When crypto assets are stored on a centralized platform, the collapse of Celsius Network may have just established a standard for determining who the owners are.
The court ruled that Celsius, not the particular account holders, is the legitimate owner of the deposits in the lender's yield-bearing Earn accounts in a 45-page written court order on Wednesday.
The top bankruptcy judge in the Southern District of New York, Judge Martin Glenn, stated in a court order on Wednesday that Celsius's terms of service made it clear that it took possession of any cryptocurrency assets deposited into its Earn product, dealing a blow to some customers hoping to get their money back from the company.
There were 600,000 Earn accounts as of July 2022, with a total asset value of around $4.2 billion, including $23 million in stablecoins, when Celsius filed for Chapter 11 bankruptcy.
Investors with Earn accounts have always been included among the company's creditors. That suggests that Celsius is owing them money. Uncertainty surrounds how much they will recover.
Glenn continued by saying that in spite of criticism from state officials and the U.S. The sale of stablecoins worth about $18 million was authorized by the Trustee's office after Celsius provided a sound commercial justification. Its running costs for the coming few months would be covered by the sales of these stablecoins.
The outcome of other bankruptcy proceedings may be greatly influenced by the terms of service for bitcoin platforms. Glenn concluded that the ownership problem falls under contract law in his decision.
āThe Court finds that there was a valid contract between Celsius Account Holders and Celsius and that the contract terms unambiguously transferred all right and title of digital assets to Celsius,ā the court order reads.
The expectations of cryptocurrency investors who parked their holdings on platforms like Celsius in the hopes of earning interest and gaining access to the protections provided to bank depositors were mislead.
Bank deposits are supported by the Federal Deposit Insurance Corporation (FDIC). The FDIC would do so if a bank was unable to return a customer's deposits. Deposits on cryptocurrency sites are not subject to such protections.
Investors in cryptocurrencies using equivalent products on other platformsāsome of which have recently filed for bankruptcy will be impacted. Other investors will be affected by the judgment allowing the cryptocurrency lender to retain control of the assets in its Earn account.
Account holders who had previously objected in the Celsius case said that the changed phrasing in the Terms of Use, such as the terms loan and lending, made the contract confusing.
Despite some of these account holders' accusations that Celsius was in breach of its own contract or had "failed to fulfill its fiduciary duties," the judge referred to Celsius's terms of service as plain.
The judge ruled that these requirements do not prevent the bitcoin lender from taking custody of the holdings. Despite the U.S. and state authorities' resistance. Trustee, the stablecoins can now be sold to pay the debts.
