A New Approach to FTX Bankruptcy: Should Customers Be Paid in Crypto?
As cryptocurrency prices continue to rise, the FTX bankruptcy process is facing increasing pressure. The main question at hand is whether customers should be paid out in the cryptocurrency they had on the exchange or in an equivalent dollar value. While FTX’s bankruptcy lawyers have been pushing for dollarized claims, customers are now questioning why they shouldn’t be paid in crypto, especially considering the surging prices of bitcoin, ether, and solana.
Other bankruptcy proceedings have allowed for payments to be made in crypto. For example, Mt Gox’s plan is to repay creditors in a combination of bitcoin and fiat currency. More recently, BlockFi has repaid creditors in crypto, and Celsius is set to follow suit. FTX may argue that it only holds a fraction of some cryptocurrencies, but it does have plenty of others.
Paying out claims in crypto would have a significant impact. For instance, someone holding bitcoin would see the dollar value of their claim increase from $16,871 to around $66,000 today. While they may not receive the full value, they could potentially receive a larger amount. However, if claims are dollarized, that value will be distributed to other claimants such as shareholders and government entities.
Pushing for In-Kind Claims
Some creditors are strongly advocating for claims to be paid out in-kind. Law firm Moskowitz and Boies filed an objection to estimate the claims when FTX went bankrupt. This motion was supported by FTX creditor activist Sunil Kavuri, who leads an FTX customer ad-hoc committee voting block with over 1,300 creditors and $680 million of claims.
While it may be late in the process, there are signs that the tide may be turning. In a draft filing, debtors proposed a structure for distributing assets that would prioritize customers over governmental entities. This raised the possibility that some creditors might receive additional assets based on the value of their crypto at a later date.
After FTX customers and Alameda lenders are paid based on the dollarized value of their claims, any remaining funds would go to a Civil Remission Fund. This fund would then pay customers and lenders whose cryptocurrencies have increased in value since FTX went bankrupt. If there are any funds left after this distribution, they may be returned to customers.
The surplus resulting from dollarized claims is one reason why the plan for FTX 2.0 was abandoned. With creditors being made whole, there is less incentive for the estate to restart the exchange.
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A Missing Bird
One interesting development this week was the revelation that the Ethereum Foundation received a confidential voluntary request from a state authority. This information came to light when the foundation removed its Warrant Canary from its website, which signaled that it had not received such a request. Shortly after, it was reported that the U.S. Securities and Exchange Commission issued subpoenas to firms that dealt with the Ethereum Foundation, further dampening hopes for an approved spot Ethereum ETF.
Double Your Money
In a rare occurrence, doubling your money in crypto was not a scam but rather a bug. The Super Sushi Samurai token experienced high volumes of minting and selling on decentralized exchanges due to a bug that allowed users to double their funds by sending their entire balance back to their own wallet. However, the funds may not be lost as the person responsible for draining them claimed it was a whitehat rescue hack and promised reimbursement.
A Sluggish Stablecoin Bill
The stablecoin bill led by House Financial Services Committee Chair Patrick McHenry has faced challenges in the House, making its passage uncertain. In the Senate, Senators Kirsten Gillibrand and Cynthia Lummis are working on their own stablecoin bill. While there is bipartisan support, uncertainties around details and strategy have caused frustration among stakeholders. The timeline for passing stablecoin legislation remains uncertain, with hopes for progress before the election cycle intensifies.
Overall, the FTX bankruptcy process is facing scrutiny as customers question whether they should be paid out in crypto. While some creditors are pushing for in-kind claims, the estate has primarily focused on dollarized claims. The distribution of assets and any potential surplus will have a significant impact on the outcome of the bankruptcy process.
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