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FTX Allowed to Trade Again – Come Back or End of the Story?

Published September 14, 2023 12:42 PM
Teuta Franjkovic
Published September 14, 2023 12:42 PM
Key Takeaways
  • The US court approved the proposed sale of FTX’s cryptocurrency holdings.
  • SOL worth $1.6 billion and BTC valued $560 million are both present on the exchange.

District Judge John Dorsey of Delaware approved the plans of the defunct cryptocurrency exchange FTX to trade again – precisely, to sell its crypto holdings.

The judge overseeing FTX’s bankruptcy proceedings authorized the company’s request to sell cryptocurrency in billions to the U.S. Delaware Bankruptcy Court. With its crypto holdings at $3.4 billion, FTX can sell, bet, and hedge them.

The most recent development in the FTX bankruptcy case may result in the company losing billions of dollars worth of cryptocurrency to the market. FTX had crypto holdings worth $3.4 billion as of September 13th. However, Solana [SOL] owns the vast majority of the holdings.

A Significant Crypto Sell-Off

In the first week, the company might sell assets for at least $50 million, according to court records . After that, it can sell assets worth $100 million each week.

Additionally, depending on the token, the selling cap may be raised to $200 million each week with prior agreement from the creditors’ committee. An investment consultant, who will be compelled to adhere to predetermined rules, will handle this process.

Notably, FTX will need to give the US Trustee 10 days’ notice for Bitcoin [BTC], Ethereum [ETH], and some insider-affiliated tokens. The US Department of Justice (DoJ) appoints the Trustee.

The company also has alternatives to selling its cryptocurrency holdings. The legal petition additionally permitted the exchange to hedge and stake its cryptocurrency holdings. The document said:

“the Debtors are seeking authorization to hedge the Debtors’ Bitcoin and Ether through an Investment Adviser by, for example, buying or selling call or put options. Hedging Bitcoin and Ether will allow the Debtors to limit potential downside risk prior to the sale of such Bitcoin or Ether.”

$1.16 Billion in SOL Holdings Spark Speculation on Market Impact

With the records  made public this week, the defunct cryptocurrency exchange reportedly held $1.16 billion in SOL, or 16% of the total amount still in existence. According to estimates, FTX held a variety of cryptocurrencies as of January 2023, including $529 million in FTT tokens, $268 million in Bitcoin, $90 million in Ethereum, and a variety of other assets like Aptos ($67 million), Dogecoin ($42 million), Polygon ($39 million), XRP ($29 million), and stablecoins.

On external exchanges, another $1.2 billion is stored in cryptocurrency.

“The relevant figure isn’t the absolute value of the tokens held, but rather their amount relative to each asset’s actively traded volume,” noted crypto market intelligence firm Messari .

“While $SOL and $APT have sizable USD figures and relative market volume impacts, these assets are held on the Alameda and venture side of the house and are largely comprised of vesting tokens that are not immediately liquid in open markets.”

Other market observers have shared that opinion. SOL coins  are stuck in a vesting schedule until at least 2025, according to Crypto Rand , a trader at RR2 Capital. The SOL may be picked up for sale, but the prospective buyer would have to follow the vesting process.

“[It] will not have an impact on the short-term price,” they said.

Suing LayerZero Labs

However, LayerZero’s future appears less certain. According to court filings submitted on September 9 in the United States Bankruptcy Court for the District of Delaware, the protocol withdrew $21.37 million from FTX in the weeks preceding the exchange’s demise.

The withdrawal, according to the FTX’s legal team, was a requirement of the exchange’s contract with LayerZero, which called for Alameda’s venture capital arm to invest $70 million over the course of two transactions between January and May 2022 in order to acquire a 4.92% share in LayerZero.

With regard to LayerZero, FTX is suing on four counts of fraudulent transfers, four counts of preferential transfers, one count of disallowing claims, and one case of property recovery on the grounds that the protocol behaved in bad faith.

Lawyers are trying to recoup money that LayerZero allegedly withdrew from FTX in the form of huge amounts of APT, AVAX, BNB, BUSD, FTM, MATIC, USDC, and USDT.

Additionally, the exchange is suing LayerZero’s former COO Ari Litan for $13.07 million and Skip & Goose for $6.65 million after funds were transferred to wallets under their control.

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