• FTX has recently filed for Chapter 11 bankruptcy, disclosing a “massive shortfall” in assets.
• The identified deficit between customer payables and total assets was $1.6 billion in bitcoin and $870 million in ether.
• This article provides an analysis of FTX’s most recent bankruptcy documents and its MAPS problem.
FTX Bankruptcy Documents Analysis
FTX has recently filed for Chapter 11 bankruptcy, citing a “massive shortfall” in assets worth $2.2 billion and counting. A presentation was made by the exchange detailing the asset categories of Category A (tokens with a market capitalization of at least $15 million and an average daily trading volume of at least $1 million) and Category B (tokens that do not meet those criteria or are largely held or controlled by the estate).
Category A Assets
Category A assets include cryptocurrencies such as Bitcoin (BTC), Ether (ETH) and cash. According to the filing, the identified deficit between customer payables, which are customer balances, and total assets was $1.6 billion in Bitcoin and $870 million in Ether.
The MAPS problem is an acronym for Margin Account Protection System which is meant to protect customers from losses due to forced liquidations on margin positions taken out with borrowed funds from the exchange itself. While this system theoretically should have been able to protect customers from losses due to price fluctuations, it appears that it failed spectacularly in this case due to either fraudulent activity or mismanagement of funds by FTX’s leadership team.
The magnitude of these deficits could have serious consequences for investors who had their funds locked up at FTX during its bankruptcy proceedings. It also raises questions about whether there were any other potential liabilities that may be revealed when more details become available during the course of FTX’s bankruptcy process.
As John J Ray III leads FTX through bankruptcy proceedings, more details will be revealed about how exactly this massive deficit came about – whether it be through fraudulent activity or mismanagement of funds by FTX’s leadership team remains to be seen – but one thing is clear: FTX’s creditors will likely bear significant losses as a result of these findings outlined in their bankruptcy filings.