Celsius Update: The lender, creditors spat over wallet and asset custody

According to recent reports, Celsius network recently applied to a New York bankruptcy judge to keep custody of their customers’ accounts. Celsius network claims to have full custody over all wallets and the funds therein. However, the account holders maintain that the troubled lender should return custody to account holders.

Celsius want account custody 

Reports also indicate that the Celsius network claims that the assets in the withhold and custody accounts are part of their property and estates. According to reports, Celsius did business on the premise of account holders transferring their virtual assets to the debtor (Celsius). The account holders would then earn rewards from the earning program. 

According to reports, due to this policy:

“The Debtors (Celsius) have taken the position that digital assets transferred by Account holders to the Debtors for participation in the earn and borrow programs are property of the Debtors’ estates and that such account holders have unsecured claims against the Debtors. Certain account holders have asserted that digital assets transferred to the earn and borrow programs are their property.”

In a statement titled “Introducing Celsius’ Custody Solution,” released on April 11, Celsius announced new changes, which took effect on April 15. One of the changes concerning custody accounts said;

“On April 15, 2022, Celsius will launch a new Custody solution for users in the United States.”

Because of the terms of service update and policy change, Celsius believes it should get custody over some of its customers’ accounts listed in the network.

Account holders want custody returned to them

While Celsius wants to gain control over the investors’ accounts, on the other side, the account holders believe that the custody must be returned to them. A motion filed in court by ‘THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS’ said;

“Digital assets held in the Custody Wallets are not the property of the Debtors’ estates. The April Terms of Use unambiguously provide that digital assets in the Custody Wallets are the account holders’ property, not the Debtors’ property. The Debtors maintained separate Custody Wallets in which they set aside digital assets that were intended to track, in the aggregate, customer balances in accounts within the Custody Program (the “Custody Accounts” and, such holders, the “Custody Account Holders”).”

The document insisted that the digital assets held in the accounts in question are not part of the property of Celsius’ estate. Further reports from the document highlight Celsius’s failure to track the custody assets accurately. Hence there was a deficit of $15 million in Custody wallets compared to the ones in Custody obligations. In simpler terms, the account holders believe they should have full custody of all their accounts until Celsius matters are solved.

The committee of unsecured creditors noted that they support the distribution of assets held in custody wallets to the actual account holders. They also mentioned that if given a chance, they will work with Celsius “to return a pro-rata share of such digital assets (by cryptocurrency type) in Custody Wallets to such Custody Account Holders.”

Crypto markets continue being troubled by negative news

Even before the Celsius dust settled, another top crypto network, FTX, the second largest crypto exchange, just recently hit the headlines with insolvency. There are claims that FTX is insolvent and requested help from Binance Exchange to deal with its troubles. The fall of such giants in the crypto landscape often negatively impacts the crypto markets. There were massive losses in crypto coins due to the problems brought by networks such as Celsius and FTX.