FTX Bankruptcy: Why Creditors Are Getting Screwed

I’ve been diving into the FTX bankruptcy situation and it’s a mess. If you’re one of the many people who had funds on FTX, you might want to brace yourself because it looks like you're not getting back what you think you are.

Let’s break it down.

The Situation

First off, the estimates are grim. According to some documents floating around, creditors might only recover 10-25% of their crypto holdings. And that’s just the ones who had actual claims on FTX. Those who had funds on FTX US? Good luck with that.

What’s really pissing people off is how they’re calculating what people get back. They’re basing it on what crypto was worth at the time of bankruptcy filing - which was around $16k for Bitcoin. Now? It’s hovering near $65k. So essentially, they’re saying “Here, have a fraction of your assets from over a year ago.” It’s no wonder there are reports of mental distress among those affected.

The Legal Jargon

Now let’s get into some legal mumbo jumbo because it’s important here. There are two big things at play:

1. Valuation Date: The court decided that the date they’ll use to value assets is November 2022 - right when FTX filed for bankruptcy.

2. Blockage Method: This is a fancy term for a valuation method that takes into account concentrated ownership and potential market impact if those assets were sold all at once.

Basically, they’re saying “Hey, these tokens aren’t worth what you think because if we sell them all at once, prices will crash.” And then they applied massive discounts to certain tokens (like 100% for MAPS and OXY).

The Ethical Dilemma of Stablecoins

Another kicker? They’re repaying creditors in stablecoins! You know those things that everyone is kinda sorta hoping will implode? Yeah, those.

There are so many issues with this it's hard to keep track: - There isn’t even a clear regulatory framework governing stablecoins right now. - What happens when all the creditors try to redeem their stablecoins at once and it turns out they're not actually backed by anything? - And good luck trying to figure out whose claim on the reserves is first in line.

Summary

So yeah, if you thought having money on FTX was going to end up okay... prepare for disappointment. The combination of using an outdated valuation date and paying out in potentially problematic stablecoins is setting up a lot of people for failure.

And honestly? It feels like this will set a precedent for future bankruptcies involving crypto companies.

Stay safe out there folks!