After Bankruptcy, FTX User Claims Pay Cents on the Dollar

The crypto exchange FTX filed for bankruptcy Friday, leaving users’ funds stuck on the platform, and one marketplace for distressed claims posted bids for a fraction of the original value of claims.

AccessTimeIconNov 16, 2022 at 1:26 a.m. UTC
Updated Nov 16, 2022 at 7:08 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global event for everything crypto, blockchain and Web3.Register Now

Damaged depositors to the embattled crypto exchange FTX, who face an uphill court battle to recover at least some of their hostaged funds, can sell their credit claims, but they’ll retrieve only a fraction of their holdings.

Cherokee Acquisition, a distressed asset investment firm that also has a marketplace for credit claims against bankrupt firms, put a guide price of 8 to 12 cents on a dollar for FTX users' deposit claims over $100,000 in the latest price table sent out Tuesday.

When a firm files for Chapter 11 bankruptcy protection as FTX did last Friday or declares bankruptcy, creditors who choose not to wait until the resolution of a lengthy bankruptcy proceeding to recover some or all their assets may sell their credit claims to distressed asset investment companies.

The relatively low prices for FTX claims suggest that the probability for FTX users to reclaim their funds is diminished.

By comparison, Earn account holders of bankrupt crypto lender Celsius Network may receive around 20 cents on a dollar after selling their claims, while creditors of Voyager Digital, the crypto brokerage platform that was auctioned off to FTX, may recover 40 cents on a dollar for their claims.

Even this depressed price tag might turn out to be too high for potential buyers, Thomas Braziel, managing partner at distressed corporate specialist 507 Capital, told CoinDesk.

“No one is buying them” at that price, he said. A more realistic market price for deposit claims, he argued, would be closer to 3 to 5 cents.

Table of bidding for crypto bankruptcy-related claims. (Cherokee Acquisition)
Table of bidding for crypto bankruptcy-related claims. (Cherokee Acquisition)

FTX, part of Sam Bankman-Fried’s crypto conglomerate of more than 130 firms, filed for bankruptcy protection Friday after it illegally used customer deposits for lending and investing and a bank run uncovered a $10 billion hole in its balance sheet. Countless users, including large trading firms such as Genesis Trading, Galois Capital and Ikigai Asset Management, left with their funds stuck on the platform.

Last week, users created impromptu Telegram chat groups to sell their hostaged deposits on the exchange after FTX first froze withdrawals a week ago.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Krisztian  Sandor

Krisztian Sandor is a reporter on the U.S. markets team focusing on stablecoins and institutional investment. He holds BTC and ETH.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.