Author: Lawyer Liu Honglin

Some friends may be confused about the "FTX thunder". Don't worry, I will briefly sort out the background first. Old Tie who is familiar with the incident can jump directly to the next paragraph?

In November 2022, the cryptocurrency circle launched a shocking drama: FTX, the world's second largest exchange, declared bankruptcy without warning. This platform, built by "genius" Sam Bankman-Fried (SBF for short), was once a dazzling star in the industry with a valuation of up to US$32 billion, but collapsed overnight due to fund misappropriation and management chaos, leaving hundreds of thousands of users and a debt black hole of over US$10 billion. SBF was eventually sentenced to 25 years in prison by the US court, but the FTX liquidation team staged a "Jedi Counterattack", miraculously recovering $14.5 billion to $16.3 billion, promising to do its best to compensate customers. This "thunderstorm" farce shocked the world and put 8% of users in a dilemma - due to regulatory restrictions, they were blocked from the door to compensation.

According to PANews reports, customers are excluded from the compensation plan due to their regulatory environment. In notices in 2017 and 2021, virtual currency transactions were declared illegal financial activity and were not protected by law, which poses compliance risks for FTX to pay compensation to customers. Although customers account for 8% of the total FTX user base (according to South China Morning Post), they are still considered ineligible for compensation in the current U.S. bankruptcy proceedings.

The compensation after FTX bankruptcy has entered the stage of small-scale debt distribution, but users are currently excluded due to jurisdictional obstacles and compliance risks. Does this mean that creditors are completely hopeless? We don't think so. The situation is far more complicated than the surface and there is still hope. User compensation issues may be delayed and are likely to not be completely excluded.

FTX bankruptcy case involves two parallel legal proceedings: Chapter 11 bankruptcy proceedings in the United States and liquidation proceedings in the Bahamas. The former is led by FTX's Delaware court in the U.S., while the latter involves its Bahamas subsidiary FTX Digital Markets Ltd. Which procedure to choose to declare your debt directly determines whether you can successfully get your rights back.

For creditors, the Bahamas liquidation process may beBetter choice. The liquidation teams of the two countries reached a settlement in December 2023, pledging to coordinate asset allocation to ensure that the amount and time of compensation are consistent (including principal and 9% annual interest). Compared with the US procedure, the Bahamas' legal framework provides more complete protection for foreign creditors when dealing with cross-border bankruptcy, which may better fit the actual situation of creditors and maximize the avoidance of compliance conflicts in US procedures.

In the declaration process, there are some points that need to be paid attention to: make the most beneficial choices based on the nature of your own creditor's rights, creditor's rights disputes, etc., and do not act recklessly. At the same time, if your debt amount is large (such as more than hundreds of thousands of dollars), or your English level is limited, it is highly recommended to hire a professional lawyer. A lawyer can not only prepare application materials on his behalf, save time, but also provide the best advice based on your specific situation to avoid missing opportunities due to operational errors.

Recalling the history of crypto exchanges after the bursting, such as Mt. Gox, FTX can achieve a higher proportion of compensation after bankruptcy, which is generally a progress. This involves the differences in multiple factors such as asset management, liquidation efficiency, legal framework and market environment.

Asset addition is powerful. Although FTX founder SBF (Sam Bankman-Fried) was convicted of misappropriating client funds, the funds were not completely exhausted, and many were invested in realizable assets rather than completely disappearing. As of March 11, 2025, the liquidation team recovered $14.5 billion to $16.3 billion, enough to cover all customers' principal (at the value of the US dollar at the time of bankruptcy in November 2022) and attached 9% interest. These assets include cash, cryptocurrency and equity investments (such as Anthropic shares, which will make a profit of approximately US$1 billion in 2024). The efficient liquidation mechanism of the US Bankruptcy Act (Chapter 11) also provides strong support for asset additions.

Get the market opportunity accurately. FTX crashed in November 2022, at a time when the crypto market trough (Bitcoin is about $16,000). The liquidation team sold assets during the market recovery period from 2024 to 2025 (the price of Bitcoin rose significantly), significantly increasing the recovery value. Mentougou missed a similar opportunity, resulting in a shortage of compensation.

Modern regulatory and technical support. When FTX went bankrupt, blockchain tracking technology (such as Chainalysis) was mature, helping liquidation teams lock in the flow of funds. At the same time, strict regulatory and judicial oversight in the United States (11 U.S.C. §1123 Creditor Equality Principle) ensures that customer rights are preferred. Mentougou is severely lost due to assetsHeavy (850,000 Bitcoins were stolen), liquidation delays for nearly ten years and technology backwardness can only pay 15%-20% of the losses.

Web3 advocates decentralization, but still relies on centralized entities in actual operation. Only a mature regulatory environment can provide investors with practical guarantees. FTX's compensation ability is a reflection of this logic.

Creditors are not completely hopeless, and FTX's relatively sufficient funding pool and ongoing liquidation provide the basis for compensation. Choosing the Bahamian program, leveraging professional assistance and keeping a close eye on the dynamics is the key to protecting rights. Although the decentralized ideal of Web3 is beautiful, in reality, a centralized legal framework is needed to be the last line of defense for investors. If professional attorneys are required during the process, you can contact a lawyer Mankun.