The Financial Times reported on July 26 that Tether’s (USDT) liquidation of the $840 million loan it gave to Celsius could be scrutinized under bankruptcy law to determine if the process was valid.
The stable coin issuer revealed that it repaid its loan to Celsius by selling the Bitcoin (BTC) pledged as collateral by the embattled firm.
Celsius’s attorneys had asked the court whether the bankrupt lender could recover the value of the collateral sold to the firm by Tether and other lenders.
In a presentation to the New York bankruptcy court, Celsius’ attorney raised the question of “Can Celsius recover, loan liquidations completed in the 90 days before filing?”
According to reports, the answer to that question will determine whether Tether is required to repay the funds recovered from selling the Bitcoin collateral, as well as the status of secured digital asset loans during bankruptcy.
Secured lending generally requires the borrower to pledge assets as collateral to the lender. The widely held belief in the cryptocurrency community is that a lender can seize crypto assets pledged as collateral, which are then protected under bankruptcy law.
But legal experts believe that the process is not that simple. A bankruptcy lawyer Brandon Hammer told FT that: We’re in an area where the law is quite uncertain and quite at odds with the market’s general expectations.
Tether, in his opinion, may be forced to return the assets if they have an unsecured claim against the loan. Tad Davidson, another Hunton Andrews Kurth bankruptcy expert, stated: “One of the things that’s going to be examined is whether or not Tether was fully secured. Did Tether properly perfect its security in its collateral?”
To read our blog on “Stablecoins are investigated as EU senators reach an agreement on the MiCA framework,” click here