On October 7th local time in the United States, Judge John Dorsey of the Delaware Bankruptcy Court officially decided to approve FTX's bankruptcy plan during a hearing, signifying that the compensation process for FTX has finally made substantial progress. Moving forward, FTX will use the up to $16.5 billion in assets it has recovered since filing for bankruptcy to compensate its creditors.

Q1: What exactly is FTX's bankruptcy plan?

The so-called bankruptcy plan is the liquidation plan officially proposed by the FTX liquidation team, led by John J. Ray III, on May 7th of this year. The plan was approved by Judge Dorsey on June 25th of this year to enter the voting phase and was formally approved by Judge Dorsey last night.

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From the perspective of users, the most important aspect of this bankruptcy plan is that FTX will first use the assets it has recovered to compensate its customers, and then pay for any potential competing claims put forward by government regulatory agencies.

Q2: What does the approval of the plan mean?

With the formal approval of the plan, FTX will proceed to compensate 98% of its users within 60 days after the bankruptcy plan takes effect.

Q3: When does the bankruptcy plan take effect?It should be clarified that the approval of the plan does not equate to the plan taking effect; the specific effective date has not yet been determined.

According to the statement of the well-known FTX creditor, Mr. Purple, the anticipated effective date will be October 31st, which implies that there is a certain probability that 98% of FTX users will begin to receive FTX compensation before the end of the year.

However, Mr. Purple also cited another view from the Claims Market, suggesting that compensation might be deferred to early 2025, as the motion to establish the compensation reserve fund by the Wind Down Board will be proposed no earlier than November, but it could also be delayed until December.

Q4: Which users will receive compensation first?

According to FTX's bankruptcy plan, the 98% is actually a retroactively calculated user proportion, covering clients who held $50,000 or less at the exchange at the time of FTX's bankruptcy.

Q5: How much is the total amount of funds available for compensation?

FTX had anticipated in its bankruptcy plan that the total value of assets recovered, liquidated into cash, and available for distribution since filing for bankruptcy would be between $14.5 billion and $16.3 billion.Q6: Will FTX pay out in full at once?

Alex Thorn, the head of research at Galaxy, mentioned that even if payments begin, they will not be settled in one lump sum.

Thorn stated that FTX is expected to compensate approximately 98% of users (those with claims below $50,000) with about $1.1 billion in the current year, with the remaining payments expected to be made between the first and second quarters of 2025.

Q7: What are the compensation standards?

According to the bankruptcy plan, FTX will first compensate 98% of creditors in cash based on the dollar value of the claims at the time of bankruptcy in November 2022, with an estimated compensation ratio of 118%; the remaining creditors will also receive a 100% compensation ratio, plus a total time value compensation of several billion dollars.

Q8: What is the attitude of the creditor group towards the compensation plan?

Last night's hearing revealed that approximately 94.48% of creditors voted in favor of the bankruptcy plan, with the total value of these creditors' claims amounting to about $6.83 billion.

However, some creditors, including Sunil Kavuri, who represents FTX's largest group of creditors, have clearly expressed opposition, arguing that FTX should compensate directly in 'kind' with cryptocurrencies rather than based on the dollar value of 2022— Bitcoin's price has risen from $16,000 in November 2022 to $63,000, and compensating based on the dollar value means a significant reduction in coin value, making the so-called '118% compensation rate' insignificant compared to the increase in coin prices.Attorney David Adler, representing some of the creditors, also raised another issue in court: if creditors receive compensation in cash rather than in-kind, they may face substantial taxes.

Q9: Why not compensate in-kind (directly repaying in cryptocurrency)?

In response to the demands of some creditors who wish to be compensated in-kind, FTX's stance is "impossible."

FTX's liquidation team stated that many users believe FTX always holds their cryptocurrencies in their accounts, but the reality is that when the team took over FTX, they found a significant asset shortfall in the exchange's books—BTC was only 0.1% of the book amount, and ETH was only 1.2% of the book amount.

A financial advisor for FTX, Steve Coverick, testified that if in-kind compensation were to be made, FTX would need to purchase crypto assets on the open market, a cost that would be "ridiculously high."

Judge Dorsey also opposed in-kind compensation at the hearing.

Q10: Will the compensation funds flow back into the market?

For investors who have not used FTX, this may be the most attention-grabbing question—whether the up to $16.5 billion in funds can flow back, inject more liquidity into the market, and thereby drive the market up.However, considering that FTX-related claims have been circulating in the market for quite some time, a large number of original creditors, driven by the need to cash out as soon as possible, have traded their claims to specialized institutions dealing with bankruptcy claims. It is expected that this portion of funds will be difficult to reflow again.

There is no clear figure for the proportion of claims that have been sold, but the well-known creditor Mr. Purple estimates that this proportion could reach about half.

Su Zhu, who, along with SBF, contributed to the last bull market in a "sacrificial form," stated that even if these funds cannot fully return to the cryptocurrency market, they are still a significant amount and could boost market sentiment.