The long-awaited recovery process of FTX’s creditors has officially begun. On January 3, 2025, the failed crypto exchange began repayment, marking a key milestone after the devastating bankruptcy.
With $14.7 billion to $16.5 billion earmarked for distribution, the plan offers a bailout for creditors and aims to restore confidence in the crypto space.
Background: From Collapse to Recovery
FTX filed for Chapter 11 bankruptcy in late 2022 after being unable to meet customer withdrawals due to a liquidity crisis.
The aftermath was one of the most significant in cryptocurrency history, with billions of user funds disappearing. The scandal culminated in October 2024, when Sam Bankman-Fried, co-founder and former CEO of the exchange, was sentenced to 25 years in prison for his role in the fraud.
A bankruptcy judge approved FTX’s reorganization plan in October 2024, setting the stage for repayment. The plan includes compensation for 98% of beneficiaries in excess of their losses – approximately 119% – based on the value of deposits in US dollars as of November 2022.
The repayment process gives priority to “subsidiary creditors,” individuals with claims of $50,000 or less. This group would receive a total of about $1.2 billion, covering principal and accrued interest.
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Larger creditors, whose claims exceed $50,000, will have access to a separate fund of $10.5 billion. Processing their distribution will take longer, reflecting the complexity of the larger requests.
To receive funds, creditors must complete a Know Your Customer (KYC) check and submit tax documents through the FTX Debtors’ Customer Portal.
Two leading crypto exchanges, BitGo and Kraken, will act as distribution managers. They will oversee the process for small and institutional creditors in eligible jurisdictions.
Market impact and missed opportunities
FTX’s repayment strategy has prompted analysts to weigh in on its potential impact on the crypto market. According to K33 Research, $2.4 billion could return to the crypto ecosystem as creditors receive payouts. However, not all funds will return to the market.
Approximately $3.9 billion in claims were acquired by credit funds, which are less likely to reinvest in cryptocurrencies.
Furthermore, 33% of the remaining claims are related to sanctioned countries, insiders or unverified creditors, limiting their ability to request funds.
Users also face a harsh reality: repayments are based on the value of their assets in November 2022. At the time, Bitcoin (BTC) was trading around $17,000. Today, Bitcoin is hovering at nearly $100,000, meaning creditors have missed out on huge gains from the recent Trump-fueled bull run.
FTX’s repayment plan, while a positive step, is far from a complete solution. Authorized creditors are likely to receive faster payments, while larger claimants face a lengthy wait.
The case highlights the complexity of dealing with one of the biggest financial collapses in cryptocurrency history. FTX’s ability to manage the repayment process and restore some measure of confidence will remain under scrutiny.
For creditors, today marks a small victory in the saga that has exposed vulnerabilities in the cryptocurrency ecosystem. As the funds begin to flow in, the long road to recovery for FTX’s victims begins in earnest.
