FTX's bankruptcy plan took effect on January 3, 2025, marking a significant moment for affected users. Almost 98% of them are eligible for 119% refunds on claims up to $50,000. This step comes after years of legal and financial turmoil following the exchange's collapse in November 2022.
Details of the Bankruptcy Plan
According to the plan, Convenience Class users with approved claims under $50,000 can receive compensation. A separate $10.5 billion fund is set aside for larger claims, but their distribution timeline remains uncertain. Analysts from K33 estimate these payouts could inject $2.4 billion back into cryptocurrency markets.
Challenges with Cryptocurrency Valuation
Many creditors have expressed dissatisfaction with the valuation methodology employed in the plan. Reimbursements will be based on cryptocurrency prices at the time of the 2022 bankruptcy filing, although Bitcoin prices have surged over 400% since then, reaching $98,697. This is seen as undervaluing the claims. Additionally, $3.9 billion in claims were acquired by credit funds, which are unlikely to reinvest in crypto. Approximately 33% of claims belong to sanctioned countries, insiders, or individuals without KYC, potentially rendering these funds inaccessible.
Legal and Logistical Challenges
FTX's downfall resulted in legal consequences for several key executives. While Sam Bankman-Fried, Caroline Ellison, and Ryan Salame received prison sentences, co-founder Gary Wang and engineering director Nishad Singh avoided incarceration. Bankman-Fried continues to appeal his conviction. To streamline repayments, crypto firms BitGo and Kraken have partnered to assist in fund distribution to creditors. FTX is expected to pay out approximately $16 billion, but logistical complexities and ongoing legal challenges might delay broader distributions.
FTX's bankruptcy plan aims to restore trust and provide compensation to millions of users. However, unresolved issues in asset valuation and payout logistics may impact the compensation process.
