The collapse of FTX in November 2022 marked one of crypto’s largest failures, leaving millions of customers wondering about their funds and a plethora of memes and face-palm moments that will last a lifetime.
While SBF has graduated from the Forbes list into a jail cell like many others before him and many more after, customers still hold nothing but hopes and dreams.
The recovery of funds has been slow for those claim holders, but what the liquidators were able to achieve in 2 years rather impressive, given the state of the company’s balance sheet was in when it collapsed.
When the house of cards that was FTX finally collapsed in 2022, it had $9 billion in liabilities and only $900 million in assets; talk about going balls to the wall with leverage. I guess that’s what happens when you’re finding Alameda Research’s CEO doesn’t use stop losses.
The adults stepped in when the kids running the books were kicked out of the Bahamas, and the recovery began. In January 2023, $5 billion in assets has been recovered in cash and liquid assets. Now, two years into the making, a clearer picture of the repayment process emerges as the bankruptcy process progresses.
Here’s what creditors need to know about getting their money back.
The Basics of FTX’s Repayment Plan
Validated by the Delaware bankruptcy court in October 2024, the recovery project has completed the American Chapter 11 framework and anticipates the start of repayments on January 3, 2025.
Due to the surge in Bitcoin prices, FTX has estimated that it will have between $14.7 billion and $16.5 billion available to repay creditors. According to the plan details, creditors will be able to recover up to 118% of their declared debts, a prospect that contrasts with the usual bankruptcy scenarios in the crypto industry.
Under the bankruptcy court’s direction, FTX is working to return assets to customers based on their holdings as of November 11, 2022, when FTX filed for bankruptcy.
The process involves several key steps:
- Asset Calculation: Customer claims are being valued based on cryptocurrency prices from the bankruptcy filing date
- Claim Verification: Customers must verify their claims through the official claims portal
- Distribution Planning: Assets will be returned in a combination of cash and cryptocurrency
Creditors will receive the U.S. dollar value of their crypto holdings on FTX based on the prices of those assets at the time the exchange filed for bankruptcy in November 2022.
FTX could allocate up to $16.5 billion to remunerate creditors, as per its bankruptcy plan. The plan, finalised in October, applies to 98% of creditors, who are expected to get 118% of their claim values back in U.S. dollars.
Still some capital to court
FTX liquidators aren’t giving up on increasing the possible payout and remain in talks with the U.S. Department of Justice over $1 billion that the government seized during the criminal prosecution of Bankman-Fried.
FTX shareholders, who would typically receive nothing in a bankruptcy proceeding of seized funds, could receive up to $230 million from the funds seized by the DOJ, according to court documents.
The First Batch
The first batch of customers will begin receiving payments within 60 days of the January 3 effective date, provided they meet certain conditions.
- The initial repayments will prioritise the “convenience classes”, primarily customers with claims of $50,000 or less.
- Subsequent repayment groups that likely include larger debtors will be announced later as the process unfolds.
FTX has enlisted Kraken, the crypto exchange and custodian BitGo, to assist with the distribution of recovery funds.
Understanding Your Claim Value
This 118% repayment sounds excellent on paper, and it may be if you’re a USD maxi, but what does it all mean? How can they repay me more than I was owed?
FTX uses what’s known as a “dollars-in, dollars-out” methodology to calculate claims.
This means:
- Claims are valued in USD based on crypto prices from November 11, 2022
- Customers will receive a percentage of their verified claim value
- The exact percentage depends on the total recovered assets versus the total claims
If you had 1 Bitcoin, valued at $16,604.46, you’d get a similar amount and change, but in Bitcoin, you’re only getting back around 0.16 BTC, so you’re eating an 84% loss in Bitcoin terms.
Pitching it as a 118% payment sounds much better for those who have already had to be very demure and mindful over the past two years.
The Distribution Process
The repayment process will occur in phases:
Phase 1: Claim Filing and Verification
- Customers must submit claims through the official portal
- Claims are cross-referenced with FTX’s internal records
- Disputed claims go through additional verification
Phase 2: Asset Recovery
- The bankruptcy team continues recovering assets
- Recovered assets are converted to stable forms of value
- Legal proceedings may affect the timeline
Phase 3: Distribution
- Verified creditors receive their share of recovered assets
- Distributions may occur in multiple waves
- Payments will be made in a mix of cryptocurrency and fiat
FTX emphasised that customers must establish approved accounts with distribution agents, complete Know Your Customer (KYC) verification, and submit tax forms before the distribution record date to qualify for the initial payout.
Important Considerations for Creditors
Several factors will affect individual repayments:
1. Account Type
- Different account types (FTX US vs. FTX International) may receive different treatment
- Priority of claims varies by account classification
2. Asset Type
- Some assets may be returned in kind
- Others will be converted to cash before distribution
3. Timing
- Initial distributions are expected to begin after claim verification
- Full repayment process likely to extend over multiple years
Tax Implications
Creditors should be aware of potential tax consequences:
- Receiving repayments may trigger taxable events
- Documentation will be provided for tax reporting
- Consulting with tax professionals is recommended
Protecting Yourself During the Process
To ensure smooth repayment:
- Use only official channels for claims
- Keep documentation of all interactions
- Watch for updates from court-appointed administrators
- Be wary of scams targeting FTX creditors
What’s Next For The FTX Saga?
The repayment process is complex and will take time. Key upcoming milestones include:
- Completion of claim verification
- Court approval of the distribution plan
- Initial distribution announcements
- Regular updates from bankruptcy administrators
Staying Informed
While you’re in the process of recovering funds, beware of scammers looking to circle your claim like vultures. Scammers target bankruptcy payouts because they know that individuals in financial distress are vulnerable and desperate for solutions.
They prey on the hope and desperation of these individuals by offering false promises of quick financial relief or debt forgiveness.
They may also exploit the lack of financial knowledge or understanding of the legal process to manipulate victims into making costly mistakes.
To keep up with developments:
- Monitor official communications from FTX administrators
- Check the bankruptcy court docket
- Follow reputable crypto news sources
- Be cautious of unofficial information sources
Remember that this process requires patience and careful attention to official communications. While the path to repayment is becoming clearer, the complexity of the bankruptcy means that timelines may shift as the process unfolds.
