Celsius creditors feeling the heat over preference claims
Celsius, the crypto exchange and lending platform that went bankrupt 18 months ago, circulated a batch of notices to former customers late last week offering to resolve potential preference claims in the firm's bankruptcy. The move follows Celsius creditors' and the
Celsius has sent notices to customers who made net withdrawals from Celsius greater than
The notice gives customers three options:
- either pay back 27.5% of their net withdrawals to settle any preference claims or avoidance actions (clawbacks), which Celsius may bring against them; or
- obtain a court order ruling that the customer has no preference liability to Celsius; or
- otherwise resolve their Withdrawal Preference Exposure with the Litigation Administrator after the Effective Date before receiving any distributions under the Plan.
Where a customer refuses to accept Celsius' offer, they may face clawback actions and other claims by Celsius and will not receive any initial distributions under the Reorg Plan. The bankruptcy administrators have also cautioned that:
if the Debtors do not receive your WPE Settlement Payment by
The deadline is fast approaching - if a customer chooses to make the settlement payment, they must file an electronic form through an online portal by
For those who accept the offer, the Celsius' bankruptcy advisors has previously projected recoveries of
Customer who reject the offer may need to rely on one of the various clawback defences under the US bankruptcy code, which may be available depending on their individual circumstances.
As part of Celsius' Reorganization Plan, the
Due to the fast-approaching offer deadline, customers and other creditors who have Withdrawal Preference Exposure must rapidly consider their options ensure they have monitored their emails used with their Celsius account, and seek urgent legal advice on the offer and the prospects of defending potential clawback actions by Celsius' Litigation Administrator.
A bridge too far? Cross-chain bridges under MiCA
What are cross-chain bridges?
In brief, cross-chain bridges are software applications that enable transactions to occur between various blockchains by enabling the transfer of assets and information between blockchain networks.
Transferring digital assets between different blockchains can be beneficial for many reasons. For example, someone might want to transfer their Bitcoin to the Ethereum blockchain to use it on DeFi platforms, where they can potentially earn interest on their Bitcoin (in that case, wrapped Bitcoin or wBTC).
These so-called "cross-chain" or "bridge" protocols typically create synthetic crypto-assets called "bridged" or "wrapped token". Bridges require a person to transfer an underlying crypto-asset to the address of a centralised third party or a smart contract on the blockchain supporting that crypto-asset, which in turn issues, through a smart contract, a crypto-asset representing the underlying crypto-asset on a different blockchain (the wrapped token).
As the wrapped token purportedly is backed by the underlying crypto-asset on a 1:1 basis and can be redeemed for the underlying crypto-asset at any time, it is designed to be the economic equivalent of that asset.
In its Decentralised Finance Report, the
- wBTC gives holders of BTC the ability to participate in DeFi protocols running on other blockchains, such as Ethereum, through a process that locks up their BTC holdings (for so long as the wBTC is outstanding) but does not require them to sell the tokens.
- Wrapped ether (wETH) is another token that is increasingly being used as, among other things, a bridge to Ethereum-compatible networks that enable faster and cheaper transaction execution (e.g., a Layer 2 network).
These bridged or wrapped tokens offer synthetic exposure to an underlying or reference crypto-asset, and are affected by events involving both the reference asset, including volatility, and the blockchain to which it is bridged.
Separately, there are tokens that are intended to offer same exposure to an underlying reference asset and are similar to traditional derivatives such as options, swaps, and more complex structured products.
What elements of cross-chain bridges may attract regulation under MiCA?
Around a dozen types of crypto-asset services are expressly regulatedunder MiCA. A typical cross-chain bridge may involve a number of them, for example, crypto-asset custody, issuance, and transfer.
Crypto custody
Crypto-asset custody is defined in MiCA as follows:
Safekeeping or controlling, on behalf of third parties, crypto-assets or the means of access to such crypto-assets, where applicable in the form of private cryptographic keys.
Bridging protocols would appear to prima facie satisfy this definition where operated by a centralized intermediary.
Crypto issuance
As cross-chain protocols typically create synthetic crypto-assets (e.g. wBitcoin and wETH) on the destination chain, prima facie, they also involve crypto issuance.
However, the nature of any such issuance will need to be carefully considered. In general, the issuance of a crypto-asset is only regulated by MiCA where it is offered to the public or admitted to trading on a trading platform, except when the crypto-assets are of specific types, such as asset-referenced tokens (ARTs) and e-money tokens (EMTs). Issuers of ARTs and EMTs will be subject to certain reporting obligations.
Crypto transfer
MiCA defines crypto-asset transfer services as follow:
Providing services of transfer, on behalf of a natural or legal person, of crypto-assets from one distributed ledger address or account to another
This broad definition is also a material consideration for cross-chain bridges that facilitate transfers between blockchains and, accordingly, from one distributed ledger address account to another.
However, the identity of the provider of the above-mentioned crypto-asset services is also important.
Possible exemption: full decentralisation?
MiCA's application to DeFi projects is currently uncertain and subject to ongoing consultation in the EU. Such uncertainties arise from Recital 22 of MiCA which indicates an intention not to regulate so-called "fully decentralised" projects. However, the notion of what it means to be "fully decentralised" does not have a fixed definition and is a matter of debate among industry experts.
Recital 22 of MiCA states:
This Regulation should apply to natural and legal persons and certain other undertakings and to the crypto-asset services and activities performed, provided or controlled, directly or indirectly, by them, including when part of such activities or services is performed in a decentralised manner. Where crypto-asset services are provided in a fully decentralised manner without any intermediary, they should not fall within the scope of this Regulation.
(our emphasis)
Even if a cross chain protocol involves a crypto-asset service, MiCA's intention appears to be only to regulate that service if there is an identifiable crypto-asset service provider (CASP) which provides the relevant service - making a cross-chain protocol outside of MiCA's jurisdiction when it is fully decentralised and no CASP can be identified.
It is no easy task to rely on this exemption. Critics have pointed out that it is practically impossible for a project to be "fully decentralised" depending on how the term is defined, and also that decentralisation and disintermediation (which appear to be confused as the same thing in MiCA) are very different concepts.
In response, the
ESMA's approach seems somewhat at odds with recent IOSCO recommendations which asserted that DeFi is not sufficiently different to existing financial services and so should be addressed in broadly the same way.
The question of whether a particular suite of smart contracts is decentralised will remain subject to nuanced analysis. It is hoped that further clarity can be provided in the final MiCA regulations or guidance before MiCA comes into force in
US State Legislatures bizarrely seek to "ban" Central Bank Digital Currencies
State legislatures in
The "ban", according to
According to
They didn't ban anything...The law does exactly zero of the things that it says that it does.
In fact, the bill signed by
According to legal scholar and teacher at
the rabbit hole and the craziness of what was done with this
At a press conference
This appears to be borne out of a fundamental understanding of CBDCs which are underpinned by a transparent and accessible blockchain. Further, other jurisdictions which have entered into the CBDC space, such as the
According to legal scholars,
In a
On the question of whether an investment contract was established, the lawyers for the
The token is the key that gets you into the ecosystem. The token is worthless without the ecosystem.
However,
During the hearing,
Ultimately, after 14 pages of questions and over 4 hours of deliberation,
broaden the definition of what constitutes a security.
All eyes are on the outcome of this case, as it will be informative in clarifying the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
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Fax: 29253 9900
URL: piperalderman.com.au
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