FTX creditors set to receive over $5 billion in recovery plan payout handled by Kraken and BitGo

Creditors of the defunct FTX exchange are set to receive the second phase of payouts after a long-awaited bankruptcy resolution. FTX Trading and the FTX Recovery Trust (collectively FTX) announced on Thursday that the company will distribute over $5 billion to creditors starting May 30.

FTX to distribute $5 billion to creditors via Kraken and BitGo

FTX Recovery Trust, the entity overseeing the bankruptcy proceedings, has confirmed that holders of allowed claims under the Chapter 11 Plan will be eligible to receive between 54% and 120% of their original claims based on their classification in the Convenience and Non-Convenience Classes.

The second distribution phase provides that "allowed Class 5A Dotcom Customer Entitlement Claims will receive a 72%" of their original claims. United States (US) Customer Entitlement Claims allowed under Class 5B will receive a 54% distribution. 

At the same time, the allowed "Unsecured Claims and 6B Digital Asset Loan Claims Classes 6A General" are entitled to receive 61% of the original claims, with the last category, "allowed Class 7 Convenience Claims" receiving a 120% distribution."

Two cryptocurrency exchanges, Kraken and BitGo, have been tapped to facilitate massive payouts. The platforms have been directed to ensure funds reach eligible creditors within one to three business days from May 30.

However, creditors in certain restrictive jurisdictions like New York, Washington and Maine could encounter limitations as Kraken and BitGo face operational constraints in these regions.

John J. Ray III, the Plan Administrator, described the distribution as "unprecedented," reflecting the complexity of managing claims for more than a million creditors.

"These first non-convenience class distributions are an important milestone for FTX," Ray said. "The scope and magnitude of the FTX creditor base makes this an unprecedented distribution process, and today's announcement reflects the outstanding success of the recovery and coordination efforts of our team of professionals. Our focus remains on recovering more for creditors and resolving outstanding claims," he added.

Creditors qualify by completing all pre-distribution steps, including know your customer (KYC) verification, tax form submissions and onboarding with Kraken or BitGo.

The second distribution marks a major milestone in FTX's recovery effort, which started after the firm filed for bankruptcy in November 2022 alongside Alameda Research, its trading arm, and more than 100 affiliates in Delaware. 

FTX's collapse was triggered by an exclusive report published by CoinDesk on November 2, 2022, which revealed Alameda's unhealthy reliance on FTX's FTT token, thus sparking massive customer withdrawals. The report exposed a staggering $8 billion shortfall, resulting in insolvency and a subsequent liquidity crisis.

The cryptocurrency market remains broadly stable, consolidating after a nearly two-week rally led by Bitcoin (BTC) 's surge above $100,000 and supported by improved sentiment amid easing trade tensions between the US and China.