The FTX verdict is in. U.S. District Judge Peter Castel has approved a $12.7 billion deal that requires the bankrupt exchange FTX and its sister company, Alameda Research, to pay their debts.

On August 7, 2024, a ruling was made that ended a long-running legal dispute with the U.S. Commodity Futures Trading Commission (CFTC), which arose after FTX’s sudden drop in late 2022.

The deal is a major step in addressing the financial woes stemming from one of the biggest corporate disasters in crypto history.

$8.7 billion has been set aside for investors who were misled by former CEO Sam Bankman-Fried. The proposed settlement would see the full $12.7 billion distributed to repaying FTX creditors.

BREAKING: FTX & ALAMEDA GRANTED FINAL APPROVAL, ORDERED TO PAY BACK $12.7 BILLION TO FTX CREDITORS photo.twitter.com/kf3QlJVIuB

— Kyle Chassé (@kyle_chasse) August 8, 2024

In addition, as part of the settlement, the remaining $4 billion will be transferred. This choice coincides with FTX being led by restructuring specialist John Ray III as he navigates the bankruptcy process.

General terms and conditions for settlement

The settlement is notable because it does not impose civil penalties on Alameda or FTX, which has fueled debates over liability following their demise. Rather, the focus is on speeding up the repayment process for creditors who lost significant amounts of money during the companies’ collapse. One of the major creditors in this situation, the CFTC, heavily influenced the terms of the settlement.

The agreement also prohibits companies from using deceptive tactics in relation to digital asset trading and consumer commodities. This action is intended to stop current misconduct and restore investor confidence in the digital currency space.

Creditor Recovery and Future Prospects

The deal offers creditors a potential path to get their money back. It includes a reorganization plan that would return 118% to 98% of creditors with claims under $50,000, based on FTX’s asset prices in November 2022, when it filed for bankruptcy.

Some creditors, on the other hand, want to be paid in cryptocurrencies. Since the bankruptcy, these have increased by 150%.

Creditors must choose between bitcoin and fiat currency by August 16. U.S. Bankruptcy Court Judge John Dorsey will decide how to distribute the settlement, based on market prices.

The broader impact of the FTX collapse

The collapse of FTX has resonated worldwide and had a huge impact, especially in the cryptocurrency sector. People are calling for stricter regulations and more government investigations because of this. Investors lost a lot of money when the company went bankrupt and as a result, people lost confidence in digital asset markets.

The crypto market will be closely watching the events surrounding FTX and Alameda as the settlement progresses. The outcome of this case could set a standard for future bankruptcy proceedings involving crypto companies, highlighting the need to establish effective systems designed to protect investors.

The approval of the $12.7 billion settlement marks a turning point in the ongoing saga of FTX and Alameda. It offers hope to creditors trying to recover their investments and underscores the urgent need for change in the crypto sector.

Main image by Michael M. Santiago/Getty Images, chart by TradingView