within hours.

According to the lawsuit, on June 13, 2022, “amid the chaos,” then-Celsius CEO Alex Mashinsky allegedly allowed Tether to liquidate the collateral in an orderly manner. However, the platform noted that the lender never received written approval:

Tether’s efforts are, of course, now subject to federal bankruptcy law, which has intervened, so these exclusive and fraudulent transfers of Bitcoin must be avoided and Bitcoin or its value must be saved for the benefit of Celsius’ estate.

Instead of providing additional collateral, Celsius instructed Tether to liquidate its Bitcoin collateral, closing a position worth approximately $815 million, the firm said.

Celsius claimed a total of 57,428 BTC, including 39,542 BTC, as well as 15,658 BTC and 2,228 BTC that he allegedly provided as additional collateral.

Tether’s answer

Commenting on the situation at Celsius, Tether CEO Paolo Ardoino stated that the entire process, from overcollateralization to margin call and liquidation, was carried out properly in accordance with the instructions of Celsius management.

Notes:

1. This complaint demonstrates a fundamental lack of understanding of market slippage, block liquidation and risk management concepts. Very weak arguments are being made. Furthermore, the liquidation was managed by the Celsius management team and every step was agreed upon.

— Paolo Ardoino 🤖🍐 (@paoloardoino) August 10, 2024

According to him, in 2022, Tether provided USDT to some of its customers, including Celsius. Tether’s agreements with its customers are simple: Tether provides USDT to selected customers who provide excess collateral in Bitcoin.

This complaint shows a fundamental lack of understanding of market slippage, block liquidation and risk management concepts. Very weak arguments are being made. Also, the liquidation was managed by the Celsius management team and every step was agreed upon.

He also reminded that Tether’s top priority remains the security of USDT users. According to Ardoino, the company’s capitalization is $12 billion, so stablecoin holders will not be affected even in the worst-case scenario.

We at Tether have proven our resilience countless times over the past few years. Bullying never scares us. We are very confident that we can prove our actions in court.

What happened to the loan?

In 2020, Celsius struck a deal with Tether to lend USDT and EURT stablecoins at low interest rates. At its peak, Celsius had over $2 billion in loans from Tether, secured by a significant amount of Bitcoin as collateral.

As Bitcoin crashed in mid-2022, the crypto lender’s collateral was at risk of liquidation. Under the agreement, the company was required to provide additional collateral.

Celsius alleges that Tether acted in bad faith by hastily liquidating a significant amount of cryptocurrency and violating the terms of the agreement.

This eventually led to the company’s financial difficulties and bankruptcy, the document states. The main purpose of Celsius’ lawsuit is to return Bitcoin assets that the crypto lender claims were sold below market value and with numerous violations.

How did Celsius go bankrupt?

Celsius froze the withdrawal of client assets in June 2022. A month later, the company went bankrupt. According to several analysts, the crypto broker was experiencing liquidity problems. However, the company stated the opposite – allegedly, this measure was supposed to help “stabilize liquidity.”

Hello everyone! I’m Jason Stone and I led the group of talented individuals who managed the 0xb1 address from August 2020 to April 2021.

— 0xb1 (@0x_b1) July 7, 2022

At the end of January 2023, a forensic expert found that Celsius Network was facing a shortage of one billion US dollars worth of stablecoins in May 2021. At the same time, the company did not inform its customers or regulators about this until the bankruptcy itself, but continued to advertise its services.

Celsius Network’s creditors have announced a restructuring plan for the company, which most account holders have approved. In November 2023, the court approved Celsius’ restructuring plan. A few months later, the crypto lender announced that it had completed bankruptcy proceedings and planned to pay $3 billion to creditors.

Celsius CEO blames prosecutors for collapse

In July 2023, Mashinsky was arrested after the Securities and Exchange Commission filed a lawsuit against the company. He is accused of fraud and market manipulation, and the company’s token is recognized as a security. He was soon released on $40 million bail. Prosecutors said they will need six to eight weeks to gather evidence, including online videos of Mashinsky allegedly misleading investors.

He has pleaded not guilty, and his lawyers have called the accusations “baseless.” Furthermore, Mashinsky has previously blamed the New York Attorney General’s Office for the collapse of his business.

As part of the criminal case filed against the company and its senior management, Mashinsky’s bank accounts and real estate were frozen by court order in September 2023.

Source: Court file What’s next?

The lawsuit is no guarantee that Celsius will get what it wants. For now, the platform is likely to face another lawsuit after a two-year bankruptcy battle. Either way, the lawsuit further illuminates how Tether has navigated the financial challenges that other crypto companies have faced during the 2022 bear market.