FTX’s Plan to Liquidate Billions in Crypto Holdings: Implications and Insights

FTX is facing a pivotal week, with its legal team engaged in multiple high-stakes legal battles. The exchange is seeking regulatory approval to liquidate $3.4 billion in crypto assets, while simultaneously pursuing legal action against LayerZero, an on-chain interoperability protocol, to recover lost assets amounting to $21 million.

On September 13, officials from the Delaware Bankruptcy Court are expected to rule on FTX’s request to approve a $3.4 billion asset sale, as proposed by the exchange’s legal team. This plan, initially outlined in August, involves appointing Galaxy Digital, led by Mike Novogratz, as the investment manager responsible for the asset sale. Under the proposal, FTX would be permitted to sell up to $100 million worth of tokens per week, with the possibility of increasing the limit to $200 million for individual tokens.

As of January 2023, FTX’s crypto holdings are estimated to include $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. An additional $1.2 billion is held in crypto on third-party exchanges.

The prospect of such a substantial sell-off has garnered attention from market observers. Evgen Verzun, the founder of multi-chain asset management platform Kaizen.Finance, noted that previous large-volume sales, including one by Vitalik Buterin, had a significant impact on the cryptocurrency market. Verzun anticipates a decline in the market ahead of the sale.

Crypto market intelligence firm Messari, however, suggested that the impact of the sale would depend on the relative amount of each asset to its actively traded volume. Some assets held by FTX, such as SOL and APT, have sizable USD figures but are largely comprised of vesting tokens that are not immediately liquid in open markets. This factor may mitigate short-term price effects.

In addition to the asset sale, FTX is embroiled in a legal dispute with LayerZero. FTX alleges that LayerZero withdrew $21.37 million from the exchange in the weeks leading up to its collapse. According to court documents, this withdrawal was part of an agreement between FTX and LayerZero, where Alameda’s venture capital arm paid $70 million to acquire a stake in LayerZero.

FTX claims that LayerZero acted in bad faith and is suing for fraudulent transfers, preferential transfers, disallowance of claims, and property recovery. LayerZero is said to have withdrawn significant sums of various cryptocurrencies from FTX, including APT, AVAX, BNB, BUSD, FTM, MATIC, USDC, and USDT, which FTX aims to recover. Furthermore, FTX seeks to recover $13.07 million from LayerZero’s former COO, Ari Litan, and $6.65 million from a subsidiary, Skip & Goose, alleging that assets were transferred to wallets under their control.

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