Crypto Exchange Bankruptcies: Are Prepetition Crypto Withdrawals And DeFi Loan Repayments Avoidable Preferences?

Over the span of two weeks in July 2022, two of the largest retail-facing cryptocurrency platforms, Celsius and Voyager, filed for chapter 11 bankruptcy protection. Both cases were precipitated, at least in part, by a "run on the bank" in which retail customers withdrew substantial amounts of cryptocurrency from each platform.¹ Recent reports suggest that, in the weeks and months leading up to the bankruptcy, Celsius insiders also pulled tens of millions of dollars' worth of their own crypto assets that had been deposited on the platform.²

In addition to providing retail trading and lending services, Celsius, like many other cryptocurrency platforms, also had significant borrowings under "decentralized finance" (or "DeFi") loans-that is, dollar-denominated loans collateralized by pledged cryptocurrency assets that are often governed by self-executing smart contracts and recorded on the blockchain. In the month prior to its bankruptcy filing date, nearly $650