Hopeless Deception: FTX Owners Abandon Plans to Revive the Exchange
FTX clients will receive compensation for their cryptocurrencies, but the exchange will not be restored. FTX lawyers reported that they could not find a buyer or investor for the collapsed exchange and will fully focus on compensating clients affected by its bankruptcy.
The bankrupt cryptocurrency exchange FTX, which collapsed in November 2022, has abandoned attempts to resume operations, opting to liquidate all assets and refund clients, according to Reuters, citing statements from a lawyer representing the group of companies associated with the platform.
The current management of FTX, which has been dealing with its bankruptcy and recovering surviving assets for over a year, held negotiations with potential buyers and investors for several months, said FTX lawyer Andy Dittberner during bankruptcy court hearings in Delaware. However, none of them were willing to invest enough funds to revive the exchange.
Former head of the exchange and the affiliated group of companies and funds, Sam Bankman-Fried, was convicted on charges related to FTX's activities. "FTX was a hopeless deception led by a convicted criminal," said Dittberner. "The costs and risks of creating a viable exchange from the wreckage left by Mr. Bankman-Fried were simply too high."
At its peak, FTX ranked second in the crypto market after Binance in terms of trading volumes and was valued at $32 billion. The exchange collapsed in November 2022 after Coindesk published confirmation that the balance of the affiliated Alameda Research fund, which claimed to have assets worth billions of dollars, mostly consisted of FTX exchange tokens (FTT) issued by the exchange itself.
The fund, contrary to Bankman-Fried's statements, was directly linked to FTX and had direct access to the exchange's client funds, which were used without control by Alameda's executives and personally by Bankman-Fried for high-risk investments.
A day after the material was published, Changpeng Zhao, the former head of Binance at that time, publicly stated that he rejected Bankman-Fried's emergency offer to buy the troubled FTX and that Binance would sell all of its FTT tokens. Following his statements, the token's price collapsed. Clients began withdrawing funds massively from FTX, leading to FTX, Alameda, and various subsidiaries filing for bankruptcy within a few days without being able to settle with users.
When news about future compensations appeared in the news terminals, the FTT token's price, which is still traded on crypto exchanges, instantly soared by more than 20%. However, it quickly plummeted when it became known that the exchange would not be restored.
Now, the FTX management will focus on liquidating existing assets to return money to clients whose cryptocurrency deposits were frozen when the company filed for bankruptcy.
According to Dittberner, FTX recovered assets worth more than $7 billion to refund clients and reached agreements with various state regulatory bodies that agreed to wait until clients receive full compensation before attempting to collect about $9 billion in lawsuits.
Now FTX expects to fully settle with all clients while basing their payouts on cryptocurrency prices as of November 2022, when the exchange's collapse triggered a market-wide crash. Dozens of FTX clients contested this decision in court. The court rejected their complaints, approving compensation based on 2022 prices during hearings on January 31st, stating that the U.S. bankruptcy law "very clearly" determines that debts must be settled based on their value on the date when the company filed for bankruptcy.