Bankrupt Crypto Platform Celsius Sues Tether, Seeking $2.4B

Celsius, a once-popular crypto platform for offering users attractive APYs on their deposits and providing crypto loans is suing Tether (USDT), the largest stablecoin issuer in the world for allegedly misappropriating assets.

Tether has reported that in the lawsuit, Celsius is seeking the return of approximately $2.4 billion worth of Bitcoin, and is referring to the accusations as a “meritless shakedown.”

The Celsius vs. Tether Lawsuit

The lawsuit alleges that while Celsius was undergoing financial stress, Tether loaned them USDT, in which Celsius sent Tether 39,542.42 BTC as collateral.

As the cryptocurrency market and Bitcoin value dramatically fell in 2022, as per the loan agreement, Celsius was required to provide more collateral to Tether to avoid liquidation. According to the lawsuit, Celsius satisfied Tether’s requests for additional collateral on June 12th, providing 3,000 additional Bitcoins worth about $350 million at the time.

Tether later requested a second collateral requirement and Celsius claims that as it was putting together the funds during a contractually mandated ten-hour waiting period, Tether liquidated before the 10-hour payment window, removing the opportunity for Celsius to provide additional collateral.

Celsius’s lawsuit alleges that they would have come up with the additional collateral needed had they been given the full time indicated in the contract, stating:

“If Celsius had been given the opportunity to meet the collateral demand—which it had the contractual right to do—it could have been able to avoid the disposition of its Bitcoin at near the bottom of the cryptocurrency market. Instead, that disposition was carried out for the benefit of just one creditor: Tether” – Source

It is interesting to note that the lawsuit also states: “Amidst the chaos of June 13, 2022, Celsius’s CEO Alex MAshinsky allegedly gave Tether permission to liquidate Celsius’s collateral in an “orderly” manner.”

Tether’s Response

Tether claims that the lawsuit is baseless and will defend itself stating:

“We look forward to responding in court to this contrived, meritless shakedown that will benefit nobody other than the lawyers, bankers, and consultants involved in bringing this case.” – Source

According to Tether, rather than liquidating the Celsius loan in violation of the contract, Celsius requested the selloff and refused to post additional collateral. Tether’s statement claims, “When Celsius chose not to post additional BTC it directed Tether to liquidate the BTC collateral Tether held in order to close out its roughly 815 million USDT position.”

At this stage, it is very much the word of Celsius against Tether as to who failed to fulfill the requirements of the contract, but Tether was quick to reassure USDT holders that even in the unlikely event the lawsuit goes somewhere, token holders will not be impacted.

Damages Sought by Celsius

The total amount Celsius seeks from Tether is unclear. Tether’s blog states that Celsius is seeking 39,542.42 BTC, worth roughly $2.4b at the time of writing, but according to page 28 of the legal filing, Celsius is also requesting two other transfers made during that period voided. The filing asks the court to “require Defendants to relinquish to Plaintiffs the 15,658.21 Bitcoin, 2,228.01 Bitcoin, and 39,542.42 Bitcoin preferentially transferred by Plaintiffs to Defendants”

In addition to the claims against Tether, Celsius is also seeking damages from Bancor , a blockchain protocol, accusing the Bancor DAO of bearing responsibility for the alleged loss of 6,540 Ether that Celsius entrusted to the protocol. The lawsuit alleges Bancor’s mechanism was flawed and the process by which impermanent loss protection was passed in an emergency was improper and as the protocol faced issues, Celsius was only able to withdraw 8,338 ETH of the 14,878 ETH that was entrusted to the platform.

Two additional lawsuits filed by Celsius target Badger DAO and Compound Labs for losses that Celsius faced following the Badger DAO hack and an oracle-related incident on Compound that resulted in a liquidation event.

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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.