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FTX $3.4 Billion Liquidation Plan Outlined in Court to Protect Against Market Collapse

Last Updated September 14, 2023 10:51 AM
Omar Elorfaly
Last Updated September 14, 2023 10:51 AM

Key Takeaways

  • Judge John T. Dorsey signed an order permitting FTX to sell its crypto assets
  • FTX will appoint Galaxy Digital as the investment manager overseeing the sale
  • The company is allowed to sell only $100 million worth of crypto per week. The limit may increase on an individual token basis.

During a live stream  of a hearing in the US Bankruptcy Court, District of Delaware, US Judge John T. Dorsey, the judge overseeing FTX’s bankruptcy proceedings, gave permission to the company to start selling its remaining crypto assets according to its liquidation plan.

FTX may now start selling its $3.4 billion stash of Bitcoin, Ethereum, Solana, and other altcoins.

Updated Liquidation Plan

Mike Novogratz’ Galaxy Digital is now appointed as FTX’s investment manager, assisting in the process of selling off the company’s remaining crypto assets.

According to court orders each week, FTX is permitted to sell digital assets with a limit of $50 million.  In the following week, that limit will increase to $100 million, only with the permission of the committee.

“Debtors will provide notice of such temporary increase to the U.S. Trustee; and may  permanently increase the Weekly Limit to $200 million upon further order of the Court.”

The court also permits FTX “to utilize staking options available through their qualified custodians using their respective private validators if the Debtors determine in the reasonable exercise of their business judgment that such activities are in the best interests of their estates.”

However, FTX is required to provide bi-weekly and monthly reports detailing any sales processed or intended, including the type of token, the quantity, and respective staking yields or rewards.

Moreover, FTX is not allowed to sell FTT (the company’s native token) “without seeking further authorization from this Court.”

Finally, the court’s orders clarify that both the bankruptcy court and the appointed investment manager (in this case, Galaxy Digital) reserve the right to object to any sales intended by FTX, granted the objection would be in writing.

Liquidation Structure

Although reminiscent of Celsius’ liquidation plan, FTX’s liquidation process needs to be more consistent, seeing its potential effect on the crypto market.

As the company currently holds over $1 billion in SOL tokens and over $560 million in Bitcoin, sudden liquidation is bound to send the market plummeting.

Therefore, the company’s revised Chapter 11 plan focuses on providing creditors with the power to control the liquidation process.

First of all, sales of Bitcoin and Ethereum will be limited to $50 million weekly for the first two weeks; then the cap will be raised to $100 million weekly after that.

Moreover, FTX, under the revised plan, will provide creditors and regulators with detailed biweekly and monthly reports on asset transactions, balances, staking yields, and market insight.

On top of that, the company will hold status-check calls with advisors and creditors to enhance transparency.

Finally, FTX is seeking the government’s permission to enter crypto hedging contracts, using an approved investment advisor. The aforementioned contracts are only limited to Bitcoin and Ethereum, with the approval of eligible creditors to expand to altcoins.

As it stands, FTX’s investment portfolio amounts to nearly $4.5 billion, including partnerships with major crypto firms like Kraken and SkyBridge.

The company has not announced its plans to liquidate $529 million in securities invested in Grayscale’s crypto products and $200 million in luxury Bahamas real estate.

FTX has not immediately responded to a request for comment.

Future For FTX?

The liquidation detailed above will surely go toward helping FTX regain its financial footing after filing for bankruptcy in 2022.

However, the situation is rather dire. Besides having to jump through many legal hoops to get its liquidation plan approved, the company has to somehow, regain the trust of its investors.

One prominent figure in crypto, TRON’s Justin Sun, expressed his interest in purchasing the totality of FTX’s digital assets. 

On the one hand, it would save FTX the trouble of having to sell the contents of its vaults under tight restrictions. But, on the other hand, Sun is infamous in the crypto market due to previous fraud charges.

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