Bankrupt Crypto Lender Celsius Plans to Turn Its Debt Into Crypto "IOU" Tokens

Bankrupt crypto lender Celsius Network appears to be considering a plan to turn its debt into crypto "IOU" ("I Owe You") tokens.

Celsius filed for Chapter 11 bankruptcy protection in July, a month after halting withdrawals because of a liquidity crisis it blamed on "extreme market conditions." Subsequent bankruptcy proceedings in the Southern District of New York have revealed the depths of Celsius' financial troubles: The lender owes 500,000 creditors nearly $5 billion.

Even if Celsius sold all of its assets – including its mysterious, half-finished mining subsidiary, Celsius Mining that Celsius' executives and bankruptcy lawyers have pinned their hopes on to get out of debt – it would still be left with a $1.2 billion hole in its balance sheet.

Instead, a leaked audio recording of an internal Celsius meeting – shared by Celsius customer and YouTuber Tiffany Fong – indicates that Celsius is considering an alternative method for repaying customers: wrapping the bitcoin, ether and USDC it owes customers into a token that, as Celsius co-founder and Chief Technology Officer Nuke Goldstein explains, "represents the ratio between how much we really owe and how much we really have."

Customers could then either redeem the wrapped "IOU tokens" (though a timeline for these redemptions remains unclear), trade them on the open market or hold them to speculate on Celsius' potential recovery in the long term.

In another leaked call shared by Fong, Celsius executives told employees at an all-hands meeting on September 8 that Celsius' CEO Alex Mashinsky had already shared the plan to issue the IOU tokens with the unsecured creditors committee, which reacted with "positive feedback."

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