Billions of FTX assets in limbo as Exchange follows Voyager into bankruptcy

Clients will likely have to wait several months to recover their assets after FTX exchanges, including the US branch, filed for federal bankruptcy protection on Friday morning. The day saw former billionaire Sam Bankman-Fried quit as CEO, naming John R. Ray III, a lawyer known for cleaning up disgraced energy company Enron, as his replacement.

Ironically, the most likely path will be the same as Voyager, a crypto exchange that failed in July and was meant to be rescued by FTX. That deal has yet to be finalized, Voyager said Thursday. on Twitterand now two groups of exchange clients find themselves in limbo.

According to Robert Gayda, partner at corporate restructuring and bankruptcy group Seward & Kissel, the primary option for FTX clients to recover at least some of their holdings is a “Voyager-style sale” of all remaining crypto assets. Assets still under the company’s control would be put up for sale to the highest bidder. This is how the court handled the Voyager case, with FTX entering with a to offer $1.4 billion in September. At that point, FTX thought they had had enough silver to return most of the assets to Voyager’s owners in the hope of retaining some as customers.

The status of this transaction is no longer clear, as is the true value of the assets that FTX is filing for bankruptcy. “There really is a crisis of customer confidence in the crypto industry,” says Gayda.

According to the original petition filed in federal bankruptcy court in Delaware by 134 Bankman-Fried-related entities, there are more than 100,000 creditors who owe $10 billion to $50 billion and assets in the same broad band. Depositors include hedge fund Alameda Research, FTX Trading Ltd. and FTX US. Chapter 11 filing, announced by FTX on Friday morningallows a debtor company to draw up a reorganization plan under the supervision of the court and in consultation with the creditors, who may have a right to vote on the composition.

blockchain Data shows that the Alameda crypto wallet currently has several different assets, including $57 million in USD coins, $689,000 in ether, and nearly $213,000 in Polygon matic currency. Over 63% of assets are stablecoins, including tether and dai, which are believed to be fully backed by liquid assets and therefore protected from an event like the selloff that wiped out around 20% of crypto values ​​last week.

Valued at $32 billion in its last funding round, FTX’s value plummeted in the space of a week. The exchange’s wallet is dominated by $93 million in FTT tokens, while also comprising nearly $27 million in ether and $22 million in matic. More than half of its $579 million in holdings are in so-called altcoins, including PAX
pax
Gold and Pundi X.

Stablecoins are one thing, but it’s unclear who would want to acquire the cryptocurrency holdings, and at what price?

“FTX was sort of the white knight of Voyager,” says Gayda. “But when you knock out FTX, who has the wherewithal to implement a sell trade like the one that was being considered?”

If FTX clients, who will be treated as unsecured creditors in the event of bankruptcy, want to be proactive, they can do more than wait for rescue. Gayda says they can go to court immediately and try to recover their assets. FTX Terms of use state that most of the assets it held remained the property of its clients, with the exception of those staked. If FTX were found to be using them for its own purposes, possibly including loaning them to Alameda, that would elevate the customers in the hierarchy of people who are owed money during the bankruptcy.

“It would be an ownership rollover,” he says, where clients could file a claim that the assets FTX owns are not the assets of the business. This could potentially allow customers to get their money back sooner, he adds.

FTX clients include retail clients and institutional investors, including the world’s largest asset manager, BlackRock
noir
, venture capital firm Sequoia and Japanese conglomerate SoftBank. Other notable investors include Tiger Global Management as well as billionaire investors Paul Tudor Jones and Israel Englander.

The fun probably won’t stop at FTX. Investors should “prepare for contagion from FTX’s bankruptcy,” Anto Paroian, CEO of crypto hedge fund ARK36, said in emailed comments. “FTX had strong and diverse ties to the industry, acting as a lender of last resort and venture capital investor.” He adds that it could be weeks “before we see the full extent of the damage caused”.

“Users should treat each exchange as potentially insolvent unless proven otherwise by proof of reserves,” he adds.

Popular stock trading app Robinhood, which saw shares fall more than 30% over several days earlier this week, has since rebounded after CEO Vlad Tenev recently declared it was “business as usual”. Although Bankman-Fried holds a 7.6% stake in the brokerage after investing around $650 million in May, Tenev insisted there was no direct or material exposure to FTX, adding that his brokerage had seen crypto inflows surge following the turmoil. With about $6 billion in cash at the end of the last quarter, Robinhood is unlikely to be badly affected, even if Bankman-Fried is forced to offload its stake in bankruptcy proceedings.

Europe’s largest digital asset firm, CoinShares, has disclosed around $30 million in assets locked on the collapsed FTX exchange, representing just over 10% of its net holdings. CEO Jean-Marie Mognetti said on Thursday that despite the exposure, “the group’s financial health remains solid.” .

A handful of crypto companies, including Coinbase and Tether
USDT
said this week that they have no direct exposure to FTX, but not everyone has been so lucky. Galaxy Digital previously reported over $75 million in assets locked on the exchange, while Crypto.com has less than $10 million. Sequoia, meanwhile, recently said it has almost $215 million in exposure tied to FTX, but called that “limited” when juxtaposed against its total assets.

This is a developing story.