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Bankrupt cryptocurrency lender Celsius filed a lawsuit against stablecoin issuer Tether, following a series of legal complaints.
The action follows similar lawsuits against Bitcoin (BTC) tokenizer Badger DAO, decentralized exchange Bancor, decentralized lending protocol Compound, and the niece and nephew of Israeli prime minister Benjamin Netanyahu, who are Bancor leaders.
According to an Aug. 10 The Block report, Celsius’ intention is to regain significant capital to distribute back to its creditors. The lawsuit against USDT stablecoin issuer Tether was filed on Friday and takes aim at 39,542 BTC worth more than $2.4 billion at current prices.
What’s Celsius vs. Tether all about?
According to the lawsuit, when crypto prices decreased in 2022 Tether requested more collateral from Celsius to prop up its loans. This was then transferred as Bitcoin, and Celsius also took an additional $300 million USDT loan in April 2022, within 90 days of its bankruptcy filing in July.
The lawyers argue that “Tether would not have been able to come close to making itself whole on its $812,330,000 USDT loan to Celsius” and that “Tether would have had over $350 million less in collateral” if the transfers had not been made. After Celsius provided more than 3,000 BTC of additional collateral in June, Tether purportedly requested more.
While the lender was collecting the additional funds during a contractually mandated ten-hour waiting period, Tether liquidated its holdings within hours. According to the lawsuit the lender would have collected enough collateral if the contractual times were respected.
“If Celsius had been given the opportunity to meet the collateral demand—which it had the contractual right to do—it could have been able to avoid the disposition of its Bitcoin at near the bottom of the cryptocurrency market. Instead, that disposition was carried out for the benefit of just one creditor: Tether.”
Celsius vs. the others
Celsius filed its lawsuit against Bancor last month. Two of the defendants are siblings and Bancor founders Galia and Guy Ben-Artzi, Netanyahu’s niece and nephew. The decentralized exchange claimed its market-making mechanism was protected against impermanent loss, but that ended up not being true, leading to loss of funds for Celsius:
“Impermanent loss protection was, according to Defendants, to be paid for by fees generated by the Protocol. At all times, however, the fees that the Protocol earned were insufficient to cover the cost of IL protection for all LPs [liquidity providers] – indeed, they covered only a fraction of the unrealized impermament loss in the system.”
The lawsuit against Badger DAO takes aim at its founder, Christopher Spadafora, over a lack of protocol security leading to a loss of $120 million at the end of 2021 — more than $50 million of it from Celsius. The hack against cloud infrastructure provider Cloudflare, resulted in a compromised front end that gave the attacker access to users’ wallets.
The lawsuit against Compound Finance developer Compound Labs cites an increase in the price of the stablecoin DAI to $1.30 on Coinbase Pro. This price feed was purportedly used as the sole source of pricing information for Compound’s system at the team, leading to the suit.
“As a direct result of the DAI price spike, Compound initiated a series of eight liquidation transactions […] in a Celsius wallet, resulting in a total of 2,509,770.21 cETH being taken from the wallet and distributed to various liquidator wallets. That 2,509,770.21 cETH would have been redeemable for a total of 50,268.9529 ETH, all of which Celsius was forced to have to repurchase on the open market following the liquidation event.”
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