How does the restructured FTX sell its assets, and what impact does it have on the market?
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How does the restructured FTX sell its assets, and what impact does it have on the market?
Within a week, FTX Exchange made two significant advances in its complex bankruptcy proceedings.
Navigating Web3 tides with focused insightsBy jk, Odaily Planet Daily
Since FTX was taken over by the bankruptcy liquidation team earlier this year, the company has been implementing a series of measures to manage its restructuring process, including asset sales and formulating reorganization plans aimed at recovering as much capital as possible for creditors and stabilizing business operations.
Within a week, FTX Exchange achieved two significant milestones in its complex bankruptcy proceedings.
On December 7, local U.S. time, the Official Committee of Unsecured Creditors of FTX disclosed a response letter sent on December 4 to the Ad Hoc Committee of FTX 2.0 customers. In the letter, the Official Committee stated that the proposed reorganization plan strikes an appropriate balance between competing stakeholder interests and safeguarding the interests of all unsecured creditors. The revised reorganization plan and disclosure statement are expected to be filed with the bankruptcy court by mid-December, providing further details.
Meanwhile, the Official Committee is also evaluating reasonable alternative proposals that could improve the terms of the plan and is engaged in discussions regarding potential acquisitions, recapitalizations, or other transactions. Although currently bound by confidentiality obligations preventing disclosure of specifics, many concepts—including equity tokens tied to debt recovery—have already been considered. The Official Committee also expressed willingness to continue collaborating with the Ad Hoc Committee of FTX 2.0 customers over the coming months to complete these bankruptcy cases.
On another front, on November 30, FTX received approval from the bankruptcy court to begin selling its shares in Grayscale-managed digital asset trusts. This move is part of FTX’s broader strategy to raise funds to repay billions of dollars in debts. According to court filings, FTX intends to sell these assets in a manner that maximizes value while minimizing disruption to digital investment markets.
FTX’s investments in Grayscale cover various cryptocurrencies; buyers do not directly hold the underlying currencies but instead obtain shares in trusts established and managed by Grayscale. As stated in FTX’s court documents, the value of its trust holdings was approximately $744 million last month.
So how exactly will FTX handle these assets? What steps are required to convert Grayscale shares into creditor recoveries? In other words, how will FTX monetize these holdings to repay debts? Odaily Planet Daily reviewed detailed procedures outlined in the court filings.
Steps Disclosed in Court Filings
According to submitted court documents, FTX Trading Ltd. and its affiliated debtors and stakeholders are executing a series of procedures to sell or transfer their ownership of trust assets. The goal of these procedures is to maximize asset value while maintaining effective management of the trust holdings and ensure proceeds are fairly and appropriately distributed to creditors.
The court filings state that debtors are authorized—but not directed—to carry out the sale of trust assets according to the following procedures based on their reasonable business judgment:
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Selection of Investment Advisor: FTX will market and sell the trust assets through a court-approved investment advisor. This means FTX will enter into an investment services agreement with the advisor, who will then oversee all matters related to the sale of the trust assets.
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Establishment of Pricing Committee: FTX will establish a pricing committee composed of representatives from FTX, the Official Committee, and the Ad Hoc Committee. This committee will coordinate with the investment advisor to review and determine pricing and sales strategies for the assets.
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Pricing Restrictions: Sales of certain trust assets will be subject to specific pricing and sales limitations. These restrictions will be clearly defined in the investment services agreement and pre-agreed in writing among FTX, the investment advisor, the Official Committee, and the Ad Hoc Committee. In short, this ensures assets won't be arbitrarily priced, avoiding large discrepancies between market value and actual sale price.
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Sales Method: FTX will sell the trust assets via the investment advisor either through over-the-counter (OTC) transactions or on exchanges.
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Reporting Requirements: All sales of trust assets must be recorded and included in monthly reports submitted to FTX, the Official Committee, and the Ad Hoc Committee.
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Prohibition of Related-Party Transactions: The investment advisor may not select any of its affiliates as counterparties in trust asset transactions.
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Bid Requirements: For OTC sales, the investment advisor must obtain at least two bids from different counterparties before executing any such sale.
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Execution of Sales: FTX may sell trust assets through the investment advisor in one or multiple transactions to one or more buyers.
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Broker-Dealer Execution: All sales of trust assets must be conducted through or with a registered securities broker-dealer or another person exempt from registration.
Who Might Be Involved?
According to a report by Coindesk from August this year, the “investment advisor”—playing a role akin to traditional investment banks in finance—could potentially be Galaxy.
As noted in an August court filing: "Galaxy Asset Management has extensive experience in digital asset management and trading, including experience relevant to the type of proposed transactions and investment objectives." This refers to Galaxy Asset Management, the asset management arm of Mike Novogratz’s Galaxy, which is an SEC-registered investment advisor.
More widely known is Galaxy Digital—the other division of the company—which announced during FTX's collapse that it had suffered tens of millions of dollars in losses linked to FTX. The filing details conflict-of-interest mitigation procedures designed to ensure the asset manager acts in FTX’s best interest. If Galaxy indeed serves as the investment advisor for the Grayscale asset sale, then under the above provisions, Galaxy Digital would be prohibited from acting as a counterparty in the sale of Grayscale assets.
Recent developments have revealed additional details about the asset sale process. For example, reports indicated that “an FTX/Alameda-related address transferred $2.8 million worth of GMT to Wintermute” and that “an FTX/Alameda address transferred 17,100 SOL to Wintermute.” These transactions suggest that market makers like Wintermute may be playing roles as counterparties or broker-dealers in FTX’s asset disposal process.
Clearly, the sale procedures outlined in the documents are highly professional. The setup involving an investment advisor and non-binding guidance allows decisions to be made based on market conditions and asset characteristics, optimizing outcomes for creditors. This approach accelerates decision-making, enhances sales efficiency, and ensures transparency and traceability throughout the process.
However, it also presents risk management challenges: potential conflicts of interest require additional oversight and control mechanisms to ensure decisions made by the various committees truly serve the best interests of creditors and other stakeholders.
Overall, while this method offers flexibility and efficiency, it also necessitates proper regulatory oversight and transparency mechanisms to maintain fairness and effectiveness throughout the entire sales process.
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