- Celsius wants users to enable ‘HODL mode’ to win row with lawyers
- Withdrawals and transfers on the platform have been frozen since June 12
Struggling crypto lender Celsius Network hopes a show of support from its users will save it from bankruptcy.
Celsius, in the grip of a cash crunch for weeks, is resisting advice from its own attorneys to file for Chapter 11 bankruptcy, The Block reported Monday, citing people familiar with the matter.
Chapter 11 is one of the most expensive forms of bankruptcy proceedings. In this formal process, a court helps a business restructure its debt and obligations while continuing to operate.
In a bid to win an internal row with its lawyers, Celsius now wants to prove that most users would prefer the company to avoid bankruptcy altogether.
Users could show their support by enabling “HODL mode” in their Celsius accounts, a security feature for customers who do not wish to withdraw or transfer funds for an extended period.
Celsius has blocked withdrawals and transfers on the platform since June 12, but users can still show their trust in the network by launching the HODL feature, according to the report. Despite the withdrawal restrictions, Celsius continued to receive customer deposits.
The company would be unable to publicly announce its position on the matter due to legalities. Chief Executive Alex Mashinsky, who is currently in the United States, would also not be able to comment on the company’s position.
Celsius’ situation initially raised concerns that the rout could affect other companies in the crypto industry in an already difficult market environment. Rival BlockFi was hit with liquidity issues shortly after Celsius as insolvency rumors swirled around crypto hedge fund firm Three Arrows Capital.
“We are experiencing the biggest crypto crash in history,” said Louis Schoeman, managing director of Forex Suggest. “With massive inflation data and the semi-collapse of the Celsius network driving the downward spiral, I believe only the best fundamentally sound crypto projects will survive this bear market.”
To explore potential financing options, Celsius reportedly hired banking giant Citigroup, law firm Akin Gump Strauss Hauer & Feld and management consultants Alvarez & Marsal.
High return, high risk
Launched in 2017, Celsius has become popular among retail investors for paying lucrative crypto interest rates of up to 18.6%. The interest rate is earned by allegedly lending cryptocurrency to institutional investors and through decentralized finance protocols.
Celsius would have had to take significant risks to deliver such high returns in a low interest rate environment.
Data from its website, which calls on users to “borrow like a billionaire,” shows the company loaned more than $8 billion to customers and had nearly $12 billion in assets under management as of May.
“If Celsius is insolvent, it will be a blow to the industry, particularly in terms of retail investor confidence in the industry as well as potential contagion across the industry,” said analyst Mads Eberhardt. cryptocurrency at Saxo Bank.
Celsius’ CEL token is currently changing hands for around $0.74, after losing half of its value over the past week, according to data from Blockworks Research. CEL plunged to $0.24 just after freezing withdrawals – 97% below its all-time high of $8.05 posted a year earlier.
Celsius’s troubles mean the US could soon provide more clarity on the regulation of custody providers and lenders, said Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, hoping to bring more of stability to the crypto space.
Celsius did not immediately return Blockworks’ request for comment.
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