Home / Celsius Crypto Recovery Distribution Plan Starts July 1, Here’s What You Can Expect
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Celsius Crypto Recovery Distribution Plan Starts July 1, Here’s What You Can Expect

Published June 28, 2023 2:12 PM
Omar Elorfaly
Published June 28, 2023 2:12 PM

Key Takeaways

  • Celsius will refund its customers using crypto, company stock and legal fees
  • The company will be liquidating Altcoins stored in customer accounts
  • A company by the name of “NewCo” will be created by previous directors of Celsius
  • There’s an overwhelming amount of negative feedback to the plan announced

Celsius, the major crypto lender, now bankrupt, has announced a plan to refund its Earn customers after they had been left stranded following the court’s orders to only refund Hold and Custody accounts holders.

The company announced its plan on Twitter, explaining every step in the process, yet it somehow managed to cause even more confusion in its online community.

The plan starts with liquidating Altcoins that were stored in Earn accounts, converting their value to Bitcoin and Ethereum, then using them to refund a fraction of what the company owes its customers.

Celsius also announced that it will be using three different methods to refund its customers, which are liquid crypto, NewCo (a company announced suddenly) stocks, and litigation fees for customers who go along with the plan.

NewCo will be run by the same directors who ran Celsius and will be funded in the most controversial way.

The plan is seemingly convoluted and lacks many details stakeholders have questions about. The general feedback on Twitter shows that the distribution plan is likely to be voted against.

Step 1: Liquidate All Altcoins

First, the company plans on liquidating all Altcoins stored in its clients’ accounts, excluding custody and withhold accounts. Returns from the liquidation will be converted to Bitcoin and Ethereum. This step in the plan is supposed to take place on the 1st of July.

The negative response to this step comes from two different groups of stakeholders.

First, a group of creditors  represented by David Adler, Bankruptcy Partner at McCarter & English do not have faith in Celsius actually returning the collateral to rightful creditors. As a result, said creditors may be filing an opposition to this plan.

Adler also stated that the plan violates both state and federal consumer lending laws in the country.

The second, and even bigger, group of disgruntled stakeholders are the holders of Altcoins corresponding to the list Celsius plans on dumping in the market. Celsius is expected to sell the following list of Altcoins:

  • Celsius (CEL)
  • Polygon (MATIC)
  • Cardano (ADA)
  • Chainlink (LINK)
  • Litecoin (LTC)
  • Polkadot (DOT)
  • Bitcoin Cash (BCH)
  • Aave (AAVE)
  • Binance Coin (BNB)
  • Uniswap (UNI)
  • Stellar (XLM)
  • Solana (SOL)
  • EOS (EOS)
  • FTX Token (FTT)
  • Serum (SRM)

The Cardano (ADA) community expressed its concern regarding the sudden sell-off of ADA tokens by both Celsius and Robinhood. However, some are seeing it as FUD, claiming the sell-off will have no effect on ADA prices. 

Step 2: Pay Back What Is Owed, Partially

When Celsius filed for Chapter 11 bankruptcy, the court ordered the company must pay back its Custody and Withhold clients. However, the court ordered a 74.2% refund for Withhold claims, and 72.5% for Custody claims. The decision didn’t only eat away a part of these clients’ funds but also left the majority of the company’s clientele, Earn clients, empty-handed.

Celsius finally released a comprehensive plan to refund all the clients on the now-bankrupt platform in three forms: 

  • Liquid Cryptocurrency (BTC and ETH); 
  • NewCo Common Stock 
  • Litigation Proceeds. Some creditors will receive all three types of distributions (collectively, the “Unsecured Claim Distribution Consideration”)

Step 3: Set Up NewCo Using Staked Customer Crypto

After receiving an official bid for its acquisition by Fahrenheit, Celsius announced the creation of NewCo. In February, Celsius announced  that “NewCo will be led by reputable digital asset investors and operators and will be a regulatory compliant public, reporting company 100% owned by Earn Creditors.”

But, at the time, the announcement resulted in confusion among stakeholders. How were Earn customers going to ‘own’ the company? On what basis does each Earn customer claim their shares in the company? 

Things got a little clearer on Tuesday when the company finally announced that “NewCo will be seeded with up to $500 million of the Debtors’ Cryptocurrency.” This essentially means that Earn customers will be receiving a part of their refund in the form of shares in NewCo.

On top of all that, Earn creditors can not just qualify for NewCo common stock. Those who wish to hold NewCo stock must “fulfill certain registration requirements and compliance with certain AML/KYC policies and provide certain tax documents to the Debtors to receive a distribution.”

Very understandably, the community pointed out the redundancy behind the plan. The idea that Earn customers will only get a part of their earned funds – and will be forced to stake a part of the refund in a new company run by the same people who lost their money – is one that many community members have expressed their utter rejection towards.

Let The Crowd Decide

The plan put forth might not actually see the light of day. The only democratic part of the whole plan is that the company is letting creditors vote on whether the company should move forward with the plan. 

Some stakeholders are choosing to stand their ground and ask for an overhauled plan. Others just want to take whatever pieces are left of their funds and put the whole situation behind their backs.