Failed platform Celsius plans to create new cryptocurrency to pay off debt, leaked audio shows

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Failed cryptocurrency lending platform Celsius Network appears to be planning to turn its debt into a new cryptocurrency called “IOU” (“I Owe You”).

Celsius filed for bankruptcy protection in the US on July 11, a month after halting withdrawals because of a liquidity crisis blamed on “extreme market conditions”. Subsequently, it emerged that the platform’s financial problems were more serious: a debt of almost US$ 5 billion to 500 thousand creditors.

Even if Celsius sold all of its assets — including its still unfinished mining subsidiary Celsius Mining, on which Celsius executives and bankruptcy lawyers pinned their hopes — 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 YouTuber and platform customer Tiffany Fong, indicates the company is considering an alternative method to refund customers: convert Bitcoin (BTC), Ethereum (ETH) and USD Coin (USDC) that you owe customers in a token.

In the audio, co-founder and chief technology officer Nuke Goldstein explains that the token “represents the ratio between how much we really owe and how much we actually have.”

Read more:
• Celsius CEO wants to turn bankrupt crypto platform into a custodial company, says newspaper

Customers could then redeem these “IOU tokens”, trade them on the market or hold them to speculate on the possible long-term recovery of Celsius. The timeline for these rescues, however, remains unclear.

In another leaked call shared by Fong, Celsius executives told employees at a general meeting on Sept. reacted with “positive feedback”.

“That’s really how we solve it, how we get out of this situation,” Oren Blonstein, director of compliance at Celsius, told employees at the meeting. “What we do at this crucial moment can be through original and truly innovative solutions – and this [plano] is one of them.”

Solution is not new

The plan, if accepted by the committee of uninsured creditors, would not, however, be exactly unheard of.

Poolin, the Chinese operator of illiquid mining pools, suspended redemptions for 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 idea also bears some resemblance to Bitfinex’s recovery plan, used after a hack that drained 120,000 BTC from the exchange’s reserves in mid-2016. At the time, the exchange issued debt tokens to affected customers, which were traded on the market. — usually for much less than its face value of $1.

After the resumption, a year later Bitfinex had already repurchased all of its remaining debt tokens.

The same has also happened several times in Brazil. Atlas Quantum, the company accused of scamming victims across the country for billions of reais, launched a cryptocurrency called Bitcoin Quantum that later proved to be worthless. The same happened with other companies accused of operating Ponzi schemes, such as BWA and Genbit.

Investigation in progress

After suspending customer redemptions in June, Celsius came under scrutiny by regulatory authorities in different US states, including Kentucky, New Jersey and Vermont.

The Vermont Department of Financial Regulation, in this case, has strong opinions about Celsius when it suggested in September that the company’s structure resembled a pyramid.

“This shows a high level of financial mismanagement and also suggests that, at least at times, the income of existing investors was likely being paid out of the assets of new investors,” the Vermont document said.

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