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Celsius Network Plots a Comeback After a Crypto Crash

The collapse of the experimental cryptocurrency bank Celsius Network was one of the main causes of this spring’s crypto crash, which wiped out nearly $1 trillion from the market and ruined thousands of investors.

Celsius filed for bankruptcy in July. Now it’s fishing for a comeback.

At a meeting with employees on Sept. 8, Celsius’s chief executive Alex Mashinsky outlined a bold plan to revive the company, according to a recording of the event shared with The New York Times. He and Oren Blonstein, another Celsius director, said they hoped to rebuild the company with a focus on custody — storing people’s cryptocurrencies for them and then charging them for certain types of transactions. They said the project was codenamed Kelvin, after the unit of temperature.

Mr. Mashinsky, 56, faced skeptical questions from employees. He compared the rebuilding process to business reversals at some of the world’s most well-known brands, including Pepsi, which went bankrupt in 1923 and 1931.

“Does it make the Pepsi less tasty?” Mr. Mashinsky asked the employees. “Delta has filed for bankruptcy. Aren’t you flying with Delta because they filed for bankruptcy?”

A recording of the meeting has been sent to: Tiffany Fonga Celsius customer who created YouTube videos about the crash in the spring. She shared the recording with The Times, who independently confirmed its authenticity.

In a statement, a Celsius spokeswoman said the company holds regular internal meetings to “Prepare for all scenarios.”

“Our employees are at the center of our efforts,” the statement said. “We will continue to rely on them to help prepare all the requirements needed to execute the final recovery plan as quickly as possible.”

Celsius’s revival efforts come at a time of transition for the crypto industry as start-ups whose reckless practices caused the downturn attempt to regroup. In recent months, other instigators of the crash — including Do Kwon, the trash-talking founder of failed cryptocurrency Luna — have also haunted new crypto ventures.

Celsius rose to prominence with a marketing promise that ultimately proved impossible to keep: deposit your digital assets and receive interest of up to 18 percent. The company also let customers take out loans using their deposits as collateral and participate in “strike,” an investment maneuver that allows users to earn rewards on crypto holdings. In 2021, Celsius managed assets worth $20 billion and had one million customers.

But Celsius achieved its high returns by making risky investments that quickly turned sour when the crypto market crashed. Tens of thousands of customers still have digital assets on the platform. Celsius reported in court this summer that it owed customers $4.7 billion.

The fate of Celsius is not really in Mr. Mashinsky’s hands. Any proposal would have to be approved by New York federal bankruptcy judge Martin Glenn, who oversees the process. The result can take various forms, such as a buyer buying parts of the company.

During the employee meeting, Mr. Mashinsky said Celsius was working with a legal entity representing the company’s creditors — a group known as the Committee of Unsecured Creditors, or UCC — to come up with a plan to restart operations.

“Most of our community, including the UCC, has asked us to continue the service,” he said. “They think these services are valuable, and they want to keep using the loans and the strike and the custody and stuff like that.”

But after meeting with representatives from Celsius, the committee had reservations about Mr Mashinsky’s continued involvement with the company and big questions about the feasibility of the Kelvin proposal, according to a person with knowledge of the matter.

Attorneys for the commission declined to comment.

The exact details of Celsius’s reboot plan remain unclear. The company has a Bitcoin mining operation, which could become part of the reorganized venture. But during the meeting, Mr. Mashinsky and Mr. Blonstein focused on the ability to store crypto assets for Celsius users. Mr. Mashinsky said he can imagine customers charging fees for access to a dedicated, highly secure crypto wallet.

In the past, Celsius brought on the market yourself as a zero-fee service as part of its pitch that customers of traditional finance should “unbank”. Executives are now considering a new approach.

“If the foundation of our business is custody and our customers choose to do things like place a bet or exchange one asset for another, or take a loan against an asset as collateral, we should have the option to charge a commission,” Mr Blonstein told the employees.

Since Celsius filed for bankruptcy, clients have been scrambling to get their crypto assets back, raise funds to hire lawyers and devise strategies in Telegram group chats. During the meeting, Mr. Blonstein said the company is planning a “unique crypto solution” to compensate customers, but declined to go into details.

Mr Blonstein also said Celsius was at a pivotal point in a “hero’s journey” to redemption.

“This hero has a mission – something they want to achieve. They experience an initial success, they stumble, somehow fall short and have this dark moment,” he said. “If we are successful, it will be a success story that has never been seen before.”

Even Apple, Mr. Mashinsky said, once considered bankruptcy an option.

“Will we end up in the trash can of companies that were great or almost great or great for a while, but are disappearing?” he said. “The community is behind us.”

Kitty Bennett contributed to research.