- Celsius Network sues Tether, claims mishandled $2B in Bitcoin collateral, leading to bankruptcy.
- Lawsuit alleges Tether ignored contract terms, and liquidated 39,542.42 BTC without due notice.
- Tether CEO defends, stating Bitcoin liquidation was transparent and per Celsius’s request.
Celsius Network Ltd., a cryptocurrency lending firm, has filed a lawsuit against Tether and its connected entities, alleging that Tether breached its token agreement with Celsius by applying Celsius’s property as collateral to pay for its outstanding loan.
Celsius Network secured low-interest loans with Tether Ltd. in 2020, requiring substantial collateral, including Bitcoin, to secure the loans, allowing it to borrow stablecoins like USDT and EURT.
The case, filed in federal bankruptcy court, claims that these transactions, which exceeded $2 billion in value, significantly influenced Celsius Network’s financial stability before its bankruptcy filing on July 13, 2022.
According to the legal complaint, Tether demanded additional collateral during this period, totalling over 17,886 Bitcoins. These demands led to what the lawsuit terms “Preferential Top-Up Transfers” and “Preferential Cross-Collateralization Transfers,” allegedly placing Tether in a more favourable position than other creditors and directly impacting Celsius’s liquidity.
Contractual Disputes and Financial Fallout
The lawsuit also highlights a specific incident on June 13, 2022, when Tether, deviating from the agreed terms, applied Celsius’s entire Bitcoin collateral of 39,542.42 BTC to cover the loan. This action was taken without the stipulated 10-hour response window, rapidly liquidating assets below-market prices. Celsius argues that this “fire sale” breached the contract and resulted in significant financial losses, as the Bitcoin was sold at prices much lower than the prevailing market rates.
Moreover, the complaint asserts that Tether’s liquidation of Bitcoin was “commercially unreasonable,” failing to adhere to standard market practices that recommend gradual selling to minimize market impact and maximize returns. Celsius is now seeking to recover the transferred Bitcoin or its equivalent value, claiming that Tether’s actions were both preferential and fraudulent during the stated period.
Tether’s Defense
In response to the charges, Paolo Ardoino, CEO of Tether, has openly denied any misconduct. Ardoino stated that the steps were under Celsius’s instructions to liquidate the Bitcoin collateral following a major decline in its price. He emphasised that all transactions were conducted transparently and that the excess funds post-liquidation were returned to Celsius.
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