Celsius Has Hail Mary Bankruptcy Plan: Convert Her Debt To New Cryptocurrency

Since the bankrupt crypto lender froze withdrawals in June, client funds have been in limbo. Now, the leaked audio shared with CNBC reveals an initial plan to compensate them.

The company wants to issue cryptocurrency “IOU” to customers who have subscribed to some of its accounts.

Recording provided by Tiffany Fong, which says it is one of 500,000 customers who have funds locked into the platform. Fong says she received the audio from a self-identified employee, who remained anonymous during his calls.

CNBC has not been able to verify that the leaked audio is the full exchange from an internal meeting on September 1. However, CNBC spoke with former employees who validated the recording. In the audio recording, chief technology officer Guillermo Bodnar said the plan is in its “early stages”. What was put in place may have changed in the weeks since the call.

In the filing, Celsius co-founder Nuke Goldstein set out a compensation plan for clients who deposited assets into a Celsius ‘Earn’ account, which Celsius promised returns of up to 17%.

Goldstein said Celsius will launch “encapsulated tokens,” which will serve as an IOU for customers. Tokens represent the ratio between what a percentage of customers owe and the assets they have. He said that if customers wait to redeem their tokens, there is a better chance that the gap between what the percentage owns and what they owe will be smaller.

This is a risky bet on increasing the value of a token originating from a company that is on its way to bankruptcy. Goldstein said the value is likely to rise because Celsius has revenue coming in from its mining, ETH and other coins that could potentially become liquid.

Celsius also intends to allow customers to redeem these tokens, according to Goldstein. He said that the tokens could be exchanged at a percentage point for a value likely lower than they are owed or on crypto platforms such as Uniswap, allowing the market to determine the value of the tokens.

In this photo illustration, the Celsius Network logo is displayed on a smartphone screen alongside Bitcoin cryptocurrencies.

Rafael Henrique | SOPA photos | Light Rocket | Getty Images

Reimbursement isn’t the only percentage plan that works. In a joint filing exclusively with CNBC, Bodnar said the company is also building a transaction management system, which is designed to keep track of the company’s blockchain assets. This will include the assets, the price at which they were purchased, and how much they are worth when they are sold.

Celsius, which said it manages billions of dollars in client assets, has never had sophisticated software to properly manage and track its assets, according to people familiar with the company. Those sources, who asked not to be named due to confidentiality restrictions, said the data is tracked manually, on a simple Excel spreadsheet.

On the call, Bodnar said the goal of building this new system is transparency.

“…[T]The ransom is reflected not only in how we communicate, but ensuring that everything that is done within our platform is traceable, auditable, and end-to-end — we have nothing to hide,” he said.

Goldstein also emphasized that there is a lot of misinformation about the company circulating on Twitter and that employees should rely solely on information provided in court documents and town halls run by CEO Alex Mashinsky.

“If you go to Twitter, bring an umbrella because it’s raining a bull there,” Goldstein said. “This is your chance to get the truth. If we don’t really tell you what we know—we go to prison. Now, I don’t know if we’ll go to prison…but that’s not good.”

In the Q&A portion of the event, an interviewer asked where employees stand in terms of releasing their locked money from the platform. Goldstein said employees will not have priority over customers.

“Employees are not last or first,” Goldstein said. “You’re a customer too. We’re a customer. That means we’re on the same level as customers.”

CNBC reached out to Celsius for comment on their payment plan and the status of the transaction management system, but the company did not respond.

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