Update on FTX Debt Compensation Plan, Chinese Users May Face Loss of Claim Rights

Recently, the FTX creditors' representative released the latest update on the compensation situation. According to the plan, on February 18, 2025, users with claims of less than $50,000 will receive a compensation rate of 120%. On May 30 of the same year, users with claims exceeding $50,000 will receive 72.5% compensation, while small claim users will still maintain a compensation rate of 120%. The expected distribution dates for future compensation are October and December 2026, as well as 2027. For large claim users who have already received 72.5% compensation, they will subsequently receive a compensation of 27.5% of the face value, ultimately achieving 100% compensation. It is worth noting that the interest rate for FTX creditors after applying for compensation is approximately between 40-80%.

However, just as creditors were expecting to receive compensation smoothly, new issues have arisen regarding the claims of creditors against FTX. On July 4, a representative of the creditors stated on social media that creditors from 49 jurisdictions, including China, may lose their right to claim. The claims of creditors from these regions account for 5% of the total funds, worth approximately $825 million, of which 82% belongs to Chinese creditors, with the value of claimable assets approximately $676.5 million.

The creditor representative stated that FTX will seek legal advice to make distributions to restricted foreign jurisdictions. However, if it is determined that users belong to restricted foreign management areas, claims will be contested. Users have 45 days to file objections, but if the issue is not resolved, users will completely lose their entitlement to distribution, and their compensation share will be confiscated and returned to the FTX liquidation trust for distribution to other legitimate creditors in various countries and regions.

In fact, as early as February 18, when FTX began compensating small users, it stated that users from China, Russia, Egypt, Nigeria, and Ukraine would temporarily be unable to participate in the claims distribution. Among them, Chinese users account for the largest number, making up 8% of FTX's total user base.

In response to this situation, some affected users have stated that they will take legal action. Some users pointed out that although cryptocurrency trading is not supported in mainland China, residents are allowed to hold cryptocurrencies, and the law recognizes the commodity nature of virtual currencies. At the same time, the compensation process is settled in US dollars, and residents of mainland China are allowed to hold US dollars abroad, despite foreign exchange control restrictions.

For Chinese creditors, taking legal action requires weighing the costs and benefits. For large creditors with significant losses, legal avenues may be a viable option. However, for smaller users, the claim amount might not justify the legal costs.

Currently, multiple third-party platforms have emerged in the market to provide debt sale services for FTX creditors. These platforms offer various solutions, including selling debts, transferring debts to overseas entities, transferring debts in the name of overseas trustees, and changing residency, among others.

Some platform leaders have reported a noticeable increase in inquiries after news emerged that the claims of Chinese users against FTX are limited. However, it is estimated that there may be only over 1,000 users among Chinese creditors whose amounts exceed $50,000, and many large clients have already handled their claims through various channels.

For the affected users, waiting for years and possibly not receiving compensation is undoubtedly a heavy blow. In this case, sacrificing a certain amount to achieve partial recovery of funds may be a reluctant choice. However, faced with complex legal procedures and high attorney fees, creditors in China encounter numerous difficulties in safeguarding their rights.