FTX set to flood the market with $16B as debt repayment looms

FTX’s distribution of creditor funds is still expected to start in Q4. The earliest stage of the process is just weeks away, with $16B of crypto assets set to be released back into circulation. 

Even after its crash and deep losses, FTX holds assets estimated to as much as $16B. The remaining wallets of the exchange and Alameda research were scraped and sent into custodial wallets. Some of the assets are still visible in the remaining FTX wallets, or special bankruptcy addresses . 

The claims based on creditor history and FTX balances are estimated at $16.264B. FTX spent months reorganizing and liquidating some of its assets, establishing $12B in cash reserves and sufficient stablecoins. In May, FTX issued a statement claiming its recovered funds were between $14.5B and $16.3B, enough to potentially repay 98% of its creditors. 

The most contentious point is that FTX continues to claim all creditors will be made whole. Unfortunately, BTC depositors on the exchange held whole coins, now trading above $63,000. FTX did not hold or keep these coins in safe custody. So, it will instead repay the monetary value of BTC at the time of the exchange’s failure, which was $16,800. 

The good news is FTX has finished most of the selling and liquidation, only holding a few remaining wallets of tokens and the occasional NFT. The bad news is that the process may not be straightforward and simple, and will take into account a long list of other claims and settlements.

Creditors prepare for a prolonged repayment process

Even if FTX creditors still have an appetite for risk, their funds will have to wait for the lengthy and involved process of settlements and repayments. In 2024, several expectations for repayment were suggested as a bullish inflow, ranging from $8B to $10B. The latest sum total of repayments is most probably in excess of $12B, with cuts for procedures, fees, taxes and overseas taxation for international customers.

The funds that have the highest chance to enter the crypto market come from the claims of Dotcom customers principal claims and recovery. Class 5A and Class 5B customers are the classes to watch closely for their potential to return as crypto investors. Class 5A customers and US-based Class 5B customers also have the highest claims to FTX funds, along with Class 6A, known as unsecured claims. 

FTX will repay multiple classes of claims in cash, after satisfying fee and tax demands. | Source: Kroll Restructuring

Based on the Amended Chapter 11 plan , Class 5A will be paid in full with interest, but only after distributions to all other classes. The latest version of the Chapter 11 plan was amended on August 8, opening the way for the actual process of repayments.

Before that, FTX will satisfy tax claims and other fees, leaving closer to $12B in the hands of crypto insiders. The actual payout may be smaller for offshore customers, slashing 30% of their claims for taxes and fees. 

As for NFT holders, they will have their items returned in kind, as FTX has retained several valuable Apes, Azukis and other top collections . 

Chapter 11 plan confirmation hearing coming on October 7

The distribution of funds will not happen automatically, but require a reasonable period after the final confirmation. So far, the voting and approvals of the claims plan have passed their last deadline in August. 

The only remaining step is a hearing scheduled for October 7, to clarify the final acceptance of the plan. Until that date, several classes of creditors have received materials on their options and the potential to vote and dispute the distribution. 

Following the scheduled plan approval hearing, the FTX distribution will have three other notable dates until the end of the year. 

Omnibus hearings will also be held on October 22, November 20 and December 20. This also means repayments may begin in 2025, if there are no objections or revised Chapter 11 repayment schedules.

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Cryptopolitan reporting by Hristina Vasileva.