Collapsed Crypto Exchange FTX Begins Repaying Billions to Customers

The FTX estate began a creditor repayment program that could total more than $16 billion, releasing $1.2 billion to smaller claim holders on Tuesday. It’s the latest step in the collapsed crypto exchange’s efforts to help former customers recoup funds.

The bankruptcy estate’s initial distribution targeted “Convenience Class” claims under $50,000, reaching the majority of affected users. The estate’s managers will be sending payments in stages to ensure proper verification and orderly distribution, according to FTX.

“The start of these distributions is an incredible and important milestone for FTX,” John J. Ray III, plan administrator of the FTX Recovery Trust, said in a statement.

In October, FTX’s bankruptcy estate announced that creditors and customers would likely receive between $14.5 billion to $16.3 billion in total compensation. Several hundred thousand investors who had money on the exchange filed claims in the aftermath of its chapter 11 bankruptcy protection filing.

FTX used client funds for its hedge fund, Alameda Research, and the exchange’s once vaunted founder, Sam Bankman-Fried, was found guilty of defrauding customers in November 2023.

Not all creditors will receive immediate compensation from the estate if they are larger than $50,000 or facing review, among other reasons. Some claimants have been unable to prove that they are eligible for recouping their assets. The estate plans additional “catch-up” payments in Q2 2025.

Dissatisfied customers?

But the settlement will likely leave many creditors dissatisfied, Julian Grigo, head of institutions and fintech at asset custody protocol Safe, told Decrypt.

“While the long-awaited bankruptcy repayment plan has brought some relief to creditors, the reality is far from reassuring,” Grigo said.

He added that “most users will recover only a fraction of their original holdings. Worse yet, reimbursements will be based on asset prices at the time of FTX’s collapse.”

Bitcoin-denominated claims face particular scrutiny, as the repayments, sent out in fiat equivalents, are calculated using November 2022 valuations when the largest cryptocurrency by market value was trading at roughly $20,000. BTC is currently priced around $95,000, and set a new all-time high price of nearly $109,000 in January.

This pricing disparity has sparked debate among creditors about fair value determination in bankruptcy proceedings. Those who do hold assets such as Solana “will face even steeper losses,” Grigo told Decrypt.

Solana (SOL) represents the largest crypto holdings on FTX’s balance sheet, according to crypto data provider CoinGecko, based on court documents. The balance also includes holdings from FTX.US, its U.S. entity, and Alameda Research.

Part of the estate’s distribution strategy has involved the selloff of FTX’s SOL. In three auctions running up to April 2024, the bankruptcy estate sold 41 million SOL tokens. This was done carefully by FTX “to avoid crashing the market,” Grigo explains.

Over the weekend, Solana dropped 8.8% as the LIBRA meme coin crashed after Argentine President Javier Milei promoted the Solana-based asset. Milei briefly endorsed the LIBRA token before its value evaporated, causing millions in investor losses.

These developments come as 11.2 million SOL tokens are set to unlock on March 1. That’s almost $1.9 billion worth of the sixth-largest cryptocurrency by market cap.

“If an unlock of this scale occurs, it could increase the circulating supply of SOL and potentially impact market dynamics. Historical examples of large token unlocks have often led to heightened price volatility,” analytics platform Tokenomist said on X, explaining in a thread how the unlock relates to FTX’s distributions.

“The precise size of the unlock and the final date are still not publicly disclosed by any official entity,” the analytics firm said, noting that the data on FTX’s SOL stash is not disclosed on its platform.

Edited by James Rubin