- A Twitter user claims that it would spell trouble for the network if found to be balance sheet insolvent.
- Investors are in trouble if Celsius is found to be a balance sheet insolvent.
- CEL fell by almost 70% after the network announced they are halting withdrawals to “stabilize liquidity.”
Following the fear, uncertainty, and doubt (FUD) plaguing the Celsius Network, a Twitter user claims that it would spell trouble for the network if found to be balance sheet insolvent.
In a thread earlier today, a Twitter user with the handle wassielawyer claimed that Celsius is “clearly insolvent.” If the network turns out to be balance sheet insolvent, then investors are in for a “world of hurt.”
6/ Now if they are ‘balance sheet insolvent’, we are in another world of hurt. Being balance sheet insolvent means you simply do not have enough assets to cover all of your liabilities.
This means that instead of having $1000 locked in a box and owing $500…
— wassielawyer (@wassielawyer) June 13, 2022
For starters, “insolvency is generally defined in law as ‘being unable to pay debts as they [become] due,’ tweets wassielawyer. There are two types of insolvency, one being balance sheet insolvency.
As an example, the user cited that if a person has a net worth of $1,000 but the other person owes $5000, “there is no way your creditors will be able to recover the amounts owed to them in full.” This is because the person “simply [does] not have enough!” This puts the creditors in murky waters.
Notably, a managed process exists to ensure every user gets a fair share. However, the same cannot be said for crypto. “Get out before you get f—,” says wassielawyer.
wassielawyer points out that the lack of transparency and accountability in crypto when it comes to C-level decision-making poses another risk that the insolvent company will attempt to trade out of insolvency.
In explaining what “trading out of insolvency” means, wassielawyer said:
When a company is insolvent, the controller’s interests are no longer aligned with their creditors. Every additional dollar you lose would have gone to your creditors but every dollar you make takes you closer to recovery.
“So why wouldn’t you YOLO bet whatever you have left on a high-risk play knowing that if you lose, [it’s] your creditors that get f—, explains the user. “[B]ut if it pays off, you get out of your current predicament with upside! Bet your $1000 and if you get $10000 back, your problems go away!”
He further narrates that this behavior may result in heavy penalties and liabilities for a company director deciding to jump ship due to firm insolvency, including jail time.
The user later calls for the Celsius Network to reveal what insolvency they are facing and the next steps they plan to take. “Let’s hope it’s not 100x leveraged LUNAC,” says wassielawyer.
It can be remembered that Celsius (CEL) fell by almost 70% after the network announced they are halting withdrawals to “stabilize liquidity.” Fears of the project pulling a TeraUST and Luna-esque crash looms as multiple sources have claimed that the platform moved staked wBTC from AAVE and sent it to FTX.