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Celsius shifts the blame: KeyFi sued for lost and stolen assets

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CelsiusVsKeyFiLarge

Troubled crypto lender Celsius claims its former partner stole and laundered tens of millions in digital assets.

Crypto lending platform Celsius has been in the news for all the wrong reasons lately. Celsius paused customer withdrawals following a number of liquidations events throughout the recent market downturn. The company struggled to repay decentralised finance (DeFi) debts and was unable to return many of its customers' assets, eventually filing for Chapter 11 bankruptcy on 13 July.

With over 1.5 million customers still unable to access their funds, Celsius now claims there are other parties at fault. On 23 August, Celsius filed a lawsuit at the United States Bankruptcy Court against its former partner, DeFi investment firm KeyFi.

Nature of the claim

The lawsuit argues that KeyFi CEO Jason Stone falsely represented himself to be an "expert in coin staking and DeFi investments".

Celsius also claims the defendants (KeyFi and Jason Stone) stole millions of dollars worth of cryptocurrency from Celsius wallets. These funds were allegedly used to purchase NFTs and to acquire interest in numerous blockchain companies.

While it remains uncertain whether these statements are true, Celsius demands that KeyFi pay damages and restitution.

Tornado Cash

In addition to accusations of theft, incompetence and gross negligence, the lawsuit claims Stone and KeyFi used crypto mixer Tornado Cash to "cover their tracks and hide the ultimate destination of assets taken from Celsius".

What is Tornado Cash?
Tornado Cash is a decentralised application (dApp) running on the Ethereum blockchain. It's used to facilitate anonymous transfers.

Tornado Cash breaks the link between individual addresses by pooling funds together. You can still see who sent the funds, but not where they ended up.

This is not the first time Tornado Cash has been at the root of issues surrounding cybercrime. Tornado Cash was recently banned by the US Treasury Department's Office of Foreign Asset Control (OFAC). These bans came as Tornado Cash allegedly violated sanctions against North Korea, assisting in the laundering of millions of dollars worth of stolen cryptocurrencies.

The Tornado Cash ban saw a polarising response by the crypto community. Some suggest it brings legitimacy to the industry while others argue it's against the nature of blockchain and decentralised technology to ban an open-source piece of code.

Market impact

The native Celsius token CEL has been volatile over the past 6 months. As a surprise to some investors, CEL climbed in price following the company filing for Chapter 11 bankruptcy. It has since retraced its 2022 highs, falling over 50% in the past week. It is trading at AUD$2.43 (US$1.69) and maintaining ranks in the top 100 cryptocurrencies by market cap.

Celsius chart

Celsius chart | Source: Tradingview Image: Finder

The rest of the crypto market appears to have concerns of their own. Bitcoin (BTC) is down over 10% in the past week, unable to reclaim AUD$35,000 (US$25,000). The total cryptocurrency market cap is holding just above US$1 trillion.

Trying to get a handle on the markets? Cut through the noise with our overview of the best cryptos to buy right now, explore some strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Billy Endres owns cryptocurrencies as of the publishing date.

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