Bankrupt Crypto Lender, Cred, Sues Uphold Exchange Over Its Demise
- Cred loaned over $100 million worth of customers’ crypto deposits before its crash two years ago.
On Friday, the liquidation trust for the failed crypto firm, Cred, filed a lawsuit against Uphold exchange. In the lawsuit, Cred claimed that Uphold was behind the product that caused the collapse of Cred two years ago. The product in question, CredEarn, provided high yields for retail investors until Cred couldn’t recover the investors’ funds it made into the high yield program.
The scheme is similar to the recent bankruptcy cases of Celsius and Voyager. The difference is that it isn’t as high profile as the one that happened this year. Recall that the two crypto lenders (Celsius and Voyager) made a chapter 11 bankruptcy filing earlier this month.
A Critical Look at the Cred and Uphold Lawsuit
An analysis of Cred’s bankruptcy could provide insight into the possible end of the recent bankruptcy cases for Celsius and Voyager. The Cred case is one of the many ways centralized fintech firms have claimed crypto decentralization and enticed investors with unsustainable interest rates and flashy marketing.
The bankruptcy cases in the last few months have laid bare the risks associated with these centralized firms claiming to be decentralized crypto firms. Cred’s liquidation trust seeks a minimum of $783 million in damages from Uphold exchange. The case is filed at the district of Delaware bankruptcy court.
Cred’s liquidators claim that both Cred and Uphold owned CredEarn. Also, both were involved in promoting it. However, Cred loaned over $100 million worth of customers’ crypto deposits before its crash two years ago. Using the market rates as of November 2021, those investments would have been worth more than $700 million.
The court filing states that Uphold lied in the CredEarn program’s marketing that the customers’ deposits were insured, safe, insured, and secured. The liquidators also noted that Dan Schatt (Cred’s founder) was among the board of directors at Uphold.
The suit further revealed that CredEarn wasn’t named UpholdEarn because it could trigger regulatory risks.
” Uphold knew that Cred’s hedging strategy was high risk. It also knew that such crypto yield earning programs have huge regulatory risks. However, Uphold and Schatt conspired to run the program through Cred to prevent Uphold from shouldering the risks.”
In its response, Uphold argued that Cred was a completely independent firm with separate ownership and operations. Uphold also claimed that it wasn’t aware that CredEarn was having a financial crisis when it promoted the program to its customers. Schatt hasn’t responded to any of these claims and counterclaims.
According to the lawsuit, 90 percent of the digital assets lent to Cred by Uphold users were also lent to MoKredit. However, when MoKredit (the Chinese micro-lending platform) couldn’t repay its loans to CredEarn, the whole scheme crashed like a pack of cards.
The difference between Cred’s case and Celsius’ was the change in the defaulting party.
Also, Cred’s case differs from Voyager’s case in marketing. Both Cred and Voyager claimed that deposits were insured. But the reverse was the case.
Rebecca is a Senior Staff Writer at BitcoinWisdom, working hard to bring you the latest breaking news in the cryptocurrency market. In the words of Elon Musk “Buy stock in several companies that make products & services that *you* believe in. Only sell if you think their products & services are trending worse. Don’t panic when the market does. This will serve you well in the long-term.”
