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On March 2, 2023, FTX debtors released their second stakeholder presentation, which contains a preliminary analysis of the now-defunct cryptocurrency exchange’s shortcomings. The latest presentation reveals a significant shortfall, as approximately $2.2 billion of the company’s total assets were found in FTX-related addresses, but only $694 million are considered “Category A Assets” or liquid cryptocurrencies such as bitcoin, tether or ethereum. In addition, John J. Ray III, FTX’s current CEO, stated that the debtor’s efforts had been significant, adding that the exchange’s assets were “heavily commingled.”
FTX debtors and CEO John J. Ray III have released a comprehensive presentation documenting FTX’s shortcomings. The preliminary report cites the cyberattack as occurring the day after FTX filed for Chapter 11 bankruptcy protection on November 11, 2022. In a now-deleted Telegram chat channel, FTX US Attorney General Ryne Miller described the exchange as being hacked and the platform being insecure. The preliminary deficiency analysis refers to this specific cyber attack throughout.
The report also mentions that both FTX and FTX US typically held digital assets in sweep wallets that were not segregated for individual customers. The debtors noted that due to the cyberattack, the company’s computing environment was secured and “remains subject to certain restrictions,” limiting access to critical data. The report categorizes FTX’s holdings into two groups: “Category A assets”, which have larger market values and trading volume, and “Category B assets”, which do not meet the liquidity requirements of Category A assets.
Despite all the assets being identified, a deficit of $8.9 billion remains. “There is a significant shortage on the FTX.com exchange at the time of the petition, defined as the difference between digital asset demands on the FTX.com ledger and digital assets available to satisfy those demands,” the report said. “The shortage is particularly significant for Category A assets. Only a small amount of cash, stablecoin, [bitcoin], [ethereum]and other Category A assets remain in wallets provisionally linked to the FTX.com exchange.”
The report also notes that while the loss at FTX US was significant, it was smaller than the international exchange. In a press release, CEO Ray shared his thoughts on the presentation, mentioning that funds were mixed and record keeping was inadequate.
“This is the second in what FTX Debtors expect will be a series of presentations as we continue to uncover the facts of this situation,” Ray said in a statement. – It has required an enormous effort to get this far. The stock exchange’s assets were very mixed up, and their books and documents are incomplete and in many cases completely absent.” He stressed that the information from debtors was preliminary and subject to change.
An interesting aspect of the latest debtor presentation is that the ftx token (FTT), the company’s exchange coin, is classified as a category B asset. While BTC and ETH are Category A assets, SOL, MATIC, UNI, SHIB, PAXG, WBTC and WETH are also considered A-class assets. The report also highlights the daily deposits and withdrawals made 90 days before the bankruptcy petition.
Additionally, the exchange’s shortfall does not include Alameda Research assets, which consist of $956 million solana (SOL) and aptos (APT), $820 million held on third-party exchanges, $185 million in stablecoin assets held in cold storage, and $169 million in bitcoin (BTC) held in cold storage.
What do you think the implications of FTX’s significant losses will be for stakeholders? Let us know what you think about this topic in the comments section below.
Image credit: Shutterstock, Pixabay, Wiki Commons, Sergei Elagin
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