FTX creditors’ promised 143% recovery falls short. High crypto prices mean the real crypto recovery rate is only 9% to 46%.
Creditors of the defunct FTX exchange now face a major shortfall. This is in spite of the promise of a nominal payout of 143%. FTX creditor representative Sunil has confirmed the real recovery rate. He said the actual crypto recovery is between 9% and 46%. Therefore, creditors are still not reimbursed in real crypto terms. The final value could be even lower because of the high prices of cryptos at present.
Real Recovery Rate Significantly Lower Than Nominal Payout
Initially, the nominal 143% payout is based on asset values. This valuation was noted at the time of the filing of the bankruptcy. However, the price of crypto has increased considerably since then. Thus, the purchasing power of the fiat payout is reduced. Consequently, the money buys far fewer tokens than they would have in the past. This disparity is the cause of the real recovery deficit.
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Specifically, the FTX Recovery Trust began its second major payout in May. This payment amounted to $5 billion due eligible creditors. In addition, the distribution was multi-claim. These included Dotcom Customer Entitlement Claims 72% and US Customer Entitlement Claims 54%. Convenience Claims were the highest winner with a distribution of 120%.
In addition, the first round of payments was made sooner. This was on February 18 for the recipients with smaller claims. Eventually, those claims amounted to less than $50,000 in the aggregate. That very first distribution was $1.2 billion. Therefore, the process of recovery has already brought back billions of dollars to the affected parties.
Additionally, General Unsecured and Digital Asset Loan Claims are to receive a distribution. These groups will get 61% of their claims. After that, these monies are due to reach the recipients soon. Payouts will be facilitated through websites such as Kraken and BitGo. This process is done to ensure that the delivery is fast and efficient.
On the other hand, the emphasis is still on the value in the real world. The recovery is denominated in fiat money. Therefore, the recovery is not a complete compensation to creditors. It does not replace the crypto assets that they originally possessed.
Airdrops Offer Creditors Path to ‘Extra Recovery’ Outside Bankruptcy
However, further recovery is expected in the near future. In particular, this will be from airdrops from external projects. As a result, these airdrops will be distributed to FTX creditors directly. This recovery takes place completely outside the actual bankruptcy process. Thus, it is a unique opportunity to partially compensate.
Indeed, Sunil referred to one such possibility in connection with “extra recovery.” He cited Paradex as an example of a project that has already airdropped tokens. Furthermore, he wrote that more projects will probably follow suit in the near future. Therefore, these external initiatives are an important area of focus for creditors.
Further, he stressed the importance of the creditor list. Specifically, he said that FTX creditors are attractive to projects. They are regarded as the most valuable asset for the new token launches. Thus, projects utilize these airdrops to achieve an initial level of traction. Consequently, this strategy effectively utilizes the creditor community.
After all, this dual recovery model offers some relief. Therefore, the nominal fiat payout guarantees a base rate of return. Furthermore, there is an opportunity for upside from the external airdrops. However, the stark reality is that the actual recovery rate ranges from 9% to 46%. The market gives a clear indication that the fiat value is lacking.