It’s Possible that Celsius is Considering IOU Tokenizing Its Debt in Crypto.

Celsius’ co-founder and CTO Nuke Goldstein discussed a potential proposal to issue wrapped tokens that would reflect Celsius’ debt to Earn customers in an audio tape that was leaked.

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

In July, a month after stopping withdrawals owing to a liquidity shortfall it attributed to “extreme market conditions,” Celsius filed for Chapter 11 bankruptcy protection. The extent of Celsius’ financial difficulties have been made public by subsequent bankruptcy proceedings in the Southern District of New York (SDNY): the lender owes 500,000 creditors close to $5 billion.

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

The Bitcoin, Ether, and USDC it owes customers could be wrapped up into a token that, in the words of Celsius co-founder and CTO Nuke Goldstein, “represents the ratio between how much we really owe and how much we really have,” according to a leaked audio recording of an internal meeting shared by Celsius customer and YouTuber Tiffany Fong.

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.

The unsecured creditors committee (UCC) had already been informed of the intention to issue the IOU tokens by Celsius’ CEO Alex Mashinsky, who received “good reaction,” according to a second leaked call that Fong shared with staff at an all-hands meeting on September 8.

At the meeting, Celsius’ chief compliance officer, Oren Blonstein, addressed the staff, “This is truly how we settle this, how we get out.” “Unprecedented, really unique solutions are possible for what we do at this critical juncture, and this [proposal] is one of them,”

However, if approved by the UCC, the concept wouldn’t exactly be novel.

Liquidity-strapped Earlier this month, Chinese mining pool operator Poolin stopped allowing withdrawals from its wallet service. A week later, it said that it will give affected users IOU tokens that would be equal to their total user balances across all six cryptocurrencies.

The strategy also resembles Bitfinex’s recovery strategy after a breach that resulted in the loss of 120,000 BTC from the exchange’s reserves in the middle of 2016. Customers who had been affected by the attack received debt tokens from the exchange, which were thereafter exchanged on open markets—often for far less than their $1 face value. Bitfinex had acquired all of its remaining debt tokens by April 2017.

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