The Celsius Network decision is the first in a likely series of rulings in Celsius’s bankruptcy cases on the issue of who owns digital assets deposited by customers that will help guide, but not bind, how the courts in the Voyager Digital Ltd., FTX Trading Ltd., BlockFi Inc., and other crypto bankruptcy cases decide similar issues in those cases.
- Because the digital assets held in the Earn Accounts are considered property of the estate under section 541 of the Bankruptcy Code, Celsius is permitted to sell the digital assets to underwrite the administrative costs of its bankruptcy cases and, ultimately, to distribute any consideration received or remaining assets pursuant to a chapter 11 plan.
Celsius’s Earn Program
In March 2018, Celsius launched its digital asset-based finance platform. From its inception, Celsius’s “core” financial product and the focus of its marketing was the “Earn” program. Under the Earn program, Earn Account holders transferred their digital assets to Celsius in exchange for “rewards” that Celsius advertised as more attractive than other digital asset investment opportunities. These “rewards” were typically weekly interest payments set and adjusted by Celsius. Once an account holder deposited digital assets into an Earn Account, Celsius hypothecated a portion of those assets in various ways to generate revenue for Celsius, including loaning and staking certain digital assets. Earn Account holders could also borrow against digital assets they deposited with Celsius, using those assets as collateral. Celsius, in turn, used deposited digital assets to generate income for Celsius and to fund its operations and growth.
When Celsius filed bankruptcy in July 2022, there were over 600,000 customers using the Earn program who had transferred digital assets to Celsius with a collective market value of approximately $4.2 billion as of July 10, 2022. Hence, a key gating question arising out of the bankruptcy filing was: who holds title to the digital assets transferred into Celsius’s Earn program: Celsius’s bankruptcy estate or its customers?
Under the Bankruptcy Code, a debtor’s bankruptcy estate consists of “all legal or equitable interests of the debtor in property as of the commencement of the case.”4 Section 541(a)(1) of the Bankruptcy Code “is not intended to expand the debtor’s rights against others more than they existed at the commencement of the case.”5 Thus, if a debtor holds no legal or equitable interest in property as of the commencement of the case, such property does not become property of the debtor’s estate.6 It has long been held that property held in express trust for another person is not property of the estate.7
If Earn Account assets are deemed property of Celsius’s estate, the Earn Account holders cannot access the assets during the pendency of the bankruptcy and the assets must be administered pursuant to a chapter 11 plan, which likely results in the Earn Account holders receiving a pro rata distribution pursuant to the Bankruptcy Code’s priority scheme, and may take years and result in fractional recovery. Celsius would also be able to sell such assets during the pendency of the case pursuant to section 363 of the Bankruptcy Code. In contrast, if the Earn Account assets were determined not to be property of the estate, then Celsius would not have any legal or equitable right to the digital assets and such assets must be returned to the Earn Account holder.
In September 2022, Celsius requested court authority to sell $18 million worth of stablecoins held in the Earn Accounts to fund the bankruptcy cases. Before the Bankruptcy Court could authorize the sale of stablecoins, it first had to determine whether the stablecoins, and the remaining assets held in the Earn Accounts, were an asset of Celsius’s bankruptcy estate.
Positions of the Parties
Additionally, Celsius contended that even if the Bankruptcy Court found that the Earn Account assets were not property of the estate, Celsius did not hold enough digital assets on its balance sheet to return all of the assets to each Earn Account holder, and users still would not be made whole. The Official Committee of Unsecured Creditors, which represents the interests of all Celsius’s creditors, largely agreed with Celsius’s position.
The Court, however, expressly stated that creditors’ rights with respect to claims and allegations of fraudulent inducement, fraudulent conveyance, breach of contract, or that the contract was unconscionable, are reserved for the claims resolution process, and were not at issue in this decision.
Consequently, the Court ultimately held that stablecoins, like other Earn Account assets, are property of Celsius’s bankruptcy estates and that Celsius may sell the stablecoins to provide liquidity to fund the administration of their bankruptcy cases.
Ramifications and Next Steps
As future courts decide these issues, the Celsius Network decision will serve as an initial framework by which future jurisprudence on the issue will develop.
Herein, “digital assets” refers to crypto currencies, tokens, and non-fungible digital tokens and other digital assets, but excludes fiat currency.
 In re Lehman Bros. Holdings. Inc., 422 B.R. 407, 418 (Bankr. S.D.N.Y. 2010) (citing 11 U.S.C. § 541(a)(1)).
 H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 367-68 (1977); see also Moody v. Amoco Oil Co., 734 F.2d 1200, 1213 (7th Cir. 1984) (holding that the “rights a debtor has in property at the commencement of the case continue in bankruptcy—no more, no less”).
 See Pearlman v. Reliance Ins. Co., 371 U.S. 132, 135-36 (1962).
Begier v. I.R.S., 496 U.S. 53, 59 (1990); Sanyo Elec ., Inc. v. Howard's Appliance Corp. (In re Howard's Appliance Corp.), 874 F.2d 88, 93 (2d Cir. 1989); Official Comm. of Unsecured Creditors v. Columbia Gas Sys., Inc. (In re Columbia Gas Sys., Inc.), 997 F.2d 1039, 1059 (3d Cir. 1993) (“Congress clearly intended the exclusion created by section 541(d) to include not only funds held in express trust, but also funds held in constructive trust”).
“Clickwrap” agreements require a party to a contract to manifest assent to a particular contract by clicking a button confirming that they accept the terms or a button that implies that they have accepted the terms, but do not necessarily require a party to actually view the terms of the contract. Clickwrap agreements are routinely enforced under New York law. Whit v. Prosper Funding LLC, No. 15-00136 (GHW), 2015 WL 4254062, at *4 (S.D.N.Y. July 14, 2015) (“In New York, clickwrap agreements are valid and enforceable contracts.”) (quoting Centrifugal Force, Inc. v. Softnet Commc’n, Inc., No. 08-05463 (CM), 2011 WL 744732, at *7 (S.D.N.Y. Mar. 1, 2011)).
 Section 14 of the Terms Version 6 provided: “[i]n consideration for the rewards earned on your Celsius Wallet and the use of our Services, you grant Celsius, subject to applicable law and for the duration of the period during which the Digital Assets are available through your Celsius Wallet, all right and title to such Digital Assets, including ownership rights, and the right, without further notice to you, to hold such Digital Assets in Celsius’ own virtual wallet or elsewhere, and to pledge, repledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets, separately or together with other property, with all attendant rights of ownership, and for any period of time, and without retaining in Celsius’ possession and/or control a like amount of Digital Assets or any other monies or assets, and to use or invest such Digital Assets.” (emphasis added).