Bessie Liu

Wildcat, a lending protocol that has recently landed on Ethereum mainnet, wants to make undercollateralized lending more ‘hands-off.’



The promise of uncollateralized lending is to enable credit and money expansion while remaining decentralized.



In an <a href="https://twitter.com/WildcatFi/status/1730375186631794921">X post</a> revealing its mainnet launch, the Wildcat Protocol notes that existing processes around Web3 undercollateralized lending are too ‘hands-on’ with various responsibilities falling into the hands of protocols themselves.



Laurence Day, the founder of Wildcat, told Blockworks that often in DeFi, people talk about “don&#8217;t trust, verify” writ large and insist that all on-chain agreements must be overcollateralized for safety when the counterparty is pseudonymous.&nbsp;



Though this may be the case, there is also a general acceptance that large-scale agreements between entities that can operate in DeFi must have the necessary paperwork and be executed off-chain.&nbsp;



“We&#8217;ve hand-crafted a rod for our own backs when it comes to visibility into deals that are, on aggregate, much more systemically important than any one position on, say, Euler or Aave,” Day said, whose <a href="https://blockworks.co/news/blackmail-thwarts-90k-dao-attack">prior Web3 efforts include</a> the ill-fated Indexed Finance.



The name is an homage to the United States’ pre-central bank days in the 19th century, when so-called “<a href="https://www.aier.org/article/what-do-wildcat-banks-tell-us-about-stablecoins/">Wildcat banks</a>” issued their own private banknotes.



What the Wildcat Protocol hopes to achieve is to minimize the third-party oversight of the undercollateralized lending process, leaving lending and borrowing specifications predominately up to the borrowers and creditors themselves.&nbsp;



According to its <a href="https://github.com/wildcat-finance/wildcat-whitepaper/blob/main/whitepaper_v1.0.pdf">whitepaper</a>, there will be four main components involved in the Wildcat protocol:&nbsp;



<ul class="wp-block-list">
<li>An Archcontroller contract monitored by the Wildcat team, responsible for overseeing borrower eligibility;</li>



<li>Market controller factories that oversee constraints that will be passed on to markets, including fees that must be paid to the protocol;</li>



<li>Market controllers, the set of rules deployed by individual borrowers into the market controller factories; and most importantly,</li>



<li>actual markets.&nbsp;</li>
</ul>



Markets are designed to publicly display which assets borrowers are looking for, at what maximum capacity, and at what annual percentage rate. Borrowers will also have the ability to choose their collateralization ratio, penalty rates and time frame in which they pay their penalties. They will also be able to choose who their lenders can be.&nbsp;



So, unlike the on-chain lending protocol Goldfinch, where borrowers must demonstrate if they are creditworthy through collective assessments, or Maple Finance, which offers borrowers uncollateralized lending at fixed rates, Wildcat simply exists to provide the necessary tools for an undercollateralized on-chain contract. It does not get involved in the lending and borrowing process itself.



“I think it&#8217;s important that we give borrowing entities and their counterparties enough freedom to come to their own terms without having to rely on delegates and middlemen dictating parameters. You might call it free banking, I call it the freedom to contract,” Day said.&nbsp;



Wildcat markets are not controlled nor upgraded by the protocol once it has been deployed. This means the market and its interactions belong to the borrower alone, and the protocol will not be able to liquidate collateral, freeze markets, or access any funds.&nbsp;



Lenders can not be forcibly removed from open positions unless they have been placed on a sanctions list. In the case that a ‘sentinel contract’ identifies a sanctioned user using <a href="https://blockworks.co/tag/chainalysis">Chainalysis</a> nodes, it will have the capability to revert transactions or withhold assets in an escrow contract.&nbsp;



If a borrower is sanctioned, the protocol has advised seeking legal advice. Noting that “existing reserves can be withdrawn from the market by lenders, but subsequent repayment of assets by the borrower could potentially incur strict liability offenses on the part of a lender.”&nbsp;



Ultimately, Wildcat is designed in a way that enables market participants to engage in undercollateralized lending by making their terms completely public, it will be available to users worldwide, except the United States.



Finding a solution to fractional reserve free banking is a tough nut to crack, but an important one, according to Evgeny Gaevoy, CEO at market maker Wintermute



“If we cannot solve it, I don’t think we can really have any ambition for Bitcoin or Ethereum or whatever-other-token-based economy,” he wrote in a <a href="https://evgenygaevoy.medium.com/wildcat-53603029ff32">blog</a> post. “‘Full reserve banking is static at best and stagnant at worst.”



And Day agrees.



“If we&#8217;re trying to create an alternative to the traditional financial system, we need to find the most suitable way to replicate its most powerful weapon. Wildcat is an iteration on that path: no more, no less,” Day said.



Macauley Peterson contributed reporting.



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lending platform

Is ‘hands-off’ undercollateralized lending possible? Wildcat thinks so

Shalini Nagarajan

Bankrupt crypto lender BlockFi expects to grant customer withdrawals this summer upon the successful completion of essential testing to verify accurate account balances.



In an email sent on Monday, customers were informed that BlockFi received court approval on May 17 to update user interfaces. This is a necessary step to make it easier for clients to withdraw their funds, the firm added.



The digital assets contained within the custodial omnibus wallets, as of the platform pause, do not belong to BlockFi, Judge Michael Kaplan said in the May <a href="https://restructuring.ra.kroll.com/blockfi/Home-DownloadPDF?id1=MTUwNDE5OQ==&amp;id2=-1" target="_blank" rel="noreferrer noopener">court order.</a>



“BlockFi needs to build new product functionality and make changes to the platform in order to process these withdrawals,” the lender said, <a href="https://twitter.com/LoungeRogue/status/1668351666092146688" target="_blank" rel="noreferrer noopener">according</a> to screenshots of the email posted to Twitter.



“We anticipate that this work and the necessary testing will be completed by this summer. At that time, we will be in a position to begin making distributions to clients.”



Blockworks has reached out to BlockFi for comment on the timeline.



<h2 class="wp-block-heading">BlockFi will implement batch withdrawals</h2>



The company also announced that clients will be able to move their digital assets from their BlockFi wallets to external wallets, but cash distributions will not be supported.&nbsp;



It plans to start allowing withdrawals from BlockFi wallet accounts for assets that are not at risk of potential preference claims, or demands made by specific creditors who seek to be repaid before others.



Withdrawals will be processed in batches, and users can expect to receive an email as soon as they become eligible to start withdrawing their funds.



During this time, users are encouraged to set up an external wallet, as it will be necessary to facilitate a smooth withdrawal from BlockFi.



<h2 class="wp-block-heading">Deadline to develop exit plan extended</h2>



BlockFi <a href="https://blockworks.co/news/blockfi-stops-withdrawals-hinting-ftx-mess-can-only-get-worse">halted withdrawals</a> in November, merely two days after assuring users of its full operational status. The company attributed this action to the uncertainties arising from the downward spiral of Alameda Research and FTX, which had earlier <a href="https://blockworks.co/news/ftx-reaches-deal-to-acquire-blockfi-for-up-to-240m">agreed to extend a credit facility</a> to the lender.



This week, BlockFi was <a href="https://restructuring.ra.kroll.com/blockfi/Home-DownloadPDF?id1=MTUyMjg2OA==&amp;id2=-1" target="_blank" rel="noreferrer noopener">given more time</a> to come up with a bankruptcy exit plan. The deadline has been pushed to July 6 due to a <a href="https://twitter.com/BlockFiUCC/status/1658603110342832131" target="_blank" rel="noreferrer noopener">disagreement</a> with the unsecured creditors committee.



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bankruptcy

BlockFi set to open customer withdrawals in summer

Sebastian Sinclair

<div id="highlights-block_63198d7e34faa" class="highlights">
 <ul>
 <li>Vermont joins 40 other state regulators in their pursuit of Celsius&#8217; true financials</li>
 <li>Celsius’ liabilities may have exceeded its assets as far back as February 2019, Vermont’s regulator alleges</li>
 </ul>
 
</div>



Vermont is requesting the appointment of an examiner with “broad powers” to further investigate embattled crypto lender Celsius and its financials.



The Vermont Department of Financial Regulation alleged Wednesday the lender manipulated the price of its CEL token and used investor deposits to boost its net position in them, according to a <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174909072280000000015.pdf">court filing</a>, first <a href="https://twitter.com/davidzmorris/status/1567515126302998528">reported</a> by Coindesk.



Celsius filed for chapter 11 bankruptcy in July after a month-long battle to stay solvent following Terra’s collapse. The <a href="https://cms.blockworks.co/7-critical-events-in-the-celsius-bankruptcy-case/" target="_blank" rel="noreferrer noopener">court proceedings that followed</a> have exposed a $3 billion hole in its balance sheet.



The regulator alleges Celsius misled investors on the state of its financial health which “likely” baited retail investors into keeping their funds on its platform, irrespective of the crypto market’s wild price swings.



Roughly 100,000 creditors are also reportedly owed money by the lender after they lent the firm unsecured cash loans. Sam Bankman-Fried’s trading firm, Alameda Research, is one of the high-profile lenders caught in the cross hairs.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;At a minimum, Celsius has been operating its business in violation of state securities laws, the regulator said in its filing. “That improper practice alone warrants investigation by a neutral party.”</blockquote>



The regulator also alleges Celsius’ liabilities may have exceeded its assets since at least February 2019, before taking into account its net position in CEL tokens. The practice of artificially inflating its token led to the potential enrichment of insiders at the expense of retail investors, Vermont’s regulator said.



That revelation has some commentators calling the operation a Ponzi scheme.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">This should be jail for Celsius CEO Mashinsky. Total ponzi scheme. <a href="https://t.co/7jNA3NXRXa">pic.twitter.com/7jNA3NXRXa</a>&mdash; Nate Anderson (@ClarityToast) <a href="https://twitter.com/ClarityToast/status/1567531634592727049?ref_src=twsrc%5Etfw">September 7, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Vermont joins at least 40 other state securities regulators in a multistate investigation of potential securities fraud, mismanagement and market manipulation, the filing reads.



Losses suffered by retail investors and savers, which include middle class unaccredited investors, some of whom parked their life savings on the platform, are the focus of Vermont’s fight, the financial watchdog said.



“The appointment of an examiner is critical to ensure the interests of these investors are protected.”



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40 State Regulators are Opening Celsius’ Books in Search of Fraud

<div id="highlights-block_63188037a290c" class="highlights">
 <ul>
 <li>Creditors, including retails depositors, still don&#8217;t know how much of their assets they can recover, and when</li>
 <li>Celsius struggles to balance operating its remaining businesses, grappling with legal battles and trying to refund customers</li>
 </ul>
 
</div>



Cryptocurrency lender Celsius <a href="https://cms.blockworks.co/celsius-to-file-for-bankruptcy-imminently-report/" target="_blank" rel="noreferrer noopener">filed for bankruptcy</a> in July after a month-long battle with insolvency issues — leaving the once high-flying firm with roughly <a href="https://cms.blockworks.co/celsius-net-liabilities-surpass-2-8-billion-new-bankruptcy-filing/" target="_blank" rel="noreferrer noopener">$3 billion</a> in liabilities.



The lender’s woes led to extreme fear and uncertainty around the stability of the crypto market as customers weren’t sure whether they’d ever again see their crypto deposits that were locked in the platform.



Celsius, born just five years ago in 2017, issued depositors interest on their digital assets and offered crypto lending programs. The best thing about the platform, users believed, was that it helped earn high rewards on bitcoin deposits.&nbsp;



It became a top choice after interest in crypto lending — basically banking for the crypto world — <a href="https://www.reuters.com/article/uk-crypto-currencies-lending-insight-idUKKBN25M0GQ" target="_blank" rel="noreferrer noopener">exploded</a> in the past two years, along with decentralized finance platforms. Now it has 100,000 creditors, some of whom lent the firm cash without any collateral to secure obligations.&nbsp;



Even billionaire Sam Bankman Fried’s trading firm, Alameda Research, is listed as one of the lender’s top 50 unsecured creditors.



Celsius’ downfall showed the <a href="https://cms.blockworks.co/whats-wrong-with-centralized-crypto-lending/" target="_blank" rel="noreferrer noopener">risks</a> of similar platforms that allow customers’ deposits to be transferred to parties without much underwriting, and showed overly high returns are more of a gamble than a genuine yield.



Below are seven significant events in the aftermath of Celsius’ bankruptcy:



<h4 class="wp-block-heading">1. Investors plead with bankruptcy court to recover their money</h4>



Many of Celsius’ 1.7 million customers suffering from the platform’s collapse wrote letters to the Southern District of New York Court to help get their money back.&nbsp;



In a <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174908012280000000096.pdf" target="_blank" rel="noreferrer noopener">letter</a> dated Aug. 1, Christian Ostheimer wrote that he has more than $30,000 in funds locked with the lender, which led to “unsurmountable tax complications.”&nbsp;



California resident Stephen Bralver <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174907222280000000086.pdf" target="_blank" rel="noreferrer noopener">wrote</a> he had less than $1,000 left in his Wells Fargo checking account — his only source of funds to provide for his family. “There is absolutely no way that I can continue to provide without access to my assets at Celsius,” he said, citing California’s high cost of living.



<h4 class="wp-block-heading">2. Celsius flip-flops on rehiring ex-CFO</h4>



The lender <a href="https://cms.blockworks.co/bankrupt-crypto-lender-celsius-seeks-help-from-former-cfo/" target="_blank" rel="noreferrer noopener">filed a motion</a> to hire former CFO Rod Bolger in order to advise its bankruptcy proceedings because of his “familiarity” with the business. Had Bolger come on board, he would’ve been paid roughly $93,000 a month, at a time when the company’s creditors were still waiting to be paid. That plan was later reverted for <a href="https://cms.blockworks.co/celsius-wont-bring-cfo-back-as-advisor-for-93k-per-month-after-all/" target="_blank" rel="noreferrer noopener">no clear reason</a>, but followed a formal objection from investor Keith Suckno.&nbsp;



<h4 class="wp-block-heading">3. Vague game plan for bitcoin mining revenue unveiled</h4>



Celsius was keen on using its bitcoin mining business to help in its restructuring. But both creditors and regulators were firmly against the company being allowed to go ahead. Dan Besikof, bankruptcy advisor at law firm Loeb &amp; Loeb, told Blockworks that Celsius wasn’t specific about what it plans to do with the proceeds from the business — and so it “could monetize the coins and use the proceeds in any number of ways.”



<h4 class="wp-block-heading">4. Court approves Celsius’ plan to sell mined bitcoin&nbsp;— with reservations</h4>



Even though the plan was such a contentious issue, with the Department of Justice arguing that Celsius’ case wasn’t transparent enough, US bankruptcy judge Martin Glenn <a href="https://cms.blockworks.co/celsius-gets-court-blessing-to-sell-its-mined-bitcoin/" target="_blank" rel="noreferrer noopener">gave the lender clearance</a> to mine and sell bitcoin to support its operations. He did express concern, however, that the business wouldn’t be immediately profitable, noting it may be a “very wrong” choice.



<h4 class="wp-block-heading">5. Celsius, sued by a former money manager, opts to countersue</h4>



DeFi startup KeyFi filed a lawsuit against Celsius in July, before the bankruptcy, over allegations of running a Ponzi scheme and failing to honor a profit-sharing agreement. Celsius <a href="https://cms.blockworks.co/celsius-countersues-keyfi-claims-millions-stolen-from-wallets/" target="_blank" rel="noreferrer noopener">responded with a counterclaim</a> in August, arguing that KeyFi and CEO Jason Stone swindled millions of dollars in cryptocurrencies from the firm. Controversial crypto lawyer <a href="https://cms.blockworks.co/tag/kyle-roche/" target="_blank" rel="noreferrer noopener">Kyle Roche,</a> representing KeyFi, said Celsius used the opportunity “as a scapegoat for their organizational incompetence.”



<h4 class="wp-block-heading">6. Cash projected to run out by October</h4>



Estimates filed by law firm Kirkland &amp; Ellis on August 14 show the lender had $3.8 billion in token assets as of July 29. But its finances could <a href="https://cms.blockworks.co/celsius-net-liabilities-surpass-2-8-billion-new-bankruptcy-filing/" target="_blank" rel="noreferrer noopener">dry up by October</a> due to operating expenses, including employee payments worth nearly $14 million. Restructuring expenses, by itself, will cost the firm close to $40 million. Yet, a more recent <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174909012280000000031.pdf" target="_blank" rel="noreferrer noopener">filing</a> shows the lender expects to receive a $70 million cash injection from the repayment of USD-denominated loans.



<h4 class="wp-block-heading">7. Motion to return $50 million of locked crypto</h4>



On Sept. 1, Celsius <a href="https://cases.stretto.com/public/x191/11749/PLEADINGS/1174909012280000000022.pdf" target="_blank" rel="noreferrer noopener">filed a motion</a> to return about $50 million of the more than $200 million trapped in custody accounts. But the company said it would only refund users with funds in the “Custody and Withhold” accounts — not with the “Earn” program — as these accounts are likely not “property of the estate.”&nbsp;



Property of the estate in bankruptcy refers to assets belonging to the debtor.



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7 Critical Events in the Celsius Bankruptcy Case

Casey Wagner

<div id="highlights-block_62b611d38f195" class="highlights">
 <ul>
 <li>Celsius has hired restructuring consultants from advisory firm Alvarez &amp; Marsal, according to the WSJ</li>
 <li>The last public communication from the Celsius team came via blog post on June 19, one week after it announced the halt</li>
 </ul>
 
</div>



Celsius has hired restructuring consultants in preparation for a potential bankruptcy filing, the Wall Street Journal <a href="https://www.wsj.com/articles/celsius-network-taps-more-advisers-to-prepare-for-potential-bankruptcy-11656088078" target="_blank" rel="noreferrer noopener">reported</a> Friday, citing people familiar with the matter. 



The crypto lending firm — which earlier this month halted withdrawals, swaps and transfers — has reportedly hired three consultants from advisory firm Alvarez &amp; Marsal.&nbsp;



If the lending firm declares bankruptcy, there is no guarantee customers will be able to recover any funds held on the platform.&nbsp;



“In the event that Celsius becomes bankrupt, enters liquidation or is otherwise unable to repay its obligations, you may not be able to recover or regain ownership of such Digital Assets,” Celsius’s terms of use state.



The last public communication from the Celsius team came via <a href="https://blog.celsius.network/a-note-to-the-celsius-community-e5af1f5a7998" target="_blank" rel="noreferrer noopener">blog post</a> on June 19, one week after the halt. 



“As has been a priority since our company’s inception, we maintain an open dialogue with regulators and officials,” the post read. “We plan to continue working with regulators and officials regarding this pause and our company’s determination to find a resolution.”&nbsp;



The post did not address the potential for bankruptcy or the status of consumer funds.&nbsp;



The lender initially halted withdrawals, swaps and transfers in an attempt to “stabilize our liquidity and operations,” amid volatile market conditions, the company said. Celsius has also paused its weekly question and answer sessions with the community until further notice.&nbsp;



Celsius did not immediately respond to a request for comment.



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