Confirming the news, the embattled lender says it will "put forward a plan that restores activity across the platform, returns value to customers, and provides choices."
Celsius Network has filed for bankruptcy — one month after the crypto lender suddenly suspended withdrawals.
The company says it hopes the Chapter 11 proceedings will give the company an opportunity to "stabilize its business" and complete a restructuring.
In a statement, members of the Celsius board justified their decision to stop customers from accessing their crypto, adding:
"Without a pause, the acceleration of withdrawals would have allowed certain customers — those who were first to act — to be paid in full while leaving others behind to wait for Celsius to harvest value from illiquid or longer-term asset deployment activities before they receive a recovery."
The company's CEO and co-founder Alex Mashinsky also described the bankruptcy proceedings as "the right decision for our community and company" — and stressed that Celsius has a "strong and experienced team in place" to lead the process. Striking an upbeat note, he added:
"I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company."
In a statement, Celsius Network confirmed that it has $167 million of cash in hand, ensuring that operations can continue during the restructuring process. On-chain data shows the embattled crypto lender has been able to redeem hundreds of millions of dollars in collateral after paying back loans to the likes of Maker Protocol.
The company previously said that it has 1.7 million customers, and many of them will be facing fresh uncertainty as a result of this announcement.
A Grim Time for Crypto Lenders
A number of other crypto businesses have filed for bankruptcy in recent weeks. One of them is Voyager Digital, which came under pressure after the crypto hedge fund Three Arrows Capital defaulted on a $650 million loan.
Voyager has since admitted that its customers may not end up receiving all of their crypto back — sparking fears that Celsius customers may end up in a similar predicament.
The ongoing crisis engulfing Celsius has cast a shadow over the crypto lending sector, which has made a name for itself by offering far more generous interest rates on savings when compared with old-fashioned banks.
But some, including the chairman of the U.S. Securities and Exchange Commission, has argued that these high APY rates were simply too good to be true.
Celsius has attempted to put a brave face on the bankruptcy by pointing out that many well-known companies have survived Chapter 11 proceedings — American Airlines, Delta, General Motors, Heinz and Marvel among them. However, it's fair to say that this process can also end up being unsuccessful.
There's also a real danger that customers may rush to withdraw their funds at the earliest possible opportunity, causing Celsius' business to evaporate overnight.
With regards to what's next, Celsius Network says it will "put forward a plan that restores activity across the platform, returns value to customers, and provides choices" — indicating that affected users may have some difficult decisions to make. These plans may also evolve as they'll likely need court approval.
Withdrawals remain suspended for now.