Celsius Files Lawsuit Against Tether Network, Seeks to Recover $3.5B in Bitcoin Collateral

Bankrupt crypto lender Celsius Network has initiated legal proceedings against Tether, the company behind the USDT stablecoin. The lawsuit, which was filed concerning a contract dispute dating back to 2022

Bankrupt crypto lender Celsius has filed a lawsuit against Tether, the company behind the USDT stablecoin, over a contract dispute. The complaint, filed in the United States Bankruptcy Court for the Southern District of New York, alleges that Tether breached their agreement by unjustifiably liquidating 39,542.42 Bitcoins that were held as collateral for a loan issued in USDT. Celsius contends that Tether’s decision to sell the Bitcoin at that time was improper and a breach of the loan agreement.

The legal dispute stems from a revised loan agreement that Celsius and Tether entered into in January 2022, which permitted Celsius to borrow USDT from Tether by securing the loan with collateral in Ether, Tether Gold, or Bitcoin. The agreement stipulated that Tether was to post a notice and wait for 10 hours if the value of the collateral fell below a specific threshold, before taking any action to adjust the collateral.

Celsius began borrowing USDT from Tether in March 2022, and at the height of its borrowing, it had secured nearly $2 billion in USDT from Tether, using tens of thousands of Bitcoins as collateral.

However, Bitcoin’s crash in early 2022 meant the value of the Bitcoin collateral tanked in tandem, prompting Tether to demand that Celsius post more collateral. Celsius complied with these requests, transferring 15,658.21 Bitcoin and another 2,228.01 Bitcoin of excess collateral for another loan.

The complaint alleges that on June 13, 2022, Tether issued another demand for additional collateral, and contrary to the agreement’s requirement to wait for ten hours, proceeded to swiftly liquidate the entire Bitcoin collateral without allowing Celsius the stipulated period to address the demand.

“Tether forged ahead with an improper application of 39,542.42 Bitcoin—the entirety of collateral that Celsius had posted——using the pledged Bitcoin to cover its exposure in full, but destroying Celsius’s residual interest in the collateral,” the lawsuit states.

In response to the lawsuit, a Tether spokesperson called the lawsuit “baseless” and said that Celsius’ $2.4 billion BTC claim is another “shameless litigation money grab” to which it will never submit.

“Celsius, through its estate, now seeks to rewrite history and portray itself as a victim, hoping to squeeze out a participation interest in Tether’s phenomenal success,” the Tether spokesperson added.

The lawsuit also demands the return of an additional 15,658.21 Bitcoins and 2,228.01 Bitcoins from a top-up transfer, bringing the total claimed value to over $3.5 billion at today’s Bitcoin prices.

Celsius filed for Chapter 11 bankruptcy in July 2022, and the bankruptcy proceedings are still ongoing. The crypto lender’s disparity with Tether over the Bitcoin collateral played a role in Celsius filing for bankruptcy.

As recently as December 2022, Celsius was still trying to recover the liquidated Bitcoin from Tether. At the time, the 39,542 BTC collateral was valued at around $800 million. However, the price of Bitcoin has risen since then, and the collateral is now worth more than $2 billion at today’s prices.

The complaint also alleges that Celsius’ Chapter 11 plan was overwhelmingly approved by creditors, and that Tether’s participation in the bankruptcy proceeding was “minimal at best.” It adds that Tether never filed an objection to Celsius’ plan or to its treatment under the plan, and that Tether’s belated attempt to assert a different treatment now is barred by the doctrines of res judicata and claim preclusion.

Celsius is seeking a judgment declaring that Tether breached the loan agreement, an order directing Tether to return the 39,542.42 Bitcoin, and damages for Tether’s alleged breach of contract, among other things.

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