Thread by @wassielawyer

1/ Ok just some clarifications because people instantly become insolvency practitioners / lawyers whenever a platform is experiencing difficulties to maximize engagement farming.

Now @CelsiusNetwork is clearly insolvent. The question is what sort of insolvency are they in?

2/ Insolvency is generally defined in law as 'being unable to pay debts as they becoming due'. This means there are two 'types' of insolvency.

The first is 'cash flow insolvency' which means you simply have more outflows than you are able to support.

3/ This does not mean you do not have the assets to meet those outflows, it is simply a question of timing. Imagine if you locked your networth of $1000 in a box for 24 hours but a friend rocks up and asks you to repay a $500 loan today.

You cannot and so you are insolvent.

4/ This is not terrible. Sure you cannot pay your friend $500 now but give it a day and you will be able to pay him $500 and maybe another $50 for his inconvenience.

Worst case scenario, sell the $1000 box for $900 dollars today and pay off the $500 loan today.

5/ Ideally @CelsiusNetwork is in this position and so the halt on withdrawals / transfers is simply to buy time until sufficient assets become liquid again.

If they are cash flow insolvent, it really isn't the end of the world.

6/ Now if they are 'balance sheet insolvent', we are in another world of hurt. Being balance sheet insolvent means you simply do not have enough assets to cover all of your liabilities.

This means that instead of having $1000 locked in a box and owing $500...

7/ you have a net worth of $1000 (in a box or otherwise) but you owe $5000 dollars. There is no way your creditors will be able to recover the amounts owed to them in full because you simply do not have enough!

In this situation, creditors are pretty fucked.

8/ What does this mean for @CelsiusNetwork users if Celsius is in fact balance sheet insolvent? IRL, there would be a managed process to make sure everyone gets a fair share.

In crypto no such thing exists (see @terra_money) so its bank run time! Get out before you get fucked.

9/ But the lack of transparency and accountability in crypto, especially when it comes to executive level decision-making (again - see @stablekwon, @terra_money and @LFG_org) means there is another risk - the risk that the insolvent company tries to trade out of insolvency.

10/ What does 'trying to trade out of insolvency' mean? When a company is insolvent, the controller's interests are no longer aligned with their creditors. Every additional dollar you lose would have gone to your creditors but every dollar you make takes you closer to recovery.

11/ So why wouldn't you YOLO bet whatever you have left on a high-risk play knowing that if you lose its your creditors that get fucked but if it pays off, you get out of your current predicament with upside!

Bet your $1000 and if you get $10000 back, your problems go away!

12/ This behavior attracts very heavy penalties / liabilities on an individual under wrongful trading / fraudulent trading laws which provide that if you are a director (or controller) of an insolvent company and start YOLO trading, you could be personally liable and serve time.

13/ But we are in the crypto world so who knows what will happen?

I'd encourage @CelsiusNetwork to publicly disclose what sort of insolvency they are facing at the moment and the next steps they are intending to take.

Let's hope its not 100x leveraged LUNAC.

14/ As usual, this is neither financial nor legal advice. I am a hentai anime penguin in a suit.