CRITICAL UPDATE FOR CRYPTOCURRENCY: Celsius Network Custody Accounts & Clawbacks

I want to preface this by saying that I'm biased, but I think this is incredibly important news for the basis of the cryptocurrency market at large and will affect many involved, even indirectly.

After Thursday's third day court hearing for Celsius Network, which underwent Chapter 11 bankruptcy on July 13, 2022, Kirkland and Ellis (the lawyers representing Celsius LLC) declared that they are willing to give back assets to customers who are in "PURE CUSTODY" (meaning that they never went from the interest earning EARN account to custody, but instead had capital that only touched CUSTODY, which doesn't earn interest at all) and who transferred from EARN to CUSTODY under a threshold of about 7,575 dollars. What this means is that if anyone transferred more than 7,575 dollars from EARN to CUSTODY, Celsius wants to keep the money and not return it to users in CUSTODY Accounts.

In their terms of service, they never make this distinction though. They simply state that assets in CUSTODY are always owned by the user and the title is represented as such. This can be seen here, in their terms of service: https://celsius.network/terms-of-use

"Title to any of your Eligible Digital Assets in a Custody Wallet shall at all times remain with you and not transfer to Celsius. Celsius will not transfer, sell, loan or otherwise rehypothecate Eligible Digital Assets held in a Custody Wallet unless specifically instructed by you, except as required by valid court order, competent regulatory agency, government agency or applicable law."

As a note, in a previous court hearing, Kirkland and Ellis also agreed that Custody assets belong to the user, not to the company. So, why are they doing this, and what's the reasoning for the $7575 dollar limit? Simply put, they are wanting to attempt CLAWBACKS. That 7575 dollar value is the legal threshold for which anything over can be subject to clawback. What does this mean? This means that users who withdrew their OWN assets from Celsius Network may be subject by a court of law to GIVE CELSIUS THEIR ASSETS BACK.

This action may also be the crypto equivalent of what was withdrawn (example, I took out 1 ETH so I have to give back 1 ETH) OR even the USD value at the time of withdrawal (example, I took out 1 ETH for 3000 and now I owe 3000 regardless of the price of ETH).

This is incredibly dangerous to all people who are stuck in this situation (notably, obviously, me since I'm writing about this) and to potential future users of other CEFI platforms. To deposit money into a lending platform structured in this way, a user would have to predict if a company will undergo bankruptcy 90 days from now to be safe...

TLDR: Don't use lending services such as Celsius Network, ever. You are exposed to risks you aren't even aware of when doing so, such as potential clawbacks.