FTX Users Could Soon Receive Full Compensation

In a recent announcement, insolvent cryptocurrency exchange FTX unveiled a new reorganization plan that offers hope for creditors and users. Under this plan, billions in compensation payments could flow to creditors, a significant step that could restore confidence in digital finance.

Background of the FTX collapse

FTX, once one of the largest cryptocurrency exchanges, suffered a dramatic collapse in 2022 triggered by improper behind-the-scenes dealings by its executives. Former CEO Sam Bankman-Fried was found guilty on all seven counts of defrauding customers and investors in November last year and received a nearly 25-year prison sentence in March.

Details of the new compensation plan

According to FTX’s new plan, 98% of creditors should receive at least 118% of their approved claims. This particularly affects creditors with claims under $50,000, who are expected to receive 118% compensation under the plan upon court confirmation. These compensations are scheduled to be paid out within 60 days of the plan coming into force.

FTX CEO John J. Ray III said it was pleased to propose a Chapter 11 plan that would provide for the return of 100% of the bankruptcy claim amounts plus interest to non-governmental creditors. This promise could be a great relief for many of those affected.

Extensive asset utilization

FTX said it has monetized an “extraordinarily diverse collection” of assets, primarily derived from investments held by its Alameda and FTX Venture divisions, as well as legal claims. Since FTX only owned small amounts of Bitcoin and Ether at the time of the collapse, the debtors did not benefit from their recent rise in value.

The path to compensation

The goal of the reorganization plan is “centralized distribution” for FTX customers and creditors, regardless of where their assets were originally located. FTX estimates the total value of cash available for distribution to be between $14.5 billion and $16.3 billion. However, the plan still needs to be finalized and approved by a U.S. bankruptcy court.

Outlook

This plan could be a game-changer for the many users and investors who were financially harmed by FTX’s collapse. The proposed compensation not only offers a possible financial recovery, but could also help restore trust in the cryptocurrency industry that has been shaken by the scandal. The crypto world is looking forward to the next steps as the legal process progresses and hopes for justice and redress grow.

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(Featured image by Mariia Shalabaieva via Unsplash)

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