Celsius Rises from Bankruptcy: Plans $3 Billion Creditor Payback

After their struggles with bankruptcy, both Celsius and FTX are making repaying creditors their main priority.

Some of the cryptocurrency firms that went bankrupt over the past few years are starting to make a comeback, while the troubles are only now starting for others. Celsius Network has successfully exited Chapter 11 bankruptcy, emerging with a new venture, Ionic Digital Inc., in collaboration with Hut 8 for Bitcoin mining, while distributing about $3 billion to creditors.

Meanwhile, FTX is focusing on repaying customers and creditors rather than relaunching. In contrast, Three Arrows Capital (3AC) faced a setback in Singapore's High Court, which rejected its bid to dismiss a lawsuit by DeFiance Capital.

Celsius Successfully Exits Bankruptcy

Celsius, a now notorious crypto lender, has successfully emerged from Chapter 11 bankruptcy in the United States. This is a major turnaround after more than a year of financial turmoil. The company is set to distribute about $3 billion in crypto and fiat to its creditors and is also launching a new venture, Ionic Digital Inc., a Bitcoin mining firm. This new entity is a collaboration with Hut 8, a well known crypto mining company, and will be led by Matt Prusak, the Chief Commercial Officer of Hut 8.

Celsius’ exit from bankruptcy is a result of an overwhelming agreement from about 98% of its creditors, who supported the exit plan. This positive development comes after a challenging period that began in June of 2022 when Celsius paused withdrawals and subsequently filed for bankruptcy the following month. The decision to halt withdrawals was taken in the middle of a huge drop in the value of its native token, Celsius (CEL).

In its strategy to maximize returns for creditors, Celsius has increased the available crypto funds for distribution by around $250 million. This increase was achieved through the conversion of altcoins to BTC or ETH and from previous settlements. These distributions to creditors are planned to be conducted through a number of different platforms, including PayPal, Venmo, and Coinbase. Some creditors have already shared claim forms received through these apps.

Ionic Digital's role in this scenario is pivotal. The company plans to continue delivering recoveries to Celsius' creditors and is on the path to become a publicly traded entity, pending necessary approvals. This move is part of Celsius' broader strategy to wind down its operations and discontinue its mobile and web applications by the end of February.

The journey of Celsius has been riddled with challenges. During its bankruptcy, Celsius settled a massive $4.7 billion in fines with various regulatory bodies including the Federal Trade Commission, Department of Justice, Securities and Exchange Commission, and the Commodity Futures Trading Commission.

Its former CEO, Alex Mashinsky, also faced legal troubles, being arrested and charged with financial fraud and other allegations. Despite pleading not guilty and currently being out on a $40 million bond, his trial is scheduled for September.

FTX Focuses on Repayment, Not Relaunch

Meanwhile, in a recent hearing at the United States Bankruptcy Court for the District of Delaware, FTX, the defunct cryptocurrency exchange, stated that its restructuring plans do not involve relaunching the firm. Instead, the focus is on fully repaying customers and creditors, according to FTX attorney Andy Dietderich from Sullivan and Cromwell law firm. Despite cautiously predicting that full repayment is achievable, Dietderich emphasized that it is more of an objective than a guarantee.

Dietderich revealed that there were no plans to restart FTX in its current Chapter 11 bankruptcy plan, commonly referred to as FTX 2.0. He mentioned that no investor is willing to invest the necessary capital to restart the offshore exchange, and no buyer has shown interest in acquiring the exchange. According to Dietderich, the efforts to create an exchange from the pieces left by former CEO Sam Bankman-Fried were just too costly and risky.

Bankman-Fried, who was found guilty of seven felony counts related to fraud at FTX and Alameda Research in November of 2023, is scheduled for sentencing on March 28. Around the same time as Dietderich’s announcement, the FTX Token (FTT) experienced a brief surge in price from $2.67 to $3.01, before dropping to $2.24.

In December of 2023, FTX debtors proposed that claimants be reimbursed based on the cryptocurrency prices at the time of bankruptcy, suggesting $16,871 for Bitcoin and $1,258 for Ether. The creditors, however, proposed repayments “in kind” for crypto holdings. Judge John Dorsey, in his Jan. 31 ruling, sided with the debtors, stating that the law on this matter was "very clear."

Singapore Court Rejects 3AC's Dismissal Bid in DeFiance Capital Lawsuit

While Celsius and FTX are starting to recover, the High Court of Singapore rejected an application by bankrupt crypto hedge fund Three Arrows Capital (3AC) to dismiss a lawsuit filed against it by Arthur Cheong, the founder of Web3 investment firm DeFiance Capital. This lawsuit centers on the claim that DeFiance Capital investors were the rightful owners of assets held in trust by 3AC, which should not be used to satisfy creditor claims against 3AC.

The genesis of this dispute dates back to an agreement between Cheong and 3AC founders Su Zhu and Kyle Davies, which led to the creation of an "independent and standalone fund" on the 3AC Group platform. Named DeFiance Capital, this fund leveraged 3AC's resources, including its infrastructure, fund administrators, and auditors. DeFiance Capital operated with segregated accounts and wallets in Cheong’s name, contributing a fee of 25% of its income to Zhu and Davies.

By May of 2022, DeFiance Capital’s accounts held huge amounts of assets: 22.3 million USDT and $93.8 million in various cryptocurrencies and fiat. 3AC facilitated this by creating sub accounts for DeFiance Capital on major exchanges like FTX and Binance, and providing a separate workspace on Fireblocks, a custody provider.

However, the relationship soured when 3AC, moving its headquarters to Dubai in 2022, restructured DeFiance Capital as two separate entities in Singapore. During this transition, certain assets that were supposed to be transferred to DeFiance Capital were withheld.

The situation escalated when 3AC declared bankruptcy in July of 2022. In November, the Singapore High Court authorized DeFiance Capital to sue 3AC’s estate to reclaim assets still under 3AC’s control. 3AC ended up responding with counterclaims.

The court's recent ruling is pivotal. It established that the cryptocurrencies in the Fireblocks wallets, still under 3AC's control, were indeed held in trust for DeFiance Capital. This decision came despite 3AC's contention that the claim was baseless, with the court noting that trusts can exist even if they contradict the terms of relevant legal documents.