A year ago on Thursday, the initial event occurred that led to the collapse of Sam Bankman-Fried’s cryptocurrency empire. On November 2, 2022, CoinDesk published an award-winning scoop, revealing that Bankman-Fried’s trading firm, Alameda Research, held a significant amount of FTT tokens issued by his FTX exchange. This discovery indicated a closer connection between Alameda and FTX than Bankman-Fried had acknowledged, exposing his precarious financial position. Subsequently, allegations emerged that Alameda and Bankman-Fried improperly used FTX customers’ funds for personal purposes.
Nine days later, FTX and Alameda filed for bankruptcy, followed by Bankman-Fried’s arrest. Currently, his criminal fraud and conspiracy trial is nearing its conclusion. As for FTX, the company remains in bankruptcy court. In September, Matrixport, a crypto financial services company, estimated that creditors could expect an average recovery rate of 37 cents on the dollar. This projection appears surprisingly positive considering the dire state of affairs one year ago. FTX faced a freefall, with customers scrambling to retrieve their funds, and the company infamously experienced a hack shortly after filing for Chapter 11.
Furthermore, this recovery estimate could be conservative. Over the past two weeks, the value of the bankruptcy estate has increased by approximately $1 billion due to a significant rally in the price of SOL, the native token of the Solana blockchain. Bankman-Fried has been a strong supporter of SOL. FTX currently holds around 55.8 million SOL tokens, with the majority (42.2 million) locked and not immediately tradable on the market, according to CoinGecko. Last month, official debtor venture portfolio reports stated that FTX’s SOL holdings had a market value of $1.16 billion. However, SOL’s price has risen from around $20 to approximately $40 per token since then.
Thomas Braziel, CEO of 117 Partners, an advisory firm for distressed asset investors, expressed astonishment regarding SOL’s performance. Braziel mentioned that there are $10 billion in customer claims against FTX. He expects these claimants to recover at least 80% of their funds, meaning they would lose approximately $2 billion. However, if SOL reaches a price of $50 to $60, Braziel believes there is a “100%+ certainty for creditors” to recover their claims. He emphasized the significant secondary effects, such as the Voyager estate also benefiting financially.
It is important to note that FTX’s SOL holdings will only begin to unlock next year, with the majority of tokens remaining frozen until 2027 or 2028. Braziel acknowledged the positive development but cautioned that the locked nature of the Solana tokens adds complexity. Although some tokens may be staked or plans may exist to sell them, the estate must liquidate the assets effectively, similar to the situation with Anthropic, an AI startup funded by Bankman-Fried. Anthropic has recently received substantial funding from companies like Amazon and Google, increasing its valuation and potentially benefiting FTX’s stake.
Discussions have also taken place regarding reopening the FTX exchange to generate additional funds for creditors. Despite the allegations against Bankman-Fried, FTX’s fortunes have remarkably turned around. His personal situation has worsened, and jurors may soon begin deliberating his fate.