Tether to Defend Against Celsius’ $2.4 Billion Lawsuit: On August 9th, 2024, the cryptocurrency industry witnessed a major legal development as Celsius Network Limited, through the Blockchain Recovery Investment Consortium, LLC, filed a $2.4 billion lawsuit against Tether Limited and its affiliates in the United States Bankruptcy Court for the Southern District of New York (Source: tether.io). This lawsuit has significant implications for both companies and the broader crypto ecosystem, making it a story worth following closely.
Understanding the Lawsuit:
- The Underlying Agreement: In 2022, Tether, the issuer of the world’s leading stablecoin USDT, provided a loan of USD₮ to Celsius, a prominent crypto lending platform. This loan was likely backed by Bitcoin (BTC) collateral.
- The Trigger for Dispute: The price of Bitcoin experienced a significant drop in June 2022. As per the terms of the agreement, this decline likely triggered a margin call, requiring Celsius to deposit additional collateral to maintain the loan-to-value ratio.
- Liquidation and Disagreement: When Celsius failed to provide the required additional collateral, Tether, following the pre-determined agreement, liquidated the existing BTC collateral. This liquidation closed out an estimated $815 million position.
- Celsius’ Legal Challenge: Despite the liquidation occurring with their knowledge and consent in June 2022, Celsius is now seeking the return of $2.4 billion worth of BTC in this lawsuit. This discrepancy raises questions about their reasoning.
Tether’s Strong Defense:
Tether has vehemently denied the claims made by Celsius, labeling the lawsuit as “baseless.” They argue that:
- The agreement was valid: The loan agreement between Tether and Celsius was established well before Celsius’ bankruptcy filing. The terms were clearly defined, and Tether claims they simply followed the agreed-upon actions.
- Shifting of Responsibility: Tether believes Celsius is attempting to shift the blame for their own financial mismanagement onto Tether. By failing to meet the margin call, they triggered the liquidation, which occurred at the prevailing market prices of June 2022.
Tether’s Financial Strength:
Tether has emphasized its robust financial standing, highlighting its consolidated equity of nearly $12 billion as of June 30th, 2024. Additionally, they claim ongoing profitability, assuring users that even if these claims held merit, it wouldn’t impact Tether token holders.
Market Implications and Looking Ahead:
- Regulatory Scrutiny: This legal battle unfolds during a period of heightened regulatory scrutiny within the cryptocurrency market. The court’s decision has the potential to set a precedent for how similar cases involving collateralized loans and liquidations are handled in the future.
- Market Impact: Investors and industry participants are keenly observing this case. The court’s rulings and their potential consequences for both Tether and Celsius, as well as the broader crypto ecosystem, are yet to be seen.
