After waiting for over two years, victims of the now-defunct crypto exchange platform FTX will be compensated in cash.
On Monday, a U.S. court approved the company’s bankruptcy plan, following which the seized and liquidated assets worth $16.5 billion will be used to compensate the victims. FTX has confirmed plans to pay 98% of its customers—those who held deposits worth $50,000 or less when the exchange collapsed back in 2022. The exact timeline for the reimbursement has not yet been released.
In a statement, FTX CEO John Ray said: “The Court’s confirmation of our Plan is a significant milestone on our pathway to distributing cash to customers and creditors. Today’s achievement is only possible because of the experience and tireless work of the team of professionals supporting this case, who have recovered billions of dollars by rebuilding FTX’s books from the ground up and from there marshaling assets from around the globe.”
The Problem with the Compensation in Cash
For FTX users who had their crypto assets parked on the exchange, compensation in cash brings little relief. Considering the price of Bitcoin, which was just above $20,000 in late 2022, the amount they are set to receive in cash is insufficient. Additionally, it comes after two years of struggle and waiting.
Customers would ideally want the crypto assets they held, rather than being compensated in cash. In a conversation with Reuters, David Adler, an attorney representing four objecting creditors, noted that the price of Bitcoin is now over $63,000. Therefore, according to Adler, it is inaccurate to claim that the victims are receiving 100% compensation.
On the other hand, for the investors in the company, the situation is not as dire, as government agencies have reportedly agreed to repay investors first, ahead of regulatory fines. The regulatory authorities have seized assets worth $1 billion, which, according to the bankruptcy plan, will first be used to compensate shareholders.
According to a Reuters report, FTX is in talks with the U.S. Department of Justice over $1 billion that the government seized during the criminal prosecution of Bankman-Fried. The report specifies that “FTX shareholders, who would normally receive nothing in a bankruptcy proceeding, could receive up to $230 million from the funds seized by the DOJ, according to court documents.”
FTX Scam Set the U.S. Crypto Industry Back
The FTX scam is one of the biggest in crypto history—if not the biggest. The collapse of FTX not only pushed the development of the crypto markets in the US behind, but it also turned many institutional and retail investors away from cryptocurrencies.
Led by Sam Bankman-Fried, the co-founder of FTX, users were duped as their crypto deposits were unlawfully used to fund another company, Alameda Research, which was also founded by Bankman-Fried.
After news of the misuse broke, beginning with an article published by Coindesk, investors started withdrawing funds. However, after all efforts to repay customers failed, the company placed a permanent hold on withdrawals.
Following the launch of an investigation, it was discovered that co-founder Sam Bankman-Fried used customers’ crypto assets to fund his lavish lifestyle and personal projects. Bankman-Fried has since been arrested and sentenced to 25 years in prison. With the company’s bankruptcy plan now approved by the court, investors who lost crypto assets worth billions will finally receive some compensation.
