Defunct crypto lender Celsius has filed a lawsuit against Tether, accusing the stablecoin’s issuer of asset misappropriation. The move comes amid recent efforts by the cryptocurrency company, which filed for bankruptcy in 2022, to recover billions of dollars in funds for creditors.

Why Celsius is asking for over $3.5 billion from Tether

Bankrupt Celsius has filed a number of lawsuits against various cryptocurrency companies in recent weeks, with the world’s largest stablecoin company Tether the latest name on the list. Other companies currently embroiled in various legal battles with the now-defunct cryptocurrency lender include Badger DAO, Bancor and Compound.

On Friday, August 9, Celsius filed its largest lawsuit against Tether, seeking billions of dollars in Bitcoin returns, damages, and legal fees. According to the latest court filing, the company is seeking repayment of 39,542 BTC that it used as collateral for loans it received from Tether.

When Bitcoin’s price began to decline in early 2022, Tether reportedly asked Celsius for more collateral to back the loans. The latest court document also revealed that the cryptocurrency lender took out another $300 million in USDT loans from Tether a few months before — and within 90 days of — its bankruptcy filing in July.

Celsius claimed that the request for additional collateral was met by sending additional BTC as collateral multiple times between May and June 2022. Following this payment, Tether made a second request for collateral, but decided to liquidate Celsius’ collateral before the mandatory ten-hour waiting period.

In its lawsuit, Celsius argues that Tether liquidated the collateral at a price that unfairly benefited the stablecoin issuer, without allowing the lender to provide the additional collateral. The court filing states:

If Celsius had been given the opportunity to meet collateral demand, as it was contractually entitled to do, it could have avoided selling its Bitcoin at the bottom of the crypto market. Instead, that sale was conducted for the benefit of just one creditor: Tether

According to the filing, Celsius is asking the court to order Tether to hand over the 15,658.21 Bitcoin, 2,228.01 Bitcoin, and 39,542.42 Bitcoin that the crypto lender preferentially transferred to the stablecoin issuer. These transfers amount to 57,428.64 BTC, which at Bitcoin’s current price of $61,110 is equivalent to approximately $3.5 billion.

Tether Labels lawsuit is an ‘extortion’

In a new blog post, Tether strongly denies any wrongdoing against Celsius and calls the recent lawsuit “baseless.” According to the stablecoin company, Celsius does not recognize the clear validity of the agreement that was made years before the bankruptcy.

Tether said in the blog post:

We look forward to responding in court to this contrived, senseless extortion that benefits no one other than the lawyers, bankers and advisors involved in this case.

Tether CEO Paolo Ardoino reiterated the company’s position in a post on the X platform, indicating that he is prepared to make an example of blatant money-grabbing in court.

In 2022, Tether made USDt available to some of its customers, including Celsius. Tether’s agreements with customers are very simple: Tether offers USDt to select customers who provide overcollateralization in Bitcoin.

If the price of bitcoin (the collateral) falls… https://t.co/UuEs1ig8zr

— Paolo Ardoino 🤖🍐 (@paoloardoino) August 10, 2024

Finally, Ardoino wasted no time in citing Tether’s consolidated equity value of $12 billion and assured USDT holders that they would not be affected in the “most unlikely scenario” in which the lawsuit escalates.

The price of Bitcoin on the daily timeframe | Source: BTCUSDT chart on TradingView

Main image from PYMNTS, chart from TradingView