Celsius argues that Tether sold the Bitcoin at a low price and violated contract terms, exacerbating their bankruptcy.
Celsius Network Ltd. has filed a lawsuit against Tether and its affiliated organizations. According to the allegations made in the lawsuit, the USDT issued today carried out “fraudulent” and “preferential” transfers of Bitcoin (BTC) totaling more than $2 billion.
The complaint, which was submitted to the federal bankruptcy cour is an attempt to retrieve the Bitcoin that was lost by the company that went bankrupt as a result of the activities taken by the USDT issuer during a crucial period leading up to the company’s insolvency.
Celsius Network’s Allegations Against Tether
Celsius Network, a prominent cryptocurrency lender entered into a loan deal with Tether Ltd. over the course of 2020. Due to the nature of this agreement, the lender was able to obtain stablecoins, notably USDT and Euro Tether (EURT), at relatively low interest rates.
To secure these loans, the cryptocurrency lender provided large collateral including Bitcoin deposits. Nearly two billion dollars in USDT, backed by tens of thousands of Bitcoins was the amount that the company had borrowed at its peak.
The primary subject of the litigation is the USDT issuer’s activities throughout the ninety-day period prior to the crypto lender filing for bankruptcy on July 13, 2022.
Preferential Application Transfer & Breach of Contract
According to the complaint, the cryptocurrency lender was required to provide the USDT issuer with large sums of fresh collateral, which the issuer was able to obtain.
Consequently, the issuer obtained a total of 15,658.21 Bitcoin and guaranteed fresh borrowings with an additional 2,228.01 BTC. The allegations claim that these practices, known as “Preferential Top-Up Transfers” and “Preferential Cross-Collateralization Transfers,” have unfairly bolstered the stablecoin corporation’s position at the expense of other creditors.
The stablecoin company submitted a final demand for further collateral on June 13, 2022. More collateral was required. In accordance with the terms of their agreement, the cryptocurrency lender had ten hours to provide a response.
On the other hand, the stablecoin issuer applied the full 39,542.42 BTC of Celsius Network’s collateral without waiting for the contractually stipulated period.This action, known as the “Preferential Application Transfer,” reportedly allowed Tether to cover its exposure.
The cryptocurrency lender that went bankrupt, on the other hand, had its remaining Bitcoins “robbed” of them at a low market value.
Furthermore, the lawsuit asserts that the stablecoin company’s breach of the contract’s 10-hour waiting period resulted in a “fire sale” of the estate’s now-insolvent Bitcoin, using all 39,542.42 BTC to settle Celsius Network’s outstanding debt.
Tether’s valuation of Bitcoin, which is currently worth more than $2 billion, is much lower than its actual value of $816.82 million. As a result, the cryptocurrency lender suffered significant financial losses.
The stablecoin company sold these Bitcoins at an average price of $20,656.88 per unit, according to the statement they submitted to the court on August 9. This price is significantly lower than the market closing price for Bitcoin on that date, which was $22,487.39.
Crypto Lender Demands Recovery
Additionally, the lawsuit asserts that the USDT issuer’s decision to liquidate Celsius’ Bitcoin was a commercially unjustifiable action. The complaint emphasizes that recognized market procedures suggest selling such a large block of Bitcoin over a longer period of time to minimize price impact and achieve better pricing.
Therefore, we assert that the stablecoin organization violated these norms by selling Bitcoin in a hasty manner and at prices lower than the currently applicable market rates.
As an additional point of interest, Celsius Network was unable to survive the market meltdown because of premature liquidation. Furthermore, the premature liquidation eliminated the potential for the automatic stay of bankruptcy to influence the situation.
As a result, the case is an attempt to “recover” the illicit and advantageous transfers of Bitcoin. Furthermore, the cryptocurrency lender intends to file a claim for damages as compensation for the claimed breach of contract.
Therefore, the estate that has filed for bankruptcy is requesting that the court order Tether to refund the value of the Bitcoin or a sum that is equivalent to the Bitcoin in damages.
Tether and its CEO, Paulo Ardoino, responded to the complaint with a public statement. The stablecoin issuer reaffirmed its willingness to defend itself against the lawsuit filed by Celsius Network in a post that was published on X.
Ardoino challenged the assertions made by the cryptocurrency lender, stating, “In June 2022, when the price of bitcoin was falling, Celsius instructed Tether to sell the bitcoin that Tether held as collateral.”
Tether was able to liquidate those Bitcoins and return the excess to Celsius (and publicized the move in a transparent manner at the time these transactions took place).
