FTX’s $5.5 Billion in Alleged ‘Liquid Assets’ Includes Locked SOL Cache and Illiquid FTT Holdings
Two days ago, bankruptcy administrators and FTX debtors published an update for unsecured creditors claiming the discovery of $5.5 billion in liquid assets. Roughly $3.5 billion of these funds are cryptocurrency assets, with 11 different digital currencies classified as “liquid assets.” However, two of the firm’s top cryptocurrency caches are not liquid as the company’s 47.51 million SOL tokens are locked and the firm’s FTT balance distorts the realization of actual liquidity due to FTX’s control of more than 80% of the supply.
Locked Solana and Illiquid FTT Assets to Complicate FTX’s Bankruptcy Process
On Jan. 17, 2023, FTX debtors published a press release and visual presentation of assets discovered since the company filed for Chapter 11 bankruptcy protection on Nov. 11, 2022. The FTX debtors claim to have found $5.5 billion via a “herculean investigative effort,” with $3.5 billion reportedly being crypto assets. The visual presentation explains that FTX controls around $685 million in solana (SOL) tokens, approximately 47,511,173 SOL, and using today’s SOL exchange rate, that cache is worth much more than $685 million.
However, the SOL owned by FTX debtors is locked and this aspect is not mentioned in the visual presentation shown to unsecured creditors. It has been reported that FTX/Alameda managed to purchase 16% of the SOL supply from the Solana Foundation, but there is a lockup schedule. The current stash of 47.51 million SOL equates to 8.82% of the total supply the Solana network will eventually issue over time. Presently, there is only 370,992,365 SOL in circulation and that does not account for the 47.51 million locked SOL owned by the liquidators.
The problem with calling this cache of SOL liquid is that it is locked and subject to linear vesting through 2025-2027, and it could take years before the funds can be accessed. Additionally, the debtors’ cache of ftx token (FTT), a coin originally created by the core FTX team, is also not liquid because FTX controls more than 80% of the entire supply. For example, the Ethereum (ETH) address “0x97f” controls 45,850,883 FTT, worth more than $1.8 billion using today’s exchange rates. The FTX debtors’ presentation shows the FTT as being worth $529 million worth of FTT tokens.
The locked Solana issue and the fact that FTX owns most of the FTT in circulation puts these tokens more on the side of being illiquid. This could complicate the bankruptcy process and payments to creditors because it would be difficult to convert these assets into cash or other crypto assets without significantly impacting the market price.
Even if the SOL were unlocked, dumping 47.51 million SOL on the market would cause disruptions. Additionally, FTT suffers from low trading volume, limited exchange listings, few use cases, and the company controls most of the FTT supply. Because FTX holds a significant amount of the total FTT supply, it can easily affect the ability to trade it. Calling these caches of SOL and FTT tokens “liquid” is questionable as data does not support that definition.
What are your thoughts on FTX’s discovery of $5.5 billion in liquid assets, despite the presence of locked SOL and illiquid FTT holdings? How do you think this will impact the bankruptcy process and payments to creditors? Share your thoughts in the comments section below.