Celsius Selects NovaWulf to Restart Operations After Going Bankrupt

Celsius's chapter 11 deal needs to be approved by a bankruptcy court and a majority of Celsius' customers must approve the deal.

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In a bid to distribute its coins and other assets to customers as part of a plan to distribute its coins and other assets after the company's bankruptcy, Celsius Network LLC reached an agreement to sell its lending platform to NovaWulf Digital Management LP.

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Celsius' proposed deal would provide a way out for users who have been frozen from accessing billions of dollars worth of their digital assets since July if it is approved by a majority of its customers and by the bankruptcy court.

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There was a $1.2 billion hole in the balance sheet of the crypto firm at the end of last year, with the majority of its liabilities consisting of digital assets owed to retail customers, which represented the majority of the firm's liabilities. An estimated 85% of the company's users are expected to receive a 70% share of their account balances under the company's chapter 11 plan, which includes bitcoin, ether, and stablecoins as liquid cryptocurrencies, according to court papers filed on Wednesday.

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Celsius is also offering its customers equity in a new company, in the form of digital tokens, when they have more than $5,000 in deposits in yield-earning accounts. The new company is expected to handle the firm’s mining operations, its illiquid crypto holdings, as well as its lending to institutional and retail borrowers, according to a U.S. Bankruptcy Court filing in New York. As a result of pursuing legal claims against Celsius insiders, these users would also be entitled to share in the proceeds from those claims.

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Under the bankruptcy plan, NovaWulf, the new company based on the assets of Blackstone and King Street Capital Management, which were founded in 2022 by former executives of those firms, is expected to contribute a direct cash contribution of $45 million to $55 million to the new company.

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It is widely believed that Celsius customers have sought to get as much of their digital assets out of the platform as quickly as possible since the company filed for bankruptcy, and many have grown impatient about the pace at which the case is progressing. In the past, the company has looked into closing down, but instead of going through a controlled liquidation, it decided to accept the offer from NovaWulf.

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Celsius advertised that it would be able to offer high yields on its crypto savings accounts based on the profits earned from the investments it would be able to make with the customer's deposits. An examiner's probe in the bankruptcy case found that many of the firm's loans were risky and undercollateralized, in addition to not setting up proper controls for segregating some users' crypto, according to a report on the investigation. It was also discovered that insiders cashed out of their holdings on the platform when the company used customer funds to prop up its proprietary CEL token, as evidenced by the examination.

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The bankruptcy plan proposes that holders of CEL tokens will be able to recover 20 cents per token, a tiny fraction of the value they had before the company filed for bankruptcy. In court on Wednesday, a lawyer for the company said that one of the reasons that the recovery on the CEL tokens was less is that the price of those tokens was manipulated and artificially high, which is why the recovery was lower. Insiders of Celsius will be wiped out completely if they hold CEL tokens.