Dumb question: why are creditors getting paid more than they are owed?
You’re asking why the creditors are getting their assets back
but they aren't
FTX creditors will make money on bankruptcy
91–100 of 155 posts
Re: FTX creditors will make money on bankruptcy
#92Imagine spending 25 years in federal prison knowing you might have avoided it if only you had not filed for bankruptcy.
blame CZ. had he not triggered the run on FTX assets by making those tweets, likely FTX had enough assets to survive until Bitcoin began its rebound.
This wouldn't help because it would still not have enough Bitcoins to pay its customers.
Re: FTX creditors will make money on bankruptcy
#93Earlier quoted context omitted.
That's putting it a little strong. FTX went bankrupt. You might normally expect to lose a substantial portion of your assets when that happens. To instead get back everything in dollar terms with a gain is remarkable. If you sent crypto to FTX legally you no longer owned them. You owned a claim to $X on FTX. It just wasn't analogous to a regulated broker where the client is the legal owner of a security. Iirc the con…
Not really. You owned a claim to the very specific asset you deposited in an exchange, which is how segregated accounts work. Why US Dollars? FTX.us was domiciled in the US but FTX.com was in Bahamas. Why not some other arbitrary currency? Why not Bahamian dollar? Why not in Bitcoin? FTX has paid close to 1 billion dollars in fees to army of lawyers, consultants, bankers etc. in what was even at the time an 8 billion…
> You owned a claim to the very specific asset you deposited in an exchange, which is how segregated accounts work
There weren't segregated. The segregation claim was made by an entity in bankruptcy. FTX's customers have unsecured claims.
> if FTX froze in time and did nothing at all, its assets would've recovered completely that 8 billion gap in its funding
The FTX estate barely held any crypto when it went under.
Re: FTX creditors will make money on bankruptcy
#94Earlier quoted context omitted.
as early as Jan 2023, before bitcoin had appreciated, $5 billion had already been recovered https://www.forbes.com/sites/dereksaul/2023/01/11/bankrupt-f... Anthropic was another $1 billion
Even that article says the assets there are not enough to come close to liabilities. FTX was insolvent at that time.
It did not help that CZ triggered a run on the assets at the worst time; otherwise it likely would have been fine. When FTX ran out of money, every depositor instantly became a creditor. I doubt this is unique to FTX. many exchanges may have some shortfall between deposits and credits.
Re: FTX creditors will make money on bankruptcy
#95Earlier quoted context omitted.
>You owned a claim to the very specific asset you deposited in an exchange, which is how segregated accounts work. The company went bankrupt. Bankrupt. They did not have the assets they purported to have. FTX owed money to a variety of creditors including to crypto traders who deposited. They gambled on handing over their assets to a largely unregulated entity and it went bust. If a regulated securties broker goes ba…
> FTX faced no such regulation and if you sent them crypto you no longer owned it. FTX did. This is at best only partially true, you own a claim on the underlying asset. This is not a matter of regulation, it's a matter of your contractual agreement with FTX. I don't know how more regulated brokers work, but I also doubt you own the asset outright, you also probably own a claim, which is why if the broker goes bankru…
> you own a claim on the underlying asset
No, you're describing a secured claim. No crypto exchange I know of voluntarily gives customers a secured claim. At the moment of bankruptcy, unsecured claims are a claim on the company. Not on any asset.
> don't know how more regulated brokers work
The assets are segregated and customer claims prioritised and guaranteed by the SIPC.
> Regulation wouldn't have changed anything here: as FTX simply broke the law
None of what FTX did would have been remotely plausible if they'd been regulated as a broker-dealer. They'd have failed their FINRA audit on day one.
Not saying what they did is impossible at a regulated b-d. It would just take a lot more thought and work than the shitshow they were running [1].
[1]. https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-...
Re: FTX creditors will make money on bankruptcy
#96Earlier quoted context omitted.
>You owned a claim to the very specific asset you deposited in an exchange, which is how segregated accounts work. The company went bankrupt. Bankrupt. They did not have the assets they purported to have. FTX owed money to a variety of creditors including to crypto traders who deposited. They gambled on handing over their assets to a largely unregulated entity and it went bust. If a regulated securties broker goes ba…
I think you are not distinguishing between what a bankruptcy vs. theft means. I worked over a decade in investment banking including on large bankruptcy proceedings. A bank can go bankrupt and your deposits might be in jeopardy, because there is fractional reserve banking and by law they are allowed to hold far less (in the US it would actually be 0%) of your deposits and can deny your request to redeem your assets i…
> FTX was an exchange, and while the holding company can go bankrupt the customer assets should be always fully funded in segregated accounts
FTX marketed itself as an exchange. That didn't make it one. Giving it money was legally akin to handing any small business in your town money.
> Most of FTX customers were outside US and are not US residents. US Dollars in this context holds no significance.
FTX was a U.S. company. Even the Bahamas outfit had U.S. dollar bank accounts. FTX's customers were obviously subject to U.S. jurisdiction.
> FTX.us was a registered broker
They owned a FINRA-member broker-dealer. Most FTX customers weren't doing business with its b-d.
> with SEC as an exempt broker
Not what Form D means. ("Exempt broker" isn't a thing under U.S. securities law.)
Also, side note, banks can refuse withdrawals but specifically not to prevent a bank run [1]. A bank restricting withdrawals due to illiquidity is going under FDIC conservatorship.
[1] https://activitycovered.com/can-a-bank-refuse-withdrawal/
Re: FTX creditors will make money on bankruptcy
#97Earlier quoted context omitted.
a far cry from zero, and the CZ tweets triggered a run. How many other exchanges have enough assets on hand to cover every depositor at once instantaneously? Even mainstream banks cannot cover everyone (this is what a bank run is and is why central banks exist to provide a backstop in such an event).
> far cry from zero Straw man. You said SBF "was technically not lying about FTX having the money." He was. If you ask me to hang on to your $12 and I spend half of it, I don't have the money. > How many other exchanges have enough assets on hand to cover every depositor at once instantaneously? All of them. Exchanges and clearinghouses in a proper financial system are fully collateralised. > this is what a bank run…
All of them. Exchanges and clearinghouses in a proper financial system are fully collateralised.
According to coinmarketcap and coingecko, there are 200+ exchanges. you're saying all of them are fully collateralized? doubt it.
Re: FTX creditors will make money on bankruptcy
#98Earlier quoted context omitted.
> far cry from zero Straw man. You said SBF "was technically not lying about FTX having the money." He was. If you ask me to hang on to your $12 and I spend half of it, I don't have the money. > How many other exchanges have enough assets on hand to cover every depositor at once instantaneously? All of them. Exchanges and clearinghouses in a proper financial system are fully collateralised. > this is what a bank run…
All of them. Exchanges and clearinghouses in a proper financial system are fully collateralised. According to coinmarketcap and coingecko, there are 200+ exchanges. you're saying all of them are fully collateralized? doubt it.
> there are 200+ exchanges. you're saying all of them are fully collateralized?
In crypto? No. Because it's a marketing term there for brokers. FTX was, at the end of the day, a broker. (As is Coinbase and the other "exchanges" for how most people use them.)
In finance? Yes. Most exchanges (all in the U.S.) don't handle settlement; that's done by a clearinghouse, where the counterparty risk lives. They're fully collateralised [1].
[1] https://dtcclearning.com/products-and-services/settlement/ri...
Re: FTX creditors will make money on bankruptcy
#99Earlier quoted context omitted.
blame CZ. had he not triggered the run on FTX assets by making those tweets, likely FTX had enough assets to survive until Bitcoin began its rebound.
This wouldn't help because it would still not have enough Bitcoins to pay its customers.
there are hundreds of exchanges. how many of them are fully collateralized? doubt all of them are.
Re: FTX creditors will make money on bankruptcy
#100Earlier quoted context omitted.
Even that article says the assets there are not enough to come close to liabilities. FTX was insolvent at that time.
It did not help that CZ triggered a run on the assets at the worst time; otherwise it likely would have been fine. When FTX ran out of money, every depositor instantly became a creditor. I doubt this is unique to FTX. many exchanges may have some shortfall between deposits and credits.
I mean, they shouldn't, that means they're also running insolvent. Not only is that generally illegal, it's been the end of a long line of crypto exchange businesses like Quadriga, and possibly even going back to MtGox (though they were doing it as a cover for theft, rather than mismanagement, IIRC).
And the FTX token that had a run triggered was something like 90% held by FTX - the value they accounted for was based on a tiny circulating pool of them. It was almost the classic "If I print 10m of these, and sell you one for a dollar, I've got tokens worth $10m now, right?"