Key Insights:
FTX got a nod from a New York court to return $12.7 billion worth of customer funds.
Earlier, FTX revealed that the claims under $50,000 would be compensated at 118% of their claims.
However, the issue of paying penalties to the CFTC and other agencies still needs to be clarified.
The current breakup of FTX assets is also unknown at press time.
After 21 months of filing bankruptcy, the now-defunct crypto exchange FTX has finally found a way to pay back dues to its customers. FTX has recently received a nod from a New York-based court to repatriate $12.7 billion of customer funds.
The exchange went bankrupt in November 2022 after it was found that it had been misappropriating user funds to speculate in crypto markets. In doing so, the exchange lost several billions in user funds, and by the end of 2022, it was no longer liquid.
By December 2022, CFTC had filed a case against FTX and demanded relief for its customers.
The case dragged on for over a year and three months before Sam Bankman-Fried, FTX's co-founder and former CEO, was sentenced to 25 years in prison. The courts also ordered to forfeit $11 billion from the exchange and its executives.
CFTC launched a case against FTX, Alameda, and its executives in December 2022, per the Commodity Exchange Act. CFTC also imposed civil and monetary penalties for the actions of FTX, which led to its bankruptcy and loss of user funds.
Note that the $12.7 billion in repatriated funds do not include the penalties and are just limited to the crypto that the customers lost. FTX might have to pay another set of payments for penalties imposed by the CFTC.
Finally, it would be interesting to see whether the CFTC will drop the penalty charges or will continue to seek them from both the sister companies (FTX and Alameda).
FTX really benefitted from the multifold growth in Solana and about 50% average growth in other crypto assets. Solana, the largest holding in FTX, grew from $14 at the time of bankruptcy to $240 at its all-time high. As per estimates, Solana alone accounted for $7.5 billion of FTX assets in March 2024.
Further, the bankruptcy proceedings initially did not include less-liquid tokens and equity investments in other companies, which together totalled $2.3 billion.
FTX really benefitted from the multifold growth in Solana and about 50% average growth in other crypto assets. Solana, the largest holding in FTX, grew from $14 at the time of bankruptcy to $240 at its all-time high. As per estimates, Solana alone accounted for $7.5 billion of FTX assets in March 2024.
Note that a majority of the assets held by FTX and Alameda prior to the collapse were in FTT, the native token of the FTX exchange. After the collapse, the value of the FTT token crashed from $79 to a little above $1.
The assets primarily included, but not limited to, cryptocurrencies, investment into other crypto firms, movable and immovable company properties, etc. The cryptocurrencies primarily included FTX Token and Solana.
The current asset makeover of FTX and Alameda Research is still unknown to the public.
In November 2022, FTX filed for Chapter 11 Bankruptcy in Delaware, USA, after the exchange was unable to allow customers to withdraw their own funds. Company executives were found to have used user funds to speculate on the crypto markets.
At the time of its collapse, FTX owed $8.7 billion to its users.
By March 2023, the bankruptcy proceedings were able to recover $7.3 billion, as per Reuters.
However, by March of this year, FTX had enough funds to settle the claims and give a return of 118% to most of its customers. These primarily included those with claims of $50,000 or less. The delay since then was mainly due to the bankruptcy proceedings.
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