FTX Promises 90% User Funds Return — Where is the $8.9 Billion Coming From?

• When FTX imploded, it took with it over one million customers’ funds.
• Creditors have been waiting ever since for their funds to be returned.
• However, a new plan from FTX puts redemption a step closer.

At the time of its collapse, on paper, FTX was worth in excess of $32 billion, and the third most popular crypto exchange in the world. Subsequently, we would discover that $8.9 billion of customer funds were missing.

But news of a plan to make customers almost-whole—with 90% of outstanding funds returned—has perked up its former customers. Those in charge of the bankruptcy process will officially submit their new plan to a U.S. Bankruptcy Court by December 16, 2023, for the court to review. But where is the money coming from?

What Has Been Announced for FTX Creditors

On October 16, the bankrupt crypto exchange FTX announced an amended Chapter 11 plan to distribute remaining assets to customers.

Under the amended plan, FTX would divide its assets into separate pools for FTX.com, FTX US, and general creditors. In addition, FTX.com and FTX US customers would get a “shortfall claim”—a claim from a creditor when there isn’t enough available to pay off the full debt—against the general creditor asset pool for any missing customer funds. 

The shortfall claim is valued at $8.9 billion for FTX.com and $166 million for FTX US based on initial estimates. Furthermore, a portion of the shortfall claim would have priority over general creditor claims when distributing the general asset pool.

FTX estimates that if approved, the amended plan would allow customers to recover over 90% of the total value of remaining global assets.

However, the customer payouts will depend on FTX’s ongoing asset recovery efforts, litigation results, and other variables. FTX expects customers to take losses, with FTX.com customers likely faring worse than FTX US.

Additionally, FTX offered an optional settlement for eligible customers to resolve liability for withdrawals before bankruptcy. The settlement would allow customers to either pay 15% of net withdrawals or reduce their claim amount accordingly. If the plans are approved by the bankruptcy court, FTX creditors could get a payout by June 2024.

FTX Has Already Recovered Several Billion

Luckily for FTX customers, there already exists a substantial pot of cash for creditors to draw on. On April 12, the exchange announced it had recovered over $7.3 billion in cash and liquid crypto assets. “The situation has stabilized, and the dumpster fire is out,” FTX attorney Andy Dietderich said at the time.

The big question is, where does FTX get the remaining $1.6 billion to make its customers whole again? One fortuitous investment in AI could provide the answer.

FTX’s reported stake in AI startup Anthropic presents an interesting opportunity for the bankrupt crypto exchange to raise funds to pay back creditors and customers. With Amazon announcing a massive $4 billion investment into Anthropic in September, the value of FTX’s $500 million stake has likely increased substantially.

Anthropic: A Lucky Bet on AI

In a sign of the firm’s success, Anthropic was given a rosy pre-investment valuation of $4.1 billion in March, following a $400 million investment by Google. If FTX can sell its stake in Anthropic at a profit, it could provide a windfall for the exchange’s bankruptcy estate. Those extra funds could significantly help cover customer losses and creditor claims. 

However, the bankruptcy process makes it complicated for FTX to easily liquidate its investment. FTX would likely need approval from the court before selling assets like its Anthropic stake. Plus, other creditors and investors in Anthropic may have rights that complicate a potential FTX sale.

FTX did not immediately respond to a request for comment.