FTX Repayment Plan Strategy Faces Backlash From Creditors

Crypto mogul Sam Bankman Fried's cryptocurrency exchange, FTX, recently disclosed the amount of funds it anticipates to have available for repaying creditors and customers. The company submitted its updated reorganization plan to the U.S. bankruptcy court, indicating a sum ranging between $14.5 billion and $16.3 billion. FTX derived this estimate by utilizing asset investments overseen by Alameda Research, a crypto hedge fund under the leadership of Sam Bankman Fried. Additional sources of income include FTX Ventures businesses and legal claims. 

FTX's most recent offer to compensate individuals affected by its collapse in 2022 involves a promise to settle all claims from creditors and provide significant compensation for the loss of their investment value over time. Despite this effort, some skeptics are opposing the agreement because this proposal may not fully address the needs of the victims. The cryptocurrency exchange, now in bankruptcy, stated in a statement on May 7 that the plan is still awaiting finalization and approval from the Delaware Bankruptcy Court. 

FTX anticipates that a large portion of its creditors, particularly those with claims under $50,000, will receive a reimbursement of 118% within 60 days after the payment plan is approved. However, FTX's proposed strategy still relies on compensating creditors based on their asset values at the time of the company's bankruptcy in November 2022 rather than current market rates. This approach has sparked disagreement among some creditors, who argue for compensation tied to present-day prices.

Alamada Research has been under scrutiny for a while, with investors intrigued, especially after Caroline Ellison, the CEO of a business executive and quantitative trader, shared her perspective on using stop losses as a risk management strategy. She expressed her doubts about the financial effectiveness of 'stop losses' and mentioned how FTX did not use them, putting users in doubt until November 2022, when the firm filed for Chapter 11 bankruptcy. 

Further, many accounts of irresponsibility on the part of FTX CEO Sam Bankman Fried came to light. For instance, Sequoia Capital has since removed a blog post in which Sam Bankman Fried allegedly requested a $210 million investment while playing 'League of Legends,' a popular video game, during discussions with the venture capital firm. With a daily trading volume of $10 billion and catering to around 1 million users, FTX has become one of the giants in the cryptocurrency world, so much so that it became a part of the World Economic Forum. 

In November 2022, the CEX had a valuation of $32 billion, with $8 billion owed to customers and creditors. The new leadership is currently working to rectify this situation and recover lost ground. On the X platform on May 8, BitGo CEO Mike Belshe strongly criticized the proposal of creditors' compensation according to their asset values at the time of the company's bankruptcy, stating, "0% of FTX creditors agree that receiving $16800 for your bitcoin is fully compensated. Let's not pretend victims are getting their money back." However, netizens have also argued that many assets have depreciated in value, therefore making FTX's compensation a valid repayment strategy.