The defunct cryptocurrency exchange, FTX, is currently in the process of seeking regulatory approval to liquidate a staggering $3.4 billion worth of cryptocurrency assets. In addition to this monumental endeavor, FTX’s legal team has initiated legal action against LayerZero, an on-chain interoperability protocol, in a bid to recover lost assets totaling a substantial $21 million.
The Decision Date Approaches
On September 13, Delaware Bankruptcy Court officials will render their verdict on approving the $3.4 billion asset sale submitted by FTX’s legal team. This proposal, originally outlined in August, lays out a plan that designates Mike Novogratz’s Galaxy Digital as the investment manager responsible for the sale. According to the plan, FTX will have the opportunity to sell up to $100 million worth of tokens per week, with the possibility of increasing this limit to $200 million for individual tokens.
As of January 2023, FTX’s cryptocurrency holdings comprise a diversified portfolio, including $685 million in locked Solana tokens, $529 million in FTT tokens, $268 million in Bitcoin, $90 million in Ethereum, and various other assets such as Aptos ($67 million), Dogecoin ($42 million), Polygon ($39 million), XRP ($29 million), and stablecoins. Additionally, an extra $1.2 billion is held in cryptocurrencies on third-party exchanges.
Market Insights and Predictions
Regarding the potential market impact of this massive sale, industry experts are offering their insights. Evgen Verzun, Founder of multi-chain asset management platform Kaizen.Finance, pointed out, “Prior similar incidents of large-volume sales, including the recent one by Vitalik Buterin, had a major influence on the cryptocurrency market, and we noticed drawdowns even before the sale began. This time is no different, and I anticipate the market to follow suit: we will see a decline until the selling begins.”
At the time of writing, SOL was down by 4%, as reported by CoinGecko. Nevertheless, some market analysts believe that the impending sell-off may have a different outcome. Crypto market intelligence firm Messari argues, “The relevant figure isn’t the absolute value of the tokens held, but rather their amount relative to each asset’s actively traded volume. While $SOL and $APT have sizable USD figures and relative market volume impacts, these assets are held on the Alameda and venture side of the house and are largely comprised of vesting tokens that are not immediately liquid in open markets.”
This sentiment is echoed by other experts, including Crypto Rand, a trader at RR2 Capital, who noted that SOL tokens are locked in a vesting schedule until 2025 at the earliest. Consequently, any potential buyer would have to comply with this vesting schedule, which “will not have an impact on the short-term price.”
Legal Battle with LayerZero
The fate of LayerZero appears to be less certain. Court documents filed on September 9 in the United States Bankruptcy Court in the District of Delaware allege that the protocol withdrew a substantial sum of $21.37 million from FTX in the weeks leading up to its collapse.
FTX’s legal team contends that this withdrawal was part of an agreement between the exchange and LayerZero, which involved Alameda’s venture capital arm paying $70 million in two transactions between January and May 2022 to acquire a 4.92% stake in LayerZero. FTX accuses the protocol of acting in bad faith and has filed four counts of fraudulent transfers, four counts of preferential transfers, one count of disallowance of claims, and one count of property recovery against LayerZero.
Notably, LayerZero made significant withdrawals of APT, AVAX, BNB, BUSD, FTM, MATIC, USDC, and USDT from FTX, which FTX’s legal team is diligently working to recover. Furthermore, the exchange seeks to recover $13.07 million from LayerZero’s former chief operating officer, Ari Litan, and an additional $6.65 million from a subsidiary, Skip & Goose, after assets were transferred to wallets under their control.
In conclusion, FTX’s ambitious efforts to liquidate $3.4 billion in crypto assets and the ongoing legal battle with LayerZero are poised to reshape the cryptocurrency landscape. The decisions made in the coming weeks will undoubtedly reverberate throughout the industry, influencing both market dynamics and investor sentiment.