Celsius Network, a now-defunct cryptocurrency lending platform, has initiated legal proceedings against Tether, the issuer of the stablecoin USDT. The case, filed in the Southern District of New York, revolves around Celsius's attempt to recover 39,542.42 Bitcoin (BTC), valued at approximately $2.31 billion. These Bitcoins were previously transferred as collateral for stablecoins borrowed from Tether.
What Is Collateral?
Collateral is something of value pledged as security for repayment of a loan. In this instance, Bitcoin, a digital asset, was used as collateral to borrow stablecoins.
Celsius's Allegations
Celsius claims that Tether unlawfully used the Bitcoin collateral to settle its outstanding loans, receiving less than the equivalent value of the cryptocurrency when Celsius was on the brink of insolvency. This legal action not only seeks the return of the collateral but also demands the recovery of an additional 15,658.21 BTC (about $915.96 million) and 2,228.01 BTC (around $130.33 million) sent to Tether as collateral within a 90-day period before Celsius's bankruptcy filing.
Bankruptcy Code and Preferential Transfers
Under the Bankruptcy Code, preferential transfers refer to payments or transfers made to creditors shortly before filing for bankruptcy, which can sometimes be reclaimed to ensure fair distribution among all creditors. Celsius argues that these Bitcoin transfers fit this definition and should be recovered.
Tether's Response
In defense, Tether has labeled the lawsuit as a "meritless shakedown." Tether argues that the complaint overlooks the factual basis of the contractual agreement with Celsius, misapplies the law, and disregards Tether's potential defenses. The stablecoin issuer emphasizes the presence of significant jurisdictional challenges and plans to address these issues in court.
Implications for the Cryptocurrency Market
This lawsuit highlights ongoing tensions in the cryptocurrency markets, especially concerning decentralized finance (DeFi) and digital assets. Legal disputes such as this underscore the importance of clear agreements and the complexities involved in digital asset transactions.
In conclusion, as the case progresses, it will be a focal point for those involved in blockchain technology and cryptocurrency markets, illustrating the legal intricacies and potential risks of using digital assets as collateral.
