A “Convenience Class” of Celsius creditors will receive a “one-time distribution of liquid crypto” paid in form of Bitcoin, Ether, and USD Coin.

Up to 85% of Celsius creditors may potentially get up to 70% of their crypto funds back.
Source: Unsplash

Creditors of Celsius Network, the bankrupt cryptocurrency lending platform, may get their assets back after all… with caveats.

Celsius’ Official Committee of Unsecured Creditors (UCC) has issued an announcement via Twitter.

“1— Last night Celsius (with UCC support) selected NovaWulf to sponsor a reorganization plan that will distribute liquid crypto to all account holders, as well as create a litigation trust and provide creditors with common equity in a NewCo holding illiquid assets like mining.”

UCC also shared highlights of the proposed plan.

While some creditors were relieved that actions were being taken to save any of their funds, others pointed out the retail clawbacks, the questionable creation of a “convenience class” of creditors, and their being forced to invest in some doubtful “NewCo” instead of getting their crypto back.

A retail clawback is a term used in the context of initial public offerings (IPOs) and refers to a situation where underwriters of an IPO demand that some or all of the shares allocated to retail investors be returned or “clawed back.”

In an IPO, shares are typically allocated to institutional investors, such as banks and hedge funds, as well as to retail investors, who are individual investors. In the event that there is more demand from retail investors than the number of shares available to them, underwriters may allocate a larger number of shares to retail investors than they actually have available, with the expectation that some of those shares will be returned or clawed back later.

The underwriters can demand the return of the shares from the retail investors if the underwriters are not able to sell all the shares allocated to institutional investors. This can happen, for example, if the demand for the shares is lower than expected, causing the price of the shares to fall.

In the event of “NewCo” Celsius restructuring and offering crypto assets management services again, the likelihood of its unpopularity amongst customers and investors not tied by credit Celsius owes them is extremely high. Meaning, the likelihood that creditors-turned-investors will be ripped off once again is also much anticipated.

Founder Alex Mashinsky, a now-disgraced entrepreneur, will not be involved in any further life “NewCo” Celsius may have.

Celsius Network advertised itself as a Robinhood, with an aim to disrupt the traditional banking industry by providing financial services that are more accessible and affordable than those offered by traditional banks. At the height of its popularity, Celsius managed over $20 billion in assets and had around 1.7 million users.

The firm allowed users to earn interest on their crypto assets, borrow against their cryptocurrency holdings, and buy and sell cryptocurrencies. The firm became popular because it offered high-interest rates and low fees.

What went wrong? In May 2022, Celsius had $8 billion lent out to users, while managing $12 billion in assets. Only a month later, the company abruptly froze all account activity, citing steep declines in prices on the cryptocurrency market. Another month later, on July 13, Celsius filed for Chapter 11 bankruptcy.

In a lawsuit filed against Mashinsky, New York judge Martin Glenn ruled out that under the terms of the company’s lengthy contracts, clients’ cryptocurrency assets became Celsius’s property.

Following the proposed plan, it is estimated that over 85% of Celsius creditors will recover 70% of their deposited crypto. Earn creditors with a balance over $5,000 can elect to reduce their claim to $5,000 to participate in the “convenience class”. “Robinhood” Celsius shows once again the risks of trying to benefit from cryptocurrency while lacking enough knowledge to do so without a centralized party.