Earlier this week, crypto lender Celsius filed for Chapter 11 bankruptcy. The filing, however, revealed a deficit of $1.2 billion as the company currently holds $4.3 billion in assets and a whopping $5.5 billion in liabilities according to the document. Which is one of the reasons why FTX walked away from a potential acquisition deal.

A long-standing crypto critic and prominent economist Frances Coppola, does not believe that depositors will get their money back as she alleged Celsius was operating as a shadow bank.

“Celsius is not an asset manager, it’s a shadow bank. And deposits in banks are not “customer assets,” let alone “assets under management.” Which implies that they are unsecured loans to the bank. Thus they are liabilities of the bank and fully at risk in bankruptcy.”

Celsius clearly stated in the terms and conditions section that “customers might not get all – or indeed any – of their money back in the event of bankruptcy.”

During the crypto bull market, crypto lenders including Celsius garnered significant traction as many depositors were attracted by the high-interest rates and easy accessibility of loans. And they made profits by loaning out digital assets due to increased demand from institutional investors. This business model however is now drawing criticism following the downturn of the market.

Celsius Network has crypto assets worth $1.75 billion as well as $720 million worth of mining assets. And although the crypto lender claims to possess $600 million worth of CEL tokens, falling prices and the shrinking market cap have not helped the firm’s case. For context, CEL’s market cap has dropped to $185 million.

Experts in the industry suggested that Celsius should have opted for a Securities Investor Protection (SIP) rather than a chapter 11 bankruptcy. Cory Klippstein founder of Swan Bitcoin also said that a SIP filing would have helped the customers with the ownership of their assets on the platform. But with the latter, Celsius can claim ownership of these assets.

Klippstein also said that it will be in the best interest of Celsius users as well as users of Voyager Digital to argue that all of their crypto assets are securities “as this will put them first in line for payouts.”

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