Did Tether Really Borrow $2 Billion From Celsius?

Stablecoin issuer Tether has denied claims that it borrowed $2 billion from failed cryptocurrency lender Celsius, following a nearly 700-page report filed on Tuesday, January 31.

Tether denies it borrowed $2B from Celsius, as described in court report https://t.co/pNwHAYgsJz

— The Block (@TheBlock__) February 1, 2023

The filing, submitted by court-appointed examiner Shoba Pillay, asserted that Celsius had loaned around $2 billion to Tether at one point. However, Tether, which was an early investor in the lending firm, denies ever borrowing funds from Celsius. Responding to the filing, Tether’s chief technology officer Paolo Ardoino said:

The document contains a mistake/typo, probably due to the amount of workload and pressure that putting together this filing required, and this resulted in a mischaracterization.”

Tether Calls The Report ‘A Mischaracterization’

Ardoino also highlighted that the lender [Celsius] is referred to as the counterparty in the document “that had to post additional margin, an activity that is performed in fact by the borrower in order to remain within the agreed risk parameters.”

Tether CTO denies borrowing from bankrupt lender Celsius https://t.co/SJQg8CbsD4 #Cryptocurrencies #Tether #Celsius #Stablecoin | @cointelegraph pic.twitter.com/OXEe5NdzvQ

— Andrew Wang | Financial Advisor (@RunnymedeCap) February 1, 2023

In a condemnatory report released on Tuesday about Celsius, the examiner [Pillay] said that the cryptocurrency lending firm (now failed) blew past its own safeguards to overleverage itself in lending to Tether, among other companies. In the same report, Pillay refers to an internal document from Celsius’s risk committee where they raised concerns regarding the potential for Tether to default on its obligations to Celsius. In Pillay’s words:

                             Celsius’ loans to Tether were twice its credit limit.

Pillay also cited a Celsius document detailing the risk of the lender’s overleveraging in loans to the stablecoin issuer in 2021. He also added, “The Tether exposure eventually grew to over $2 billion—a number so large that in late September 2021, the exposure was described to the Risk Committee as ‘present[ing] an ‘existential risk’ to Celsius’ because ‘Celsius’ capital is insufficient to survive a Tether default.

It is worth mentioning that Celsius filed for Chapter 11 bankruptcy protection in July, with its CEO Alex Mashinsky resigning following a scandal. The CEO is also facing a lawsuit from the New York attorney general on charges of investor defrauding.

Celsius bankruptcy examiner expected to report on Ponzi allegations https://t.co/6FW4p30wEk pic.twitter.com/wTTu2i07wG

— Reuters (@Reuters) January 30, 2023

It is also worth noting that examiner Pillay’s report indicates that Celsius exceeded its internal limits on lending to other companies, among them failed crypto investment firms Alameda Research and Three Arrows Capital.  

Pillay also featured details of the lender’s dealings with the collapsed crypto exchange FTX, revealing that, just like FTX and Alameda Research, Celsius utilized the accounting software QuickBooks to monitor its finances.

Pillay has turned down requests to provide the document in question, saying that “the Celsius document detailing the company’s risk exposure to a Tether loan default would be included in a compilation of documents provided in the ongoing bankruptcy proceeding.” She has also refused to comment, sending a spokesperson for her law firm, Jenner & Block.

Celsius To Let Some Users Withdraw Up To 94% Of Their Assets

In other news, Celsius had developed a withdrawal process allowing users to access some of their assets locked in when it suspended withdrawals in June 2022.

On January 31, the lender published an official update concerning upcoming withdrawals, listing some qualified users that would be able to withdraw almost 94% of eligible custody assets.

Eligible Custody users will be able to withdraw approximately 94% of their eligible Custody assets at this time. Whether Eligible Users are able to withdraw the remaining 6% will be decided by the Court at a later date.

— Celsius (@CelsiusNetwork) February 1, 2023

Celsius explained the process in a 1,411-page court filing with the U.S. Bankruptcy Court for the Southern District of New York. In the filing, Celsius listed all eligible users’ full names and the type and amount of debted cryptocurrency assets.

The firm insisted that eligible users would have to update their Celsius account with the certain required information for their withdrawals to be processed. The required data include customer data on Anti-Money Laundering and Know Your Customer (KYC) policies, together with details concerning the destination address of the withdrawal.

Unless and until an eligible user updates his or her account with the required account updates, such eligible user will be unable to withdraw his or her distributable custody assets from the debtors’ platform.

Still, in the filing, Celsius says there is no certainty whether it will be possible for eligible users to access the remaining 6% of the assets because the court will determine this concern later. Nevertheless, eligible users would also receive details concerning gas and transaction fees facilitating the upcoming withdrawal processes. This means that qualified users with insufficient assets in their accounts to meet the fees will not be allowed to withdraw the assets.

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