Crypto collapse: Celsius’ real liabilities and fake assets, Voyager still bankrupt, 3AC owns CryptoDickButt #1462

By Amy Castor and David Gerard

“CeFi” is a term for centralized investment firms that play the DeFi markets. Quite a few of these have been collapsing spectacularly of late, and one day we hope to write about other things!

DeFi advocates have been furiously denying that the huge failures of CeFi firms have anything to do with DeFi. [Twitter; Pantera]

It’s technically true that DeFi isn’t CeFi — but it’s not true financially. When a CeFi company is the third biggest single player in the DeFi markets — as Celsius was — then CeFi is an inseparable part of DeFi as far as the flows of cash go.

As a product, CeFi is centralized access to DeFi. CeFi is where the money comes from.



Three Arrows Capital, proud owners of CryptoDickButt #1462

“i used to be an investor like you, until i took three arrows to the knee” — Zamujasa

How quickly things change! Three Arrows Capital (3AC) had $3 billion in assets under management in April. At 3AC’s peak, it boasted $18 billion AUM.

But it turned out that 3AC had put as much as $450 million (or “$450 million” in cryptos) into Terraform Labs’ Anchor protocol, which relied on Terra’s UST stablecoin, which collapsed in early May.

And everyone else was exposed to 3AC.

On June 27, Voyager announced that 3AC had defaulted on a $650 million loan. The same day, a court in the British Virgin Islands, where 3AC is incorporated, ordered the company to liquidate. The court appointed Teneo as liquidator. Less than a week later, Teneo filed for bankruptcy on 3AC’s behalf in New York to preserve the firm’s US assets. (We presume they’ll also file for bankruptcy in Singapore, as 3AC had assets there as well.)

Teneo is represented by Latham and Watkins. 3AC are represented by law firms Solitaire and Advocatus Law. Judge Martin Glenn is overseeing the US bankruptcy in the Southern District of New York.

Christopher Farmer and Russell Crumpler of Teneo are now trying to track down 3AC founders Su Zhu and Kyle Davies — wherever they are — and figure out if the company has anything left of value.

Last month, when Teneo’s Farmer flew to Singapore to track down 3AC founders, he found the firm’s office had been abandoned since late May or early June. Mail was piling up inside the door: [Motion for provisional relief, July 8, PDF]

The offices appeared vacant save for inactive computer screens. While the door was locked and there did not appear to be any people on the premises, I also observed signage for “Three Arrows Capital” and a number of unopened letters addressed to the Debtor (individually or care of TAC Pte) that had either been pushed under the door or had been placed up against the outside of the door.


Note lack of carpet — 3AC’s rugpull


3AC didn’t cut off withdrawals until 14 June — but they already knew they were screwed, and had skipped town.

Zhu and Davies aren’t playing ball. Teneo had a Zoom call with Zhu and Davies’ lawyers: “While persons identifying themselves as ‘Su Zhu’ and ‘Kyle’ were present on the Zoom call, their video was turned off and they were on mute at all times with neither of them speaking despite questions being posed to them directly.” [Bloomberg, archive]

Teneo is increasingly concerned that Zhu and Davies will attempt to move their assets to outside accounts. So far, the pair have turned over only a “pro forma” disclosure of assets. Critical information such as bank accounts is missing.

On 12 July, Teneo got US court approval to subpoena Zhu and Davies for depositions and seek documents regarding 3AC’s bank accounts, books and records, and crypto wallets. [Order granting provisional relief, PDF; WSJ]

The same day, Zhu, one of the missing 3AC founders, tweeted copies of two bizarre emails from their lawyer to Teneo explaining how they’re just too busy to hand over bank records right now. They’re also upset at Teneo for not exercising a StarkWare token warrant — that is, they’re upset the liquidators didn’t spend some of the remaining money on buying even more cryptos. [Twitter; Decrypt]

StarkWare is a planned layer 2 solution for ethereum. It doesn’t have a token yet, but it does have options on future tokens. We’re guessing that Zhu is mainly pissed off with the StarkWare warrant not being exercised because he’s one of StarkWare’s investors. 3AC took part in StarkWare’s $75 million funding round in 2021. [Twitter; Twitter]

Bloomberg on 3AC: “For all the complexity of the new crypto ecosystem — the ‘smart contracts,’ reams of online white papers, and heady talk of decentralized finance — it still proved to be a giant wager on the simple idea that there would always be more buyers for digital coins and prices would mostly keep going up.” [Bloomberg]

3AC borrowed millions from Voyager and BlockFi user deposits, and bought … CryptoDickButt NFT #1462. [Reddit]

We’re sure they didn’t just sell their personal NFTs to the “company” as a way to cash out. Remarkable bird, the CryptoDickButt, inn’it, ay? Bewdiful plumage! [NFTgo]

Teneo has invited 3AC creditors to submit claims and to attend a meeting on July 18. Anyone who has claims in the liquidation should send an email to before 12pm BVI time on 15 July — that’s today! [Twitter]


Celsius hired new “restructuring” lawyers, Kirkland & Ellis, on 10 July, replacing Akin Gump Strauss Hauer & Feld. Kirkland & Ellis are the same lawyers Voyager used to take themselves bankrupt. [WSJ]

Celsius filed for Chapter 11 bankruptcy, announcing the move at 8:15 pm ET on 13 July. [Press release; blog post; blog post]

Here’s the filings. The first day pleadings are the detailed filings; the rest are lists of creditors and debtors. [First day pleadings, PDF; voluntary petitions, PDF; debtor filings, PDF; Mashinsky declaration, PDF]

Alvarez & Marsal, who are best known for unwinding Lehman Brothers after the 2008 financial crisis, are Celsius’s restructuring advisers. [FT, paywalled]

What’s Celsius’ big plan to recover in Chapter 11? Bitcoin mining! They’ll mine their way out! Bitcoins for everyone! Yes, that’s the actual plan.

In the declaration from Alex Mashinsky, Celsius has a $1.2 billion hole in its balance sheet. And Celsius’ liabilities are real — but their assets are fake.

Cryptos aren’t money, and mark-to-market values in dollars are not realisable in practice. Celsius states these are “non-GAAP” figures — not in accordance with Generally Accepted Accounting Principles, the standard in the US — which means they plucked some made-up crypto numbers out of the air with a thin justification.

$600 million of Celsius’ stated assets are their own CEL token, which is worthless except to pay their $210 million of debt that’s denominated in CEL. That “$600 million” is also based on the pre-crash price of CEL — that’d be somewhere under “$200 million” total now, though of course that’s not in any way realizable as dollars.

Celsius has $467 million in ETH, tied up in Staked ETH — a bet on the future launch of the Ethereum 2 proof-of-stake network. StETH is illiquid even by crypto standards, but currently generates 5% annual interest.

Other assets include a stated $620 million in crypto-denominated loans to other entities. That’s $930 million in loans, and they’ve assumed $310 million of these may go bad. No basis for this is stated, it’s just there.

Celsius also borrowed from an unnamed “private lending platform,” putting up collateral for the loan. Celsius attempted to repay the loan in July 2021 — but it turned out the lender had lent out Celsius’ collateral! Celsius now has “an approximately $509 million uncollateralized claim against this party” as one of its assets. Update: the lender was EquitiesFirst, whose main business is lending executives cash secured against their company stock holdings. [FT, paywalled]

Celsius values its bitcoin mining operation at $720 million, which might be plausible if bitcoin hadn’t recently plummeted in both price and trading volume.

The company’s current burn rate is $16 million a month on payroll, mostly for the executives. Bankruptcy lawyers and advisors are extra on top of that.

Celsius’ largest creditor, at $81.1 million owed, is Pharos (Lantern Ventures), whose founder Tara Mac Aulay is an Alameda co-founder and several employees have various ties to Sam Bankman-Fried of Alameda and FTX. Everyone in crypto is in each other’s pockets. [Bloomberg]

Celsius has reclaimed “$172 million” in crypto collateral from the Aave and Compound DeFi protocols. [Coindesk]

The trustee will be expected to examine all payments to creditors in the preceding 90 days to see if these should have been administered as part of the bankruptcy. If those payments to creditors should have been part of the bankruptcy, then the trustee can claw them back. If an incorrectly-paid creditor says “ahaha, blockchain” or similar, then that creditor will be on the hook.

The bankruptcy filings also tell the story of Celsius and Tether. Around late May or early June — just before withdrawals were stopped — Tether margin-called Celsius on the 841 million tethers still outstanding on Celsius’ loan from Tether. Celsius liquidated the loan, for a total loss of $97 million. None of this was hinted at in Tether’s odd blog post last week attempting to get out ahead of this bankruptcy filing. [blog post]

Celsius admits it was already insolvent by late 2021. Despite this, they claim that it was social media about UST and luna collapsing that caused investors to panic and withdraw their funds, and that’s why Celsius is bankrupt now. And not that they were already insolvent.

The Financial Times spoke to former Celsius employees at length: [FT, paywalled, archive]

  • Mashinsky said that Celsius executives were holding the company’s own CEL token, but they were actually dumping it — or selling it back to Celsius.
  • The compliance team warned that employees had invested in new funds without permission or compliance checks, and could move assets from one fund to another without it being apparent to their supervisors, which could allow them to disguise losses.
  • “The company may be inflating its representations of AUM and driving up stock price/token price using false financial information.”
  • Celsius claimed 1.7 million customers, but the actual number was in the low hundreds of thousands.
  • Celsius was talking to FTX before it froze withdrawals in June, but FTX pulled out on seeing the $2 billion hole in the accounts.
  • Celsius moved its headquarters out of the UK to New Jersey after one too many clashes with the FCA: “the FCA viewed Celsius as a collective investment scheme and therefore should be subject to tougher rules.” So well done, FCA.

Matt Levine: “‘Ooooooooh we will take your cryptocurrency and give you 18% interest on it by investing it in secret things’! I’m sorry! What do you think that means? ‘Either the bank is lying or Celsius is lying,’ Celsius Chief Executive Officer Alex Mashinsky once told Bloomberg Businessweek, and I am pretty sure that as a matter of formal logic that statement reduces to ‘lol I’m running a Ponzi.’” [Bloomberg, archive]


It’s been two weeks now since Voyager froze withdrawals on crypto and $350 million in cash held on behalf of customers at Metropolitan Bank. Voyager filed for bankruptcy on July 5, after 3AC defaulted on $650 million in loans.

Now it has an update on the recovery plan. Voyager say they are working on restoring access to the dollars, “which belongs to customers.” [Twitter thread; blog post, archive]

Here’s the PowerPoint that Voyager presented at their first bankruptcy hearing. Remember, a judge has to approve all of this nonsense. Their next court hearing is 4 August. [Twitter; Voyager FAQ]

Voyager wasn’t a bank, but it operated as one. It took deposits and made loans of those deposits. One problem was that it wasn’t very good at making loans. Lending was a great business for free money (or “money”) in the crypto bubble — but when the bubble collapsed, suddenly lending wasn’t such a great business. Then UST and luna collapsed, and so 3AC collapsed. [CoinDesk]

Voyager deleted the line from their 2019 blog post saying that customer funds were FDIC insured. Good thing there weren’t multiple archived copies or anything. [Vice]

Texas and Alabama are investigating Voyager. [Bloomberg, archive]

To think Voyager was hiring just a month ago. [Reddit]

Other players

Vauld CFO Jatin Mazalcar has reportedly stepped down after the crypto lender halted withdrawals on 4 July. He only joined in May and left in June. He obviously hadn’t realized what he had joined. Mazalcar is still a consultant, working at arm’s length. [The Block]

Vauld is short of $70 million: “the main contributing factors for the shortfall are mark-to-market losses on bitcoin (BTC), ether (ETH) and Polygon (MATIC) trades as well as exposure to the collapsed algorithmic stablecoin terraUSD (UST).” [The Block]

BlockFi says it’s unwound its position in Grayscale’s GBTC, and is no longer accepting GBTC as collateral. [The Block]

Lots of CeFi companies bought into GBTC, which sold shares in a large pile of bitcoins. This was a highly profitable trade — for as long as GBTC traded above net asset value. GBTC has been below NAV since early 2021.

Grayscale’s application to convert GBTC into a proper exchange-traded fund was rejected by the SEC on 29 June — it turns out spamming the SEC didn’t work after all. Grayscale is appealing the rejection. [SEC, PDF; Grayscale, PDF]



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