Detailed analysis of FTX compensation

1. About the start time of compensation

The bankruptcy plan stipulates that FTX will compensate 98% of users within 60 days after the bankruptcy plan takes effect.

According to Mr. Purple, a well-known FTX creditor, the expected effective date of the FTX bankruptcy plan is October 31, which means that 98% of FTX users have a certain probability of receiving FTX compensation before the end of the year.

According to the view of the claims market, the Wind Down Board motion to set up compensation reserves will be proposed as early as November, and it may also be postponed to December, so the start time of compensation may be postponed to early 2025.

2. About the compensation steps

FTX's compensation funds are carried out in two steps:

The first step is to compensate 98% of users (that is, users with claims less than US$50,000). Although the number of creditors in this part is high, the total compensation funds are only about US$1.1 billion.

The second step is to pay the remaining amount to creditors with claims exceeding US$50,000, which accounts for more than 90% of the total compensation amount.

If optimistic, the first step will start within the year, and the second step will start in the first quarter of next year; if pessimistic, the first step will be postponed to January next year.

3. How much money can flow back to the crypto market

Since FTX's claims have been circulating in the market for a long time, a large number of original creditors have traded their claims to institutions specializing in bankruptcy claims for the need to realize them as soon as possible. It is expected that this part of the funds will hardly flow into the crypto market again.

However, there is no clear data on the claims that have been sold. Mr. Purple estimates that the proportion is about half.

In the bankruptcy plan, FTX expects compensation funds to be between US$14.5 billion and US$16.3 billion.

This means that only US$7-8 billion of FTX's compensation funds can flow into the crypto market.

Overall, the funds that can flow into the crypto market from the compensation funds may not be as much as expected. The initial compensation funds are less than 10%, and the bulk of the compensation funds will be next year.

Therefore, in the short term, the impact of FTX's compensation on the crypto market is very limited, and it is not advisable to expect too much.