Celsius Demands $2B From Tether in Bitcoin Collateral Dispute

Celsius, a bankrupt crypto lender, is pursuing billions of dollars from Tether, the issuer of USDT, the largest stablecoin in the crypto market.

In a court filing on August 9, Celsius demanded that the court grant it a relief of 57,428.64 BTC or its current market dollar equivalent which stands at around $3.5 billion as of press time.

Celsius Alleges Tether Made Fraudulent Transfers of Bitcoin

In 2020, Celsius entered into a loan agreement with Tether that allowed it to borrow USDT and EURT stablecoins at low interest rates. At its peak, Celsius had over $2 billion in loans with Tether, secured by substantial Bitcoin collateral.

However, Celsius alleged that Tether’s use of Bitcoin collateral to meet loan obligations was fraudulent. The lawsuit also noted that the stablecoin company allegedly protected itself from Celsius’s bankruptcy through the rapid sale of the flagship digital assets at a time when the company was struggling financially.

“These transfers undoubtedly improved Tether’s position, occurring at a time when Debtors were tumbling towards bankruptcy and the price of Bitcoin (and the value of Tether’s pre-existing collateral) was collapsing violently,” Celsius stated.

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According to Celsius, Tether violated a 10-hour waiting period before liquidating the Bitcoin. The bankrupt firm also noted that Tether’s liquidation was commercially unreasonable because its BTC collateral was sold at an average price of $20,656.88, well below the market closing price of $22,487.39 on June 13, 2022.

“Tether applied Celsius’s Bitcoin at an average price considerably below Bitcoin’s low price of $22,808 on Bitfinex, a crypto exchange controlled by Tether’s parent company, around the time when the collateral was allegedly liquidated,” it added.

Celsius contends that the stablecoin company’s swift sale of Bitcoin at below-market rates prevented the company from surviving the market downturn and hindered its ability to seek a bankruptcy stay.

Due to this, the lawsuit seeks to recover allegedly preferential and fraudulent Bitcoin transfers of the more than 57,000 BTC. Celsius demands either the return of the Bitcoin’s value or an equivalent sum in damages.

“These preferential and fraudulent transfers of Bitcoin should be avoided, and the Bitcoin or its value should be recovered for the benefit of Celsius’s estate. This action also seeks to recover damages caused by Tether’s below-market application of such Bitcoin on that same debt, in violation of the terms of the governing agreement,” Celsius demanded.

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This lawsuit sheds further light on how Tether sidestepped the financial difficulties faced by other crypto firms during the 2022 bear market. At that time, Paolo Ardoino, Tether CTO turned CEO, claimed the firm had liquidated its Celsius loan “without loss” and minimized market impact.