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Telling the story of three key Chapter 11 crypto cases

By Carine Lee

01:35, 19 August 2022

Chapter 11 road sign
Several firms are going through ‘reorganization’ bankruptcy in the cryptosphere – Photo: Shutterstock

As the crypto boom turns to bust a number of high profile digital asset firms have entered the Chapter 11 bankruptcy process.

Here are the three key cases to watch.

What’s Chapter 11

Chapter 11 is known as a form of bankruptcy involving the reorganization of a debtor's business affairs, debts and assets, and for that, it is known as “reorganization” bankruptcy.

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Celsius Network

Celsius, a peer-to-peer platform for decentralized finance (DeFi), has a $1.2b hole in its balance sheet, according to a recent court filing from the crypto lender’s advisory partner Kirkland & Ellis.

The crypto lender filed for Chapter 11 in the US citing ‘extreme’ market conditions, leaving its 1.7 million customers unable to redeem their assets, to stabilize the business, its CEO Alex Mashinsky said in a statement.

As a result the network’s native token CEL saw a series of wild price gyrations as investors confidence ebbed and waned.

The token has soared in valuation by over 4,100% in the last two months, reaching around $3.93 over the weekend compared to its mid-June bottom of $0.093.

CEL to US dollar

Two factors that put the crypto lender in a sticky situation, despite making loan repayments: the use of on-chain leverage and stETH (staked ether).

Celsius accesses leverage through permissionless on-chain DeFi money markets like MakerDAO by taking BTC and ETH user deposits and depositing them to borrow DAI to provide users with a low borrowing rate.

Maker works $1.50 of volatile collateral (ETH for example) deposited to borrow the DAI stablecoin.

If the value of the collateral falls below a threshold, it is liquidated to repay the loan and prevent bad debt. In short, liquidate your customers’ loans to repay your own. 

DAI to US dollar

Celsius offered robust yields on ETH of 8% using a derivative ETH known as staked ETh (stETH). stETH, brainchild of LidoFinance, does not actually exist yet.

In simple terms, stETH is a token which will only vest once The Merge is complete, which according to analysts spoke to recently it could “happen next year at best”.


173.11 Price
+1.640% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.2652


3,528.49 Price
+0.540% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00


0.13 Price
+7.480% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872


0.60 Price
+3.730% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

The crypto lender disclosed on Monday that it was running low on money and said it has gotten several proposals to inject cash into the company, and won approval from a US judge to sell BTC that it mines.

Celsius lawyer Josh Sussberg disclosed the receipt of cash-injection offers during a bankruptcy hearing yesterday.

Voyager Digital

Voyager Digital attributed its troubles largely to Three Arrows Capital’s financial problems, which prompted Voyager to file for Chapter 11 in the US.

It served Three Arrows a notice of default in June seeking to recover a $650m debt from the crypto hedge fund operator.

Sam Bankman-Fried helped Voyager financially by providing it with revolving loans valued at $200m in cash and USDC, and 15,000 BTC. But Voyager still filed for bankruptcy.

Bankruptcy proceedings could spell longer waits for Voyager customers seeking access to assets held by the company with the frozen trades, withdrawals, and loyalty rewards.

VGX to US dollar

Three Arrows Capital (3AC)

3AC, a Singapore-based crypto hedge fund, which invested in tokens such as ETH and SOL, suffered terrible losses because it held a significant position in LUNA when the Terra blockchain collapsed, worth roughly $560m at its peak.

The founders ran and defaulted on loans after the crypto hedge fund went bust from making a series of large directional trades (GBTC, LUNA, stETH) and borrowing from more than 20 institutions.

Legal proceedings then moved forward as the founders went MIA. They recently broke their silence, saying they will be moving 3AC to Dubai to see whether the firm has a future.

SOL to US dollar

3AC owes over $3bn and Genesis is its biggest creditor with $2.3bn loaned. 3AC’s default on debts also contributed to the insolvency of Celsius Network and Voyager Digital.

A leaked court document showed co-founder Zhu Su made luxury purchases with borrowed money which was likely used to indicate 3AC’s creditworthiness.

Markets in this article

1.0247 USD
0 0.000%
Solana / USD
173.1108 USD
2.7728 +1.640%
Bitcoin / USD
67366.30 USD
295.75 +0.440%
Ethereum / USD
3528.49 USD
18.76 +0.540%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

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