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Leaked Audio from Celsius Meeting Reveals Plan to Pivot into Custody Business

source-logo  tokenist.com 14 September 2022 09:04, UTC

Beleaguered crypto lender Celsius might restructure its business to emerge as crypto custody, according to audio of an internal meeting shared by a customer of the company. In the meeting, CEO Alex Mashinsky and fellow company executive Oren Blonstein floated the custody plan, suggesting that the company could pivot to charging customers fees for certain transactions.

Celsius Could Re-emerge as Kelvin in Form of a Crypto Custody Firm

Celsius CEO Alex Mashinsky drafted a new plan to revive the firm during a meeting with employees on September 8, The New York Times reported, citing a recording of the event. Mashinsky and Blonstein suggested that they reorganize the company with a focus on crypto custody, meaning they store users’ digital assets and charge them fees on certain types of transactions. 

The new endeavor was code-named Kelvin, which might seem a reasonable successor to Celsius. To shore up employee confidence and trust, Mashinsky compared the company’s new roadmap to corporate turnarounds at some of the world’s most famous brands. 

He specifically mentioned Pepsi, which went bankrupt in 1923 and 1931, and Delta airlines, which filed for bankruptcy in 2005. “Does it make the Pepsi taste less good?” Mr. Mashinsky asked employees. “Delta filed for bankruptcy. Do you not fly Delta because they filed for bankruptcy?”

As reported, Celsius filed for Chapter 11 bankruptcy in mid-July, more than a month after freezing customer assets in the wake of sharp turbulence in the crypto market that came after the catastrophic implosion of Terra. 

The company owes much of its fame to the unprecedented APY rates of more than 10% on cryptocurrencies, a promise that proved unsustainable. In order to afford these high rates, the company made risky investments that quickly turned sour when the crypto market crashed. 

Earlier court filings had indicated that Celsius has a $1.2 billion gap in its balance sheet. However, a mid-August filing revealed that the crypto lender is in an even worse financial condition. According to the filing, the company has $2.8 billion in crypto liabilities and is also on its way to running out of cash by October.

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Celsius’ New Initiative Will Rely on Fees 

Founded in 2017, Celsius started as a crypto lending platform marketing itself as a zero-fee service. The platform’s slogan was “unbank yourself,” which executives used as part of their pitch that customers should disconnect themselves from traditional finance. However, the company’s new business structure is a completely new approach. Blonstein said:

“If the foundation of our business is custody, and our customers are electing to do things like stake somewhere or swap one asset for the other, or take a loan against an asset as collateral, we should have the ability to charge a commission.”

Nevertheless, the ball is not in Mashinsky’s court regarding Celsius’ fate. Martin Glenn, the federal bankruptcy judge in New York who is tasked with overseeing the restructuring process, needs to approve any potential proposal. 

It is worth noting that before being brought to the court for approval, Celsius’ Unsecured Creditors’ Committee (UCC) needs to confirm any possible proposals. However, the UCC has reportedly expressed skepticism over the plan and specifically Mashinsky’s role in the company. Simon Dixon, founder of Bank to the Future and a Celsius creditor, said:

“I’ll get behind any plan that makes creditors whole so I’ll hear all plans out. Having Mashinsky in charge is a magnet for regulatory shutdown and financial disaster for all creditors IMO. I will remain open minded, but ignoring this reality is not the path to recovery IMHO.”

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Do you think Celsius can win user trust after its previous failure? Let us know in the comments below.