FTX Files Proposal To End Bankruptcy, Liquidates More Crypto

Written by

Eddie Mitchell

Cryptocurrency Writer

Just a month after FTX founder Sam Bankman-Fried (SBF) was convicted of orchestrating the largest case of fraud in cryptocurrency history, the FTX estate has set out major plans to emerge from bankruptcy.

Over the weekend, debtors of the embattled crypto exchange FTX submitted a comprehensive proposal to begin resolving its year-long financial woes. Filed to a Delaware court on Saturday 16 December, the reorganization plan also suggests a plan to exit bankruptcy and return billions of dollars to creditors and customers.

The filing reads: “The debtors submit that confirmation of the plan will maximize and efficiently distribute value to all creditors while fairly and equitably addressing the debtors’ liabilities.”

Cash refunds, not assets

Marking the beginning of a critical phase for FTX, the amended Chapter 11 filing proposes to ambitiously return up to 90% of customer and creditor funds. Crucially, and rather contentiously, the value of claims will be linked to their prices on the day of FTX’s bankruptcy filing just over a year ago on 11 November 2022.

Naturally, this has some major implications and creditors aren’t particularly pleased. Firstly, the suggestion to convert the value into cash completely sidesteps two major points within the original FTX terms of service, which stated: "You control the Digital Assets held in your Account," says Section 8.2 of the terms. "Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading."

The terms continue: "None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading."

This means that creditors will not be receiving their lost digital assets, just cash. Furthermore, they’ll be facing some significant losses considering that crypto markets have recovered significantly, with BTC being worth more than double today than it was on 11 November 2022. 

How long will it take?

Many investors who have been in crypto long enough, know that creditors are unlikely to see their money returned any time soon. Ten years before FTX, the once-famed crypto exchange Mt. Gox suffered a similar fate, and now ten years after filing for bankruptcy, it was announced that it will begin paying back creditors throughout an unspecified period, which will likely “continue into 2024.”

Furthermore, the first in line to be repaid is the United States Income Revenue Service (IRS) which has proof of claims to the tune of approximately $24billion, which has the potential to completely wipe out the recovered funds altogether.

Money flows

According to the latest (and rather contentious) FTX Bankruptcy Crypto Asset Liquidation Data, FTX continues to empty its wallets by selling heaps worth of crypto on 17 December 2022.

As per the unlabelled screenshot currently doing the rounds on social media, recent liquidation data shows a total of over $1bn in Solana (SOL), Bitcoin (BTC), Ethereum (ETH), Aptos (APT), Ripple (XRP), and “Misc” being liquidated. 

That said, things don’t look good for FTX as the numbers fail to add up. Adding to recent events, it’s been revealed that FTX’s army of legal and financial advisors, lawyers, and so on, are costing around $1.5m per day, leading the mounting fees to outweigh the debt owed, giving creditors extra concerns. 

Actions taken over the weekend are most certainly having an impact on the market in the short term, with a slight market downturn currently taking place. The behemoth FTX liquidation will continue to affect the markets for an unknown period.