Bankrupt FTX starts refunding users $1.2 billion today

Many FTX creditors who use Kraken confirmed on Tuesday via Reddit that refunds have started landing in their accounts, covering creditors with claims under $50,000.

Sunil, an FTX creditor tracking the process, said the exchange has already paid out $800 million from a $1.2 billion round of distributions. So far, 162,000 accounts have received payments just 35% of the 460,000 eligible claims.

The money is split evenly: 50% goes to original FTX account holders, while the other half goes to debt buyers who scooped up claims at steep discounts over the past two years, according to Sunil.

The payments are being processed through BitGo alongside Kraken, and recipients should see funds in their accounts within one to three business days, said Sunil.

Sunil added that FTX has set aside $7 billion for this phase of distributions, with an eventual target of $17 billion in total refunds.

The FTX Creditor Recovery Summary estimates that total claims across all creditor groups sum up to $11.75 billion, and recovery rates will depend on the claim type.

Secured and customer claims are seeing recoveries between 100- 142%, and overall recovery rates range between 123%-138%, according to the estimates.

Some creditors are cashing out immediately, but those receiving crypto payments could trigger market movements if they decide to liquidate their holdings, and FTX’s native token, FTT, is being closely watched as creditors regain access to funds.

The FTX fall of 2022 changed everything for centralized exchanges, particularly in the United States, where the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve intensified restrictions on the industry.

This enforcement, known as Operation Chokepoint 2.0, cut off banking access for many crypto businesses, though under ‘crypto president’ Donald Trump, there are ongoing Senate hearings led by Republican lawmakers to put a stop to crypto debanking.

As regulators tightened their grip, some FTX creditors sold their claims at huge losses, desperate for liquidity. By the end of 2022, more than 10,000 claims had been listed on secondary markets.

Now, many of those sellers are watching as current recovery rates exceed expectations, leaving them with nothing while others walk away with a profit.

Self-custody advocate Mr. Purple, an FTX creditor, warned that holding funds on centralized exchanges is always a risk. “CEX operational structures with hot wallets create a counterparty risk for you as an individual while [the exchanges] hold your funds,” he said, adding that self-custody is the only way to truly own assets.

“Many creditors want to reinvest,” Mr. Purple claims. “But others won’t because they need their money now. Others don’t want to touch crypto again after going through bankruptcy for two and a half years.”

Meanwhile, Sam Bankman-Fried, the founder of FTX, was sentenced to 25 years in prison in March 2024, where he still remains, though his attorneys are appealing the sentence, and his parents are calling on Trump to pardon him. This was, of course, after Trump pardoned Silk Road founder Ross Ulbricht.

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