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he downfall of cryptocurrency exchange FTX last year shocked the industry and highlighted the need for regulated oversight. As the company filed for bankruptcy protection and an investigation began into its business dealings, one major lingering question was how it would resolve outstanding debts. FTX has now unveiled its revised proposal, which experts say offers the most comprehensive framework to date.

FTX Logo
FTX Logo

Valuing Customer Cryptocurrency Holdings 

One hurdle in the bankruptcy process has been placing a value on customers' crypto assets held on FTX at the time of its collapse in November 2022. The exchange was holding billions of dollars worth of various virtual currencies. Under the plan, any customer claims will be based on converting these to the U.S. dollars using that date's exchange rates. While a necessary step for fairly valuing losses, it means claims will not reflect later price increases. Legal expertise was required to develop a solution balancing interests.

Estimated Payouts and Fund Distribution

FTX expects to have billions of dollars available for distribution once crypto holdings are liquidated as per the court-approved methodology. The plan outlines directly paying these funds to affected customers and creditors to fulfil proven claims against the failed company. However, exact recovery amounts will vary significantly depending on an individual's holdings and priority class in bankruptcy proceedings. All key stakeholders have endorsed this process as workable.

Treatment of Sam Bankman-Fried and Alameda Research  

Outstanding questions remained around how Sam Bankman-Fried, the CEO whose actions precipitated FTX's downfall, and his associated trading company Alameda Research, will be treated under bankruptcy law. Both are believed to owe huge sums. While criminal charges are also possible, the resolution plan does not clarify their precise inclusion or liability share. Resolution will impact overall recovery rates.

Image Sam Bankman-Fried, CEO of FTX wearing a black T shirt and shorts
Sam Bankman-Fried, CEO of FTX

Next Steps in Legal Process

A final vote by creditors next year allows input on the plan before seeking Judge Dorsey's approval. Then, any remaining assets can be distributed according to the methodology. Though complex, consensus between parties means FTX may conclude its court case faster than many past bankruptcies. Monitoring the process is important for restoring confidence in the cryptocurrency sector.

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