Telling the story of three key crypto cases from Chapter 11

chapter 11 road sign
Several firms are going through ‘reorganization’ bankruptcy in the cryptosphere – Photo: Shutterstock

As the cryptocurrency boom turns to bankruptcy, several high-profile digital asset companies have entered Chapter 11 bankruptcy proceedings.

Here are the three key cases to watch.

what is chapter 11

Chapter 11 is known as a form of bankruptcy that involves the reorganization of a debtor’s business affairs, debts, and assets, and is therefore known as “reorganization” bankruptcy.

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Celsius Network

Celsius, a peer-to-peer platform for decentralized finance (DeFi), has a $1.2 billion hole in its balance sheet, according to a recent court filing from the advisory partner of crypto lender Kirkland & Ellis.

The crypto lender filed for Chapter 11 in the US citing “extreme” market conditions, leaving its 1.7 million customers unable to redeem their assets, to stabilize the business, its CEO Alex Mashinsky said. it’s a statement.

As a result, the network’s native token, CEL, experienced a series of wild price swings as investor confidence waned and waned.

The token has soared in valuation by over 4,100% in the past two months, reaching around $3.93 over the weekend compared to its mid-June low of $0.093.

CEL to US Dollar

Two factors that put the crypto lender in a tough spot, despite making loan payments: the use of on-chain leverage and stETH (staking ether).

Celsius accesses leverage through permissionless on-chain DeFi money markets like MakerDAO by taking user deposits of BTC and ETH and depositing them to borrow DAI to provide users with a low lending rate.

Maker works $1.50 of volatile collateral (ETH, for example) deposited to borrow the DAI stablecoin.

If the value of the collateral falls below a threshold, it is liquidated to pay off the loan and avoid bad debt. In short, pay off your clients’ loans to pay off your own.

DAI to US dollar

Celsius offered solid ETH yields of 8% using an ETH derivative known as staked ETH (stETH). stETH, creation of LidoFinanceactually doesn’t exist yet.

In layman’s terms, stETH is a token that will only be awarded once The Merge is complete, which according to analysts recently spoke with, could “happen next year at best.”

The crypto lender revealed on Monday that it was running out of money, saying it received several proposals to inject cash into the firm and got approval from a US judge to sell BTC it mines.

Celsius’s attorney, Josh Sussberg, disclosed the receipt of cash injection offers during a bankruptcy hearing yesterday.

digital traveler

Voyager Digital largely attributed its troubles to the financial problems of Three Arrows Capital, leading Voyager to file for Chapter 11 in the US.

It served Three Arrows with a notice of default in June seeking to recover $650 million in debt from the crypto hedge fund operator.

Sam Bankman-Fried helped Voyager financially by providing revolving loans worth $200 million in cash and USDC, and 15,000 BTC. But Voyager still went bankrupt.

Bankruptcy proceedings could mean longer waits for Voyager customers seeking access to assets held by the company with frozen operations, withdrawals and loyalty rewards.

VGX to US dollar

Capital of the three arrows (3AC)

3AC, a Singapore-based crypto hedge fund, which invested in tokens like ETH and SOL, suffered terrible losses because it held a major position in LUNA when the Terra blockchain crashed, worth about $560 million at the time. maximum.

The founders foreclosed and defaulted on loans after the crypto hedge fund went bankrupt by making a series of large directional transactions (GBTC, LUNA, stETH) and borrowing from more than 20 institutions.

Then the legal proceedings moved forward when the founders were MIA. They recently broke their silence and said that they will move 3AC to Dubai to see if the company has a future.

SOL to US dollar

3AC owes more than $3 billion and Genesis is its largest creditor with $2.3 billion borrowed. 3AC’s failure to pay its debts also contributed to the insolvency of Celsius Network and Voyager Digital.

A leaked court document showed that co-founder Zhu Su made luxury purchases with borrowed money that was likely used to indicate 3AC’s solvency.

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