FTX (FTT) Leverages Surplus Cash for Bankruptcy Victims Repayment: A Strategic Crypto Move

• Bankrupt crypto exchange FTX has announced plans to use surplus funds to repay its 2 million customers impacted by the platform’s collapse in November 2022.
• FTX has more than $16 billion in cash available for distribution to creditors and customers, with certain creditors expected to recover up to 142% of their owed amounts.
• This move marks a rare instance of a bankruptcy firm repaying its customers, with FTX CEO John Ray calling it an “unbelievable result.”

FTX, the bankrupt crypto exchange, plans to use its surplus funds to repay its 2 million customers, marking a rare instance of a bankruptcy firm making repayments.

FTX’s Plan to Repay Customers

FTX has announced that it will use the additional cash to pay interest to all of its 2 million impacted customers, a rare instance of repayment by a bankruptcy firm. The company currently has more than $16 billion in cash available for distribution to creditors and customers. In a recent filing, restructuring advisors outlined additional information regarding their plan to allocate funds to creditors and conclude the Chapter 11 proceedings.

Unprecedented Move in Bankruptcy Settlements

FTX’s decision to repay its customers is a rare outcome in bankruptcy settlements, where creditors usually receive only a fraction of their owed amounts. FTX CEO John Ray, who took charge after the platform’s collapse in 2022, called this an “unbelievable result.” The company expects to have up to $16.3 billion in cash available for distribution after selling off all its assets. It has outstanding debts totaling around $11 billion owed to customers and other non-governmental creditors.

Surge in Cash Reserves

FTX’s cash reserves have seen a significant increase, primarily due to the rise in prices of various cryptocurrencies, notably Solana, a token strongly supported by FTX founder Sam Bankman-Fried. The company has also divested numerous other assets, including stakes in various venture capital endeavors such as the artificial intelligence firm Anthropic.

Distribution of Creditor Funds

Depending on the nature of their claim in the proceedings, certain creditors stand to recover up to 142% of their owed amounts. However, most customers are expected to receive approximately 118% of their FTX platform holdings as of the day the company filed for Chapter 11 bankruptcy. The company has suggested establishing a fund to compensate select creditors, including those who extended cryptocurrency loans to FTX, utilizing funds originally allocated for government regulatory purposes.

Conclusion

FTX’s plan to repay its customers using surplus funds marks a significant development in the crypto industry. It remains to be seen how this will impact the company’s reputation and the broader industry. Payments are anticipated to occur several months from now as FTX progresses through the concluding phases of the bankruptcy proceedings.