Chinese creditors are not completely without hope; FTX's relatively ample fund pool and ongoing liquidation provide a basis for compensation.
Written by: Niu Xiaojing, Liu Honglin
What happened with the FTX collapse?
Some friends may still be confused about the "FTX collapse." Don't worry; let me briefly outline the background first. Those familiar with the event can skip to the next section 👇.
In November 2022, a shocking drama unfolded in the cryptocurrency world: the world's second-largest exchange, FTX, announced its bankruptcy without warning. Founded by the "genius" Sam Bankman-Fried (abbreviated as SBF), this platform was once a shining star in the industry, valued at up to $32 billion, but collapsed overnight due to fund misappropriation and chaotic management, leaving hundreds of thousands of users and a debt black hole exceeding $10 billion. SBF was ultimately sentenced to 25 years in prison by a U.S. court, while the FTX liquidation team staged a "comeback," miraculously recovering between $14.5 billion and $16.3 billion, promising to do their best to compensate customers. This "collapse" shocked the world and left Chinese users, who account for 8% of the total, in a difficult position—due to regulatory restrictions, they were blocked from the compensation door.
Will Chinese creditors receive compensation?
According to reports from PANews, Chinese customers have been excluded from the compensation plan due to China's regulatory environment. China announced in notices in 2017 and 2021 that virtual currency trading is an illegal financial activity and is not protected by law, which poses compliance risks for FTX in compensating Chinese customers. Although Chinese customers account for 8% of FTX's total user base (according to the South China Morning Post), they are still considered ineligible for compensation in the current U.S. bankruptcy proceedings.
The compensation process after FTX's bankruptcy has entered the phase of distributing small claims, but due to jurisdictional barriers and compliance risks, Chinese users are currently excluded. Does this mean that Chinese creditors are completely without hope? We believe not. The situation is far more complex than it appears, and there is still hope. The compensation issue for Chinese users may be delayed, but it is unlikely to be completely excluded.
How to file a claim?
The FTX bankruptcy case involves two parallel legal processes: the Chapter 11 bankruptcy process in the U.S. and the liquidation process in the Bahamas. The former is led by FTX in the Delaware court, while the latter involves its Bahamian subsidiary, FTX Digital Markets Ltd. The choice of which process to file a claim under directly determines whether you can successfully reclaim your rights.
For Chinese creditors, the Bahamian liquidation process may be the better choice. The liquidation teams of both countries reached a settlement in December 2023, promising to coordinate asset distribution to ensure that the compensation amounts and timelines are consistent (including principal and 9% annual interest). Compared to the U.S. process, the legal framework in the Bahamas provides better protection for foreign creditors in handling cross-border bankruptcies, which may better fit the actual situation of Chinese creditors and maximize the avoidance of compliance conflicts in the U.S. process.
During the filing process, there are several points we need to pay attention to: make the most beneficial choice based on the nature of your claim, any disputes, etc., and do not act recklessly. Additionally, if your claim amount is large (for example, exceeding several hundred thousand dollars) or if your English proficiency is limited, it is strongly recommended to hire a professional lawyer. A lawyer can not only prepare the filing materials on your behalf, saving time, but also provide the best advice based on your specific situation to avoid missing opportunities due to operational errors.
Why can FTX compensate?
Looking back at the history of cryptocurrency exchange collapses, such as Mt. Gox, FTX's ability to achieve a relatively high compensation rate after bankruptcy is overall a progress. This involves differences in asset management, liquidation efficiency, legal frameworks, and market environments.
Asset recovery is strong. Although FTX founder SBF (Sam Bankman-Fried) was convicted of misappropriating customer funds, the funds were not completely exhausted; many were invested in liquidable assets rather than disappearing entirely. As of March 11, 2025, the liquidation team had recovered between $14.5 billion and $16.3 billion, enough to cover all customer principal (based on the dollar value at the time of bankruptcy in November 2022) plus 9% interest. These assets include cash, cryptocurrencies, and equity investments (such as shares in Anthropic, which are expected to yield about $1 billion in profits when sold in 2024). The efficient liquidation mechanism of U.S. bankruptcy law (Chapter 11) also provides strong support for asset recovery.
Market timing was precise. FTX collapsed in November 2022, right at the low point of the cryptocurrency market (with Bitcoin around $16,000). The liquidation team sold assets during the market recovery period in 2024-2025 (when Bitcoin prices significantly increased), greatly enhancing recovery value. In contrast, Mt. Gox missed a similar opportunity, resulting in limited compensation amounts.
Modern regulation and technological support. At the time of FTX's bankruptcy, blockchain tracking technology (such as Chainalysis) had matured, helping the liquidation team track the flow of funds. Meanwhile, strict U.S. regulations and judicial oversight (11 U.S.C. §1123 principle of equal treatment of creditors) ensure that customer rights are prioritized. In contrast, Mt. Gox suffered severe asset losses (850,000 Bitcoins were stolen), liquidation was delayed for nearly a decade, and technology was outdated, allowing only 15%-20% of losses to be compensated.
Web3 advocates decentralization, but in practice, it still relies on centralized entities. A mature regulatory environment is essential to provide real protection for investors. FTX's compensation capability is a reflection of this logic.
Summary by Lawyer Mankun
Chinese creditors are not completely without hope; FTX's relatively ample fund pool and ongoing liquidation provide a basis for compensation. Choosing the Bahamian process, seeking professional assistance, and closely monitoring developments are key to protecting rights. While the ideal of decentralization in Web3 is beautiful, in reality, relying on a centralized legal framework is the last line of defense for investors.
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