Crypto
Why FTX’s Plan To Refund 90% of Recovered Assets Doesn’t Add Up To 90% of Customer Losses
:max_bytes(150000):strip_icc()/GettyImages-1245786421-7e023ca9ece546c895dcc0561208000a.jpg "Why FTX’s Plan To Refund 90% of Recovered Assets Doesn’t Add Up To 90% of Customer Losses")
Key Takeaways
- Failed crypto exchange FTX proposed a plan this week to refund up to 90% of distributable assets to customers.
- Distributable assets are funds FTX has been able to recover, not the actual amount of funds lost by customers.
- Actual recovery for customers could be lower, according to some FTX creditors.
- Those who withdrew more than $250,000 from FTX in the days prior to its collapse will be able to pay a 15% fee on those funds to avoid potential clawback.
- Refunds to be made in dollars instead of crypto will be the biggest opportunity cost for FTX customers, as crypto value has somewhat rebounded in recent weeks.
- FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16 and can execute it once approved by the court.
Failed crypto exchange FTX has announced an updated plan for sending 90% of distributable funds—money it has recovered—to former customers in its bankruptcy proceedings, but that doesn’t necessarily mean they will get back 90% of the money they lost. FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16.
Money Recovered Not Equal to Money Owed
As the criminal trial of FTX founder and former Chief Executive Officer (CEO) Sam Bankman-Fried continues, a new plan has been put forward for former customers of the crypto exchange to get some of their money back in 2024. Under the plan offered by FTX’s new management, which is headed by CEO and bankruptcy expert John J. Ray III, FTX customers will see 90% of every dollar of recovered assets.
To be clear, the 90% number refers to the funds FTX is able to gain access to, rather than total customer deposits at the time of the exchange’s collapse. This doesn’t necessarily mean customers will gain access to 90% of their assets that were left on the exchange. Rather, customers will gain access to 90% of the funds FTX is able to distribute to their creditors.
FTX and FTX US had an estimated $8.7 billion combined shortfall at the time the crypto firm filed for bankruptcy. Roughly $6.9 billion of that shortfall, including a Bahamas real-estate portfolio, had been recovered as of September.
Clawback From Those Who Withdrew Before FTX Failed
The current FTX management continues to seek access to more funds for their creditors via methods such as clawbacks of customer money. For example, those who withdrew more than $250,000 from FTX in the nine days prior to the exchange’s collapse will be able to pay a 15% fee on those funds to avoid potential clawback attempts.
According to Ikigai Asset Management founder and FTX creditor Travis Kling, this part of the amended plan implies an expected 85% or more recovery for customers.
“Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers,” Ray said.
Opportunity Cost: The Biggest Loss No One’s Talking About
According to court filings, ‘Petition Date Value’ is defined as the “value of any Claim set forth in U.S. Dollars as of the Petition Date,” with the petition date being Nov. 11, 2022. That means you’d be eligible for a dollar amount, not your lost cryptocurrency, based on prices from last November.
Let’s consider bitcoin, the largest cryptocurrency by market capitalization, as a proxy for the broader cryptocurrency markets. On Nov. 11 of last year, the petition date, bitcoin was trading around $17,000. On Friday, it crossed $30,000.
So simply put, if the current plan goes through, you’d likely get 85% of the dollar value of your cryptocurrency held on FTX as of last November, even if the same coins have almost doubled in value today.
This Plan’s Not Final Yet
There is still room for negotiation about the terms of this proposal between FTX and its creditors prior to the December court filing.
“It depends on how things go behind the scenes between FTX debtors, the Committee of Unsecured Creditors (UCC), and the Ad Hoc Committee over the next two months,” Kling told Investopedia when reached for comment on the chances of approval for the plan.
If a U.S. bankruptcy court approves the proposal, the amended plan could be confirmed in the second quarter of 2024.
An up-and-coming player in the world of cryptocurrency is looking to revolutionize the industry through its unique processes that highlight sustainability.
According to Be3, cryptocurrency XRP, developed by Ripple Labs, could have a “transformative impact on both finance and environmental sustainability” thanks to its unique consensus mechanism that does not require mining and uses a negligible amount of energy even as it scales.
It generates a minuscule amount of pollutants per transaction while producing 1,110 pounds of electronic waste and impacting just over 8 cubic miles of natural resources.
This approach separates XRP from its contemporaries, which often rely on the notoriously power-hungry proof-of-work systems and hulking mining centers that can destabilize the grid.
Statistics provided by TRG Datacenters show that XRP is the second-most eco-friendly cryptocurrency behind IOTA, consuming just 0.0079 kilowatt-hours per transaction. Comparatively, bitcoin ranks last at a staggering 707 KWh per transaction.
Furthermore, the cryptocurrency became the first major global blockchain to achieve carbon net zero by purchasing enough renewable energy to offset its minimal energy requirements, per the XRP Ledger.
Be3 also noted other features that make XRP an attractive option for institutions focused on environmental responsibility, as it takes just three to five seconds to settle at fractions of a cent per transaction.
It’s a welcome addition to a sector that desperately needs more sustainable options. A study by the International Monetary Fund found that crypto mines, in conjunction with artificial intelligence data centers, accounted for 2% of global electricity demand and 1% of carbon dioxide pollution in 2022.
The United Nations found that the bitcoin mining network used 173.42 terawatt-hours of electricity between 2020 and 2021, resulting in a carbon footprint equivalent to burning 84 billion pounds of coal.
Coal and natural gas also supplied 66% of the energy for mining operations during this period, polluting the planet with planet-warming gases.
Luckily, the sector has made significant strides in recent times in an effort to become more eco-friendly.
Alephium, which utilizes a proof-of-work blockchain, has partnered with Gigatons to implement a proof-of-less-work consensus that is significantly more energy efficient.
Meanwhile, Ethereum has transitioned to a proof-of-stake system that has cut its energy consumption by nearly 100%.
“In a world increasingly attentive to environmental impact, XRP’s innovative technology not only promises efficiency but also a greener future,” Be3 wrote.
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Donald Trump is making news once more, but this time it’s not for political reasons; it’s about cryptocurrency. As he prepares to return as the 47th President of the United States, Trump will become the first sitting president to own meme currencies, a decision that has stirred both enthusiasm and skepticism in the crypto community.
Trump: A Significant Crypto Portfolio
Recent sources claim that Trump’s crypto wallet consists largely of meme coins and is valued roughly $8 million. Among the assets are $1.5 million in a meme currency with Trump-themed design and $5.5 million in TROG tokens.
In addition, he has about 1.3 billion GUA coins, which amounts to nearly $400,000, and $167,000 in TRUMPIUS tokens. This is a first of its kind, where Trump becomes an oddity in the world of politics and cryptocurrency, considering his earlier reluctance towards digital assets.
DONALD J. TRUMP WILL BE THE FIRST SITTING US PRESIDENT TO HOLD MEMECOINS pic.twitter.com/ODlNXDaKIT
— Arkham (@arkham) January 10, 2025
From Skepticism To Support
Trump’s journey into the crypto world is notable. He had been a strong critic of Bitcoin and other cryptocurrencies, calling them scams. But that all changed in 2024 when he started publicly endorsing Bitcoin and speaking out for the right to own it. That’s a broader trend among politicians, who are increasingly recognizing the potential of cryptocurrencies and their growing popularity among voters.
Trump’s financial success in the digital sphere was also aided by his venture into non-fungible tokens (NFTs) on Ethereum. Trump reportedly made a good living from these endeavors, and he currently owns roughly 496.77 ETH, which is worth about $1.6 million.
Implications For Regulation
Many people are eager to see how Trump’s administration will regulate cryptocurrencies now that he is back in office. A possible change toward a more advantageous regulatory climate for digital assets is hinted at by the nomination of important individuals like David Sacks as “Crypto Czar” and Paul Atkins as SEC chair. This could result in more precise rules for investors and businesses involved in the cryptocurrency industry.
Donald Trump. Image: Ronda Churchill/Reuters
The policies by Trump are already changing market dynamics as everybody is anxiously awaiting them. During this time when Bitcoin hit a record high of $108k, while meme coins surged, analysts still feel that Trump could make the year 2025 a major turning point in cryptocurrencies.
Meme Coin Boom
The rise of Trump-owned meme coins is indicative of a broader cultural shift among younger investors who are fed up with established financial institutions. This combination of the political influence of Trump and the speculative nature of meme coins puts a scenario under which political events could significantly affect cryptocurrency markets. Thus, while the investors go about this, they are not ignorant of the volatility that is usually associated with meme coins.
Featured image from Fortanix, chart from TradingView
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