What Happened To FTX?
Recently valued at $32 billion, the crypto exchange FTX was the third biggest exchange in the world before it became insolvent and filed for chapter 11 bankruptcy. In short, FTX gambled with its own users’ funds and lost, and on November 11, 2022, FTX halted withdrawals for all users.
In spite of this, there are both confirmed outflows on the blockchain and reports from users of finding workarounds to get their funds out of FTX. Let’s take a look at a few of these and see whether they’re still viable.
TRON Workaround
On November 10, FTX announced a Tron Token credit facility to allow users to withdraw any TRON-based tokens that they hold on the exchange:
“We are pleased to announce that we have reached an agreement with Tron to establish a special feature that allows TRX, BTT, JST, SUN, and HT holders to exchange assets from FTX 1:1 to external wallets.”
This caused a spike in the price of TRON tokens on FTX, with TRX jumping from a low of $0.06 to a high of over $2.50 before settling around $0.30 at the time of writing.
TRX tokens on other exchanges (e.g., Binance) are trading at $0.05, which means even if you can exchange your funds on FTX for TRX and get them off the exchange, you’ll still be losing 83% of the value of your funds.
At the end of the day, losing 83% is still better than losing 100%, so this might be a viable option if it actually works. Given the fact that TRX has dropped from its high and is continuing to drop, it’s likely that this withdrawal method is no longer working.
Having said this, only $13,000,000 of assets were made available for this, with plans to add more tokens weekly at 14:00 UTC. It is likely that the initial $13,000,000 has already been used up, and it is possible that more TRON assets will be made available in the coming days. Neither FTX nor TRON founder Justin Sun has commented further at the time of writing, so we won’t hold our breath here.
Bahamas NFT Loophole
Zane Tackett, FTX’s former head of institutional sales, recently tweeted that residents in the Bahamas had a legal right to withdraw their funds:
“1) Per our Bahamian HQ’s regulation and regulators, we have begun to facilitate withdrawals of Bahamian funds. As such, you may have seen some withdrawals processed by FTX recently as we complied with the regulators.” – @tackettzane
Most FTX users are not based in the Bahamas, so they can’t take advantage of this situation.
However, there are reports of users in the Bahamas buying obscure NFTs, selling them to users on the FTX NFT marketplace for inflated prices, then withdrawing the funds locally and sending them (minus a percentage) to the users. This is a very high-risk strategy, as it involves making a deal with someone in a remote jurisdiction and trusting them to follow through on their end of the deal with likely zero recourse if they decide to run off with the money.
Are Your Funds Gone For Good?
All of these plans we mentioned are meaningless if you can’t act on them. At the time of writing, many FTX users were reporting that they couldn’t log into the site or application and are waiting for an ETA on when they will be able to have access again. In addition to this, the Bahamas Securities Commission has frozen FTX’s funds and suspended its registration.
It’s entirely possible that FTX doesn’t have enough funds to pay back all its depositors, even if we exclude the debts it holds from other third parties. FTX’s bankruptcy filing states that it estimates it has $10 billion – $50 billion of assets and $10 billion – $50 billion of liabilities, which is a very broad range, but these are simply the options for anyone filling out a bankruptcy form.
According to the Financial Times, FTX has $900 million in liquid assets (assets it can sell easily at face value) to $9 billion in liabilities. This lines up with the numbers that former FTX executive Tane Zackett posted on Twitter. He also includes an estimated extra $2 billion in “less liquid” assets (presumably, these can be sold slowly) and $3.2 billion in illiquid assets, which would sell for a massive discount in a bankruptcy/liquidation scenario like this.