A U.S. bankruptcy judge has allowed Celsius Network’s $4 billion lawsuit against Tether to proceed, rejecting parts of Tether’s motion to dismiss. The case, filed in the Southern District of New York, centers on Tether’s alleged improper liquidation of 39,542 Bitcoin (BTC) in June 2022, during Celsius’s collapse.
Celsius claims Tether violated their lending agreement by conducting a “fire sale” of the BTC collateral at $20,656—below market value—without adhering to a 10-hour waiting period, costing Celsius over $4 billion at current prices. The lawsuit alleges breach of contract, fraudulent transfer, and preferential transfer under U.S. bankruptcy law.
Tether argued the U.S. court lacked jurisdiction, citing its incorporation in the British Virgin Islands and Hong Kong, but the judge ruled that Tether’s U.S.-based personnel, communications, and financial accounts established sufficient domestic ties. While some claims, like “good faith and fair dealing” under British Virgin Islands law, were dismissed, the core allegations advance to discovery.
This ruling could impact how crypto lending and collateral management are regulated, especially for offshore firms with U.S. operations. Celsius, which exited bankruptcy in January 2024 after repaying 93% of creditors $2.5 billion, seeks to recover the BTC value and $100 million in damages. Tether, now a major Bitcoin holder, denies wrongdoing, calling the lawsuit a “shakedown.”
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The lawsuit highlights the risks and legal ambiguities in crypto lending agreements, especially regarding collateral liquidation. A ruling in favor of Celsius could lead to stricter regulations on how crypto firms handle collateral, potentially requiring clearer contractual terms and standardized liquidation processes to protect borrowers. It may set a precedent for how bankruptcy courts treat crypto assets, influencing future cases involving distressed crypto firms.
The judge’s decision to allow the case to proceed, despite Tether’s offshore status, signals that U.S. courts may assert jurisdiction over foreign crypto firms with significant U.S. operations or contacts. This could deter offshore entities from engaging with U.S.-based clients without robust legal compliance, impacting their business models. It underscores the growing reach of U.S. bankruptcy law in crypto disputes, potentially forcing firms like Tether to adjust their operational structures to mitigate legal risks in multiple jurisdictions.
Tether, issuer of the USDT stablecoin, is a cornerstone of the crypto market. A prolonged legal battle or adverse ruling could undermine confidence in USDT, potentially causing market volatility, especially if Tether’s reserves or financial practices are scrutinized further. The case could also affect investor trust in crypto lending platforms, as Celsius’s collapse and subsequent litigation highlight the risks of unsecured lending and volatile collateral management.
The lawsuit’s focus on Tether’s alleged “fire sale” of Celsius’s Bitcoin collateral at a below-market price could lead to new standards for how crypto firms liquidate assets during distress. Courts may demand greater transparency and adherence to agreed-upon terms, impacting how lending agreements are structured industry-wide. For Celsius, recovering $4 billion (the current value of the disputed Bitcoin) could significantly benefit its creditors, who received 93% of their funds in the bankruptcy settlement. However, a loss could weaken its post-bankruptcy recovery.
For Tether, a $4 billion liability would be substantial, even with its reported $90 billion market cap for USDT. It could also invite further legal challenges from other parties, given Tether’s history of regulatory scrutiny. Celsius argues that Tether breached their lending agreement by liquidating 39,542 BTC without following the agreed 10-hour waiting period, selling at a low price ($20,656 per BTC) during a market dip in June 2022. Celsius claims this caused a $4 billion loss (at current BTC prices) and violated bankruptcy laws by prioritizing Tether’s interests.
Tether contends it acted within its rights to protect its interests as a lender, given Celsius’s impending collapse. Tether calls the lawsuit a “shakedown” and argues that the liquidation was necessary to mitigate its own risk, dismissing claims of improper conduct or undervaluation. Celsius leverages U.S. bankruptcy law to assert that Tether’s U.S.-based operations (personnel, communications, and financial accounts) make it subject to U.S. jurisdiction, despite its British Virgin Islands incorporation.
Tether argues it operates outside U.S. jurisdiction and that the agreement’s terms, governed by British Virgin Islands law, should limit the case’s scope. Tether’s push to dismiss the case reflects a broader desire among offshore crypto firms to avoid U.S. regulatory oversight. The dispute underscores a broader ideological divide in crypto: Celsius, a centralized lending platform, and Tether, a centralized stablecoin issuer, both operate with significant control over user assets, clashing with the decentralized ethos of crypto. The lawsuit exposes how centralized entities can wield power over collateral and market outcomes, fueling debates about the need for decentralized alternatives.
Celsius seeks to maximize creditor recovery by reclaiming the value of the liquidated Bitcoin, framing Tether’s actions as predatory and harmful to its users. Tether prioritizes its financial stability as a lender, arguing that its actions were necessary to safeguard its reserves and maintain USDT’s peg, which is critical to the broader crypto ecosystem. This lawsuit comes amid heightened regulatory focus on crypto firms, with Tether facing prior scrutiny over its reserve transparency and Celsius grappling with the fallout of its 2022 bankruptcy.
The case could amplify calls for clearer regulations on stablecoins and crypto lending, while also testing the limits of cross-border legal accountability in the industry. The outcome may influence how crypto firms structure lending agreements and manage collateral, potentially reshaping the risk landscape for investors and platforms alike.