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Possible Plans for Celsius Network to Issue Cryptographic "IOU" Tokens for Debt

It looks that insolvent cryptocurrency lender Celsius Network is thinking of a strategy to convert its debt into digital "IOU" ("I Owe You") tokens.

In July, a month after stopping withdrawals due to a liquidity shortfall it attributed to "extreme market conditions," Celsius sought Chapter 11 bankruptcy protection. The severity of Celsius' financial difficulties was shown by subsequent bankruptcy proceedings in the Southern District of New York: 500,000 creditors are owed close to $5 billion by the lender.

Celsius would still have a $1.2 billion hole in its financial sheet even if it liquidated all of its assets, including its enigmatic, unfinished mining company, Celsius Mining, on which Celsius' management and bankruptcy attorneys had staked their hopes to get out of debt.

Tiffany Fong, a Celsius consumer and YouTuber, revealed a leaked audio clip of an internal meeting that shows Celsius is instead thinking of a different way to pay back customers: Celsius co-founder and Chief Technology Officer Nuke Goldstein says the company "represents the ratio between how much we really owe and how much we really have" by wrapping the bitcoin, ether, and USDC it owes clients into a token.

The wrapped "IOU tokens" might then be redeemed (though a timetable for these redemptions is still unknown), traded on the open market, or held to speculate on Celsius' possible long-term recovery.

According to a second leaked call that Fong obtained, Celsius officials informed staff members at an all-hands meeting on September 8 that CEO Alex Mashinsky had previously discussed the IOU token issuance plan with the committee of unsecured creditors, who gave "positive feedback."

At the meeting, Celsius' chief compliance officer, Oren Blonstein, addressed the staff, "This is really how we resolve this, how we get out. What we do in this pivotal moment can be through unprecedented, really innovative solutions and this [plan] is one of them."

However, if approved by the committee of unsecured creditors, the scheme would not exactly be novel.

Liquidity-strapped Earlier this month, Chinese mining pool operator Poolin stopped allowing withdrawals from its wallet service. A week later, it disclosed that it will provide impacted users IOU tokens that would be equal to their holdings across all six cryptocurrencies in a 1:1 ratio.

The strategy similarly resembles Bitfinex's recovery strategy after a breach that resulted in the loss of 120,000 bitcoins (BTC) from the exchange's reserves in the middle of 2016. Customers who had been hacked were given debt tokens by the exchange, which were afterwards exchanged on the open market—often for considerably less than their $1 face value. Bitfinex had acquired all of its remaining debt tokens by April 2017.



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