The bankruptcy court presiding over the Chapter 11 cases of digital asset platform Celsius Network LLC and its affiliates (Celsius) issued a key ruling on January 4, 2023 (the Decision), by concluding that a significant portion of digital assets held in Celsius’ customer accounts are property of the debtors’ estates, and holders of such accounts accordingly are unsecured creditors.1 The digital assets at issue in the Decision were held under Celsius’ “Earn” program, pursuant to which the digital assets were not segregated or held in custody but used freely by Celsius to generate investment returns, and were subject to contract terms stating that the digital assets belonged to Celsius.
The Decision did not address the digital assets held under Celsius’ “Custody” or other programs, each of which is the subject of separate disputes and litigation. Resolving the issue of who owns these digital assets held on Celsius’ platform was an important gating item for the Chapter 11 cases, as the answer has significant implications for, inter alia, the account holders’ potential entitlements in any reorganization and potential clawback claims that the estates may be able to assert against its account holders. This decision may also inform digital asset ownership rights that are developing in other areas of law or pending regulations.2
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