Bankrupt cryptocurrency exchange FTX recently announced its latest creditor compensation plan, which is expected to pay most creditors an annualized interest rate of 9%. However, this has raised questions as to why FTX, with such a large amount of money involved and a large user base, is able to progress its liquidation process so quickly.
Summary:
FTX victims can receive an additional 18% interest, but most creditors criticize the plan as a market deception, resulting in significant losses for many.
Background:
FTX liquidation progress summary: Promising full compensation, but victims should not get too excited, selling off SOL, repayment to begin in September at the earliest.
FTX, a bankrupt cryptocurrency exchange, recently released its latest repayment plan this month, estimating owed amounts to be around $11.2 billion. However, after selling off assets, FTX will have approximately $14.5 billion to $16.3 billion in cash for compensation. Therefore, not only can it achieve full refunds, but the majority of users (those who previously held funds below $50,000) can also receive an annualized interest rate of approximately 9%.
However, it is important to clarify that the compensation is calculated based on the funds held by FTX on the day of filing for bankruptcy under Chapter 11. Therefore, unless users had stablecoins in their FTX assets, they would still suffer significant losses (BTC was only $17,000 at the time).
Although some FTX creditors are not satisfied with this plan, considering the speed of the liquidation progress since FTX declared bankruptcy in November 2022, it is already considered very fast compared to other bankruptcy cases in the cryptocurrency field (such as Mt.Gox, which took a whole ten years to initiate repayment).
At the same time, this has also raised doubts within the community as to why FTX, with such a large amount of money involved and a large user base, is able to progress its liquidation process so quickly.
Lawyer: FTX is an “exception”
According to Blockworks, Jonathan Groth, a partner at DGIM Law Firm, stated that “FTX is an exception” after comparing it with other bankruptcy cases in 2022. Groth pointed out that FTX’s ability to repay is determined by the recovered cryptocurrency assets.
Additionally, Erin Broderick, a partner at Eversheds Sutherland Law Firm, added that FTX’s cryptocurrency assets also appreciated with the market’s improvement during the last bull market cycle at the end of last year. This allowed FTX to convert them into enough cash.
In addition to these positive factors, some community members speculate that FTX’s active fundraising to compensate creditors may also be related to the founder SBF’s previous numerous controversies, such as FTX’s previous political donations to US Congress members.
Therefore, to prevent more controversies from being revealed in the bankruptcy case and causing damage to relevant stakeholders, FTX may be accelerating the liquidation process under official promotion.
Regardless, the progress of the liquidation is good news for global creditors, as the longer the liquidation time, the higher the expenses for lawyers and accountants, resulting in reduced compensation.
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FTX victims can receive an additional 18% interest, but most creditors criticize the plan as a market deception, resulting in significant losses for many.