Did Tether Really Borrow $2 Billion From Celsius?

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

Tether denies borrowing $2 billion from Celsius, as described in court report https://t.co/pNwHAYgsJz
– Block (@Blok__) February 1, 2023

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

The document contains errors/typos, possibly due to the amount of workload and pressure required to compile this filing, and this has resulted in a mischaracterization.”

Tether Calls Reports ‘Mischaracterization’

Ardoino also highlighted the lender [Celsius] referred to as the counterparty in the document “who must book additional margin, an activity that is actually carried out by the borrower to stay within the agreed risk parameters.”

Tether CTO denies borrowing from bankrupt lender Celsius https://t.co/SJQg8CbsD4 #Cryptocurrencies #Tether # Celsius #Stablecoins | @cointelegraph pic.twitter.com/OXEe5NdzvQ
—Andrew Wang | Financial Advisor (@RunnymedeCap) February 1, 2023

In a condemnation report released on Tuesday about Celsius, testers [Pillay] says that the (now failing) cryptocurrency lending company breached its own protections to over-leverage itself in lending to Tether, among other companies. In the same report, Pillay referred to an internal document from the Celsius risk committee in which they raised concerns about the potential for Tether to fail to fulfill its obligations to Celsius. In Pillay’s words:

Celsius’ loan to Tether is double his credit limit.

Pillay also cited the Celsius document detailing the risks of lenders over-lending to stablecoin issuers in 2021. He also added, “Tether’s exposure eventually increased to over $2 billion—an amount so great that by the end of September 2021, it was explained to Risk Committee as ‘present[ing] an ‘existential risk’ to Celsius’ as capital ‘Celsius’ is not enough to survive Tether’s default.

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

Celsius bankruptcy examiner expected to report Ponzi allegations https://t.co/6FW4p30wEk pic.twitter.com/wTTu2i07wG
— Reuters (@Reuters) January 30, 2023

It should also be noted that the Pillay examiner’s report indicated that Celsius exceeded its internal limits in providing loans to other companies, among them failed crypto investment firm Alameda Research and Three Arrows Capital.

Pillay also provided details of the lender’s transactions with the collapsing FTX crypto exchange, revealing that, like FTX and Alameda Research, Celsius used accounting software QuickBooks to monitor its finances.

Pillay has rejected requests to provide the documents in question, saying that “Celsius documents detailing the company’s risk exposure to Tether’s loan defaults will be included in the compilation of documents provided in ongoing bankruptcy proceedings.” He also declined to comment, sending a spokesperson for his law firm, Jenner & Block.

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

In other news, Celsius has developed a withdrawal process that will allow users to access some of their locked assets when withdrawals stop in June 2022.

On January 31, the lender published official update about upcoming recall, lists some eligible users who will be able to withdraw almost 94% of eligible custody assets.

Eligible Custody Users will be able to withdraw approximately 94% of Qualified Custody assets at this time. Whether Eligible Users can withdraw the remaining 6% will be decided by the Court at a later date.
— Celsius (@CelsiusNetwork) February 1, 2023

Celsius describes the process in his 1,411-page court filing with the US Bankruptcy Court for the Southern District of New York. In the filing, Celsius lists the full names of all eligible users and the types and amounts of cryptocurrency assets owed.

The company insists that eligible users must update their Celsius accounts with certain necessary information in order for their withdrawals to be processed. The data required includes customer data regarding Anti-Money Laundering and Know Your Customer (KYC) policies, along with details of the withdrawal address.

Unless and until the eligible user renews his account with the required account updates, such qualified user will not be able to withdraw his distributable custody assets from the debtor’s platform.

Even so, in his filing, Celsius said there was no certainty whether eligible users could access the remaining 6% of assets because the court would determine this matter later. However, eligible users will also receive details regarding gas and transaction fees which facilitate the process of future withdrawals. This means that eligible users with insufficient assets in their account to meet the fee will not be allowed to withdraw those assets.

Tether Calls Reports ‘Mischaracterization’

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

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