Hosting Deposits in the Compute North and Mawson Cases

What Happened

Compute North was one of the biggest names in mining colocation. In September 2022 it filed for Chapter 11 in Texas, owing up to $500 million to more than 200 creditors. Reports at the time pointed to several pressures: funding had tightened, new sites were delayed, energy costs had roughly doubled, and bitcoin was down about 75 percent. Before the filing, according to the analysis cited below, the company’s lender had already declared defaults and taken control of two flagship facilities and $23.6 million in bank accounts.

The creditor list drew attention across the industry. Marathon Digital was listed as an unsecured creditor owed about $21 million, much of it hosting deposits and prepayments. NextEra, the energy company, was owed almost $100 million. In this filing, then, a large customer’s deposits and prepayments appeared among the unsecured claims rather than as funds held separately for that customer.

A related set of issues came up between Celsius and Mawson. Celsius prepaid about $15.3 million in deposits and lent its host another $20 million to build capacity. Celsius alleged that only a fraction of the contracted machines were deployed and that the unused deposits were not returned. Those were allegations in a contested dispute, and this article does not take a view on them. As the court opinion cited below reflects, the fight ended up split between arbitration and bankruptcy court, which added time to the process for both sides.

Why I Follow These Cases

I follow these cases because they show how money and equipment move in a hosting relationship. A deposit or prepayment is cash sent to the host before service is delivered. Mining machines are physical property, usually bought by the customer, sitting in the host’s building. When a host runs into financial trouble, those two kinds of assets can end up in very different places in the process, and the details depend on the contract, the documents, and the court.

The Compute North record is one public example of how customer deposits were listed in a host bankruptcy. The Celsius and Mawson dispute is an example of deposits and a loan tied to capacity that, according to Celsius, was not delivered. Equipment access can also become an issue outside bankruptcy, as in Compass Mining v. Dynamics.

Issues These Cases Raise

These records raise broader questions on which hosts and customers could take different positions.

• How are deposits and prepayments sized? Hosts often describe deposits as support for their own commitments, such as power contracts and construction. Customers may weigh the amount at risk if the host’s finances change. Terms vary widely across the industry.
• How do deposits relate to capacity that is not built yet? In the Celsius and Mawson dispute, prepayments and a loan were tied to capacity that Celsius alleged was not delivered. A host may see such funds as supporting a buildout both sides agreed to. A customer may see them as payment for service it expected to receive.
• What does a customer know about the host’s lenders? In Compute North, the lender took control of facilities and bank accounts before the filing. The terms between a host and its secured lenders are not necessarily visible to customers when they sign.
• How is equipment identified when a host fails? Invoices, serial numbers, and contract schedules can bear on which machines belong to which customer when many customers share one facility.

For a walk through of deposit and capacity clauses, see Mining Hosting Agreements: Terms That Recur. For background on hosting disputes generally, see the crypto hosting practice page.