The Celsius Network platform “is deeply insolvent” and will not be able to pay its debts. This is the claim made by the Vermont State Department of Financial Regulation (DFR).
According to the regulator, Celsius does not have the assets or liquidity to honor its obligations to account holders and other creditors. The document also criticizes the positions taken by the company, which put its clients’ money at risk.
“Celsius has deployed client assets in a variety of risky and illiquid investments, trading and lending activities. To make the risks worse, the company used client assets as collateral for additional loans used in leveraged investment strategies,” the statement added.
Celsius is one of the cryptocurrency lending platforms facing financial problems because of liquidity crises. The company suspended withdrawals on June 12 and is now struggling to meet debt payments.
Celsius Network pays debts
However, Celsius has been able to release important guarantees by paying off old debts. The most recent of these was on Tuesday, when the company paid off its debt with the decentralized finance (DeFi) protocol Aave.
Then Celsius released $26 million worth of cryptocurrencies, which can then be returned to its customers. The company also moved $418 million in staked ether (stETH) to an unknown wallet.
Last week, Celsius fully paid off its debt to the Maker protocol, releasing $440 million in collateral denominated in BTC tokens (WBTC).
That is, gradually Celsius manages to release guarantees and eventually resume withdrawals from its customers.
But the company’s problems are far from over. According to the DFR, Celsius is involved in “an unregistered bond offering,” which could result in a new lawsuit for the company.
In this regard, the interest on cryptocurrency paid by the company on its accounts aimed at retail investors requires authorization. But Celsius would not have such a license, which, in practice, means that its operation is illegal.
Celsius also does not have a license to operate as a money transmitter, the DFR alleges, noting that this means Celsius was operating largely without regulatory oversight.
In addition, the company also failed to record its interest accounts as bonds, leading to a lack of risk disclosure to depositors and other creditors.
Due to the culmination of concerns over Celsius, DFR has joined a multi-state investigation to look into the company’s activities. As of press time, Celsius has not commented on the case.