Bankrupt crypto lender Celsius Network appears to be considering a plan to turn its debt into crypto “IOU” (“I Owe You”) tokens.
Celsius filed for Chapter 11 bankruptcy protection in July, a month after halting withdrawals because of a liquidity crisis it blamed on “extreme market conditions.” Subsequent bankruptcy proceedings in the Southern District of New York have revealed the depths of Celsius’ financial troubles: The lender owes 500,000 creditors nearly $5 billion.
Even if Celsius sold all of its assets – including its mysterious, half-finished mining subsidiary, Celsius Mining that Celsius’ executives and bankruptcy lawyers have pinned their hopes on to get out of debt – it would still be left with a $1.2 billion hole in its balance sheet.
Instead, a leaked audio recording of an internal Celsius meeting – shared by Celsius customer and YouTuber Tiffany Fong – indicates that Celsius is considering an alternative method for repaying customers: wrapping the bitcoin, ether and USDC it owes customers into a token that, as Celsius co-founder and Chief Technology Officer Nuke Goldstein explains, “represents the ratio between how much we really owe and how much we really have.”
Customers could then either redeem the wrapped “IOU tokens” (though a timeline for these redemptions remains unclear), trade them on the open market or hold them to speculate on Celsius’ potential recovery in the long term.
In another leaked call shared by Fong, Celsius executives told employees at an all-hands meeting on Sept. 8 that Celsius’ CEO Alex Mashinsky had already shared the plan to issue the IOU tokens with the unsecured creditors committee, which reacted with “positive feedback.”
“This is really how we resolve this, how we get out,” Oren Blonstein, Celsius’ chief compliance officer, told employees at the meeting. “What we do in this pivotal moment can be through unprecedented, really innovative solutions and this [plan] is one of them.”
The plan, if accepted by the unsecured creditors committee, however, wouldn’t exactly be unprecedented.
Liquidity-strapped Chinese mining pool operator Poolin suspended withdrawals from its wallet service earlier this month. A week later, it announced that it would issue IOU tokens to affected customers representing a 1:1 ratio of user balances across six cryptocurrencies.
The plan also bears some resemblance to Bitfinex’s recovery plan following a hack that drained 120,000 bitcoins (BTC) from the exchange’s reserves in mid-2016. The exchange issued debt tokens to customers affected by the hack, which were then traded on the open market – often for much less than their $1 face value. By April 2017, Bitfinex had bought back all of its remaining debt tokens.