FTX Pens Plan Promising 118% Cash Back to Creditors

• FTX has unearthed billions of dollars to pay back customers. 
• The exchange’s bankruptcy estate has proposed a new Chapter plan. 
• FTX claimants could receive more than what they are owed. 

FTX’s wild goose chase with its creditors is finally drawing to a close as the now-defunct crypto exchange appears more confident in filling SBF’s $10 billion hole. In a surprising and positive development for claimants, the exchange’s bankruptcy estate has now devised a plan that would pay creditors more than they’re owed– in cash.

FTX Unearths Billions to Pay Back Customers

Failed crypto exchange FTX has found billions of dollars more than required to cover the losses users incurred during the SBF-led fiasco in November 2022. Surprisingly, the exchange is set to fully reimburse users plus interest—a rare sight in US bankruptcy proceedings. 

“In any bankruptcy, this is just an unbelievable result,” said FTX CEO John Ray.

FTX’s newfound confidence stems from its recent efforts to liquidate assets, including its mountain loads of Solana, shares in successful startups like Anthropic, and its extensive list of illicitly acquired estates. 

With as much as $16.3 billion in cash at its disposal for distribution, 50% more than it owes, FTX appears well-equipped to settle its debts, totaling around $11 billion to two million customers and other creditors.

The exchange’s bankruptcy estate is now confident in reimbursing 98% of its creditors for 118% in claims– in cash. 

FTX Proposes New Chapter 11 Plan

On Tuesday evening, FTX announced an amended Chapter 11 plan to pay claimants more than they’re owed. 

Announcing the new proposal, FTX’s CEO shared, 

“We are pleased to be in a position to propose a Chapter 11 plan that contemplates the return of 100% of bankruptcy claim amounts plus interest for non-governmental creditors.”

Creditors with allowed claims below $50,000 will be eligible for the 118% compensation pending court approval, as outlined in the plan. According to a recent court filing, FTX’s proposal is slated to distribute the claims within 60 days of court approval.

FTX’s new restructuring plan aims for a “centralized distribution” among its customers, regardless of where their assets are located. The plan also seeks to leave no crumbs for shareholders. Court documents detailed that although all debts will be paid in full, plus interest, nothing will be left for equity holders.

This is primarily because US regulators and the IRS are bidding their time and waiting for FTX to repay its customers. Once the debts are cleared, regulators will likely wipe out shareholders’ claims.

According to a court filing last year, FTX’s major equity holders include Sequoia Capital, Thoma Bravo, Singapore’s Temasek Holdings Pte, and the Ontario Teachers Pension Plan. 

The defunct exchange’s resurgence comes on the heels of the crypto market’s rebound from the bear market.

FTX’s Bittersweet Conundrum 

Bitcoin at press time hovered above $60,000, reaching a new all-time high earlier this year, while Solana, a significant part of FTX’s holdings, comfortably sits above $140 and has climbed up to the top five rankings as one of the year’s top performers.

The market’s resurgence has been a boon for FTX, especially considering the uncertainty surrounding the bankruptcy estate’s ability to repay customers. Initial projections suggest only a 90% reimbursement.

While FTX appears now more confident, the market’s recent performance presents a dilemma. The total crypto market cap has surged by 210% since November 2022. However, FTX’s restructuring plan will compensate victims based on the cash value of digital assets held on the exchange on November 11, 2022, the date of the bankruptcy—ignoring the accumulated gains over the past two years. 

FTX customers could potentially miss out on billions in gains due to the structure of the Chapter 11 plan. Although many users have contested the proposal, arguing it was unfair due to the crypto market healing, FTX attorney Andy Dietderich asserted that US bankruptcy was ‘very clear,’ stating:

"I have no wiggle room on that. The Bankruptcy Code says what it says, and I am obligated to follow it."

Still, given the market volatility, it is a positive development that claimants are at least receiving compensation. The recent market conditions could not have been accurately predicted when the Chapter 11 plan was proposed.

On the Flipside

• Mt. Gox claimants received their claims almost a decade after the fiasco.
• A wave of phishing emails and scams has emerged recently targeting FTX claimants.
• FTX has suspended efforts to facilitate the revival of the exchange following unsuccessful bidding attempts with potential buyers. 
• Sam Bankman-Fried was charged with 25 years of prison for his role in the FTX fiasco.

Why This Matters

FTX’s collapse had a very lasting impact on the crypto landscape. However, the new plan signals a positive development for the industry and the affected users. It brings them closer to receiving the compensation they were owed, even though they were given little hope earlier last year.

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