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Crypto News » News » Altcoin News » Not Your Keys, Not Your CEL — Celsius Legal Team States Users Yielded Legal Rights to Holdings

Not Your Keys, Not Your CEL — Celsius Legal Team States Users Yielded Legal Rights to Holdings

The ongoing legal struggle between Celsius users and the bankrupt DeFi lender has pivoted toward centralization and custodial issues as Celsius legal representatives state that deposited funds functionally belong to the platform, not the user.

Over 1.7 million Celsius users from around the world relinquished ownership over cryptocurrency assets deposited Celsius Earn and Borrow accounts, according to Celsius legal team statements.

Initial hearings centered on the bankruptcy of Celsius, one of the largest DeFi lending and borrowing platforms, saw Kirkland Law legal representatives of Celsius highlight specific sections of the platform’s Terms of Service on Monday, noting that users transferred the title of assets when initially depositing them.

Celsius, according to ToS, is free to “use, sell, pledge, and rehypothecate” coins deposited to the Celsius platform. Legal controversy over whether users retain ownership over assets held by the platform, however, centers on whether the assets currently central to the $4.7 billion debate belong to users or Celsius itself.

Celsius Moves Assets Prior to Bankruptcy Filing

The Celsius custody program, first launched in April 2022 and open to non-accredited US-based investors, was subject to scrutiny from US-based regulatory bodies with both Texas and New Jersey regulators taking action to prevent the platform from offering cryptocurrency-related investment products.

Further developments saw Celsius freeze user withdrawals for users on June 13 and subsequently halt margin calls, rewards, liquidations, and the issuance of new loans. Market responses to Celsius’s custodial issues resulted in an immediate and significant drop in value of the CEL token as Celius was identified as moving $320 million worth of assets to the FTX exchange.

Chapter 11 bankruptcy documentation filed by Celsius and signed off by  CEO Alex Mashinsky in early July indicates that Celsius currently holds $4.3 billion in assets against $5.5 billion in liabilities with a $1.2 billiokn deficit, with the greater part of liabilities consisting of user deposits.

Additional details outlined within chapter 11 documentation reveal that Celsius is currently taking under consideration the possibility of trading through bankruptcy proceedings via the Celsius Bitcoin Mining operation in order to generate “sufficient assets” to repay outstanding loans and gain additional revenue, potentially generating up to 15,000 Bitcoin throughout 2022-2023.

Celsius Users May Not Regain Control of Assets In Near Future

Despite projections of ongoing Bitcoin mining income, cryptocurrency community responses regarding the Celsius bankruptcy case are far from positive. CEL token prices have fallen significantly since January, dropping from $4.38 to a current price at time of publishing at $0.91.

Updated FAQ published via the Celsius blog on July 14 states that the platform has initiated a ”financial restructuring process” that “ maximizes value for all stakeholders” through voluntary petitions for reorganization under Chapter 11 of the US Bankruptcy Code. Celsius users, however, are still unable to withdraw assets, with Celius stating that account activity will be paused until further notice.

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