On March 2, 2023, the FTX debtor released its second stakeholder presentation, including a preliminary analysis of the now-defunct cryptocurrency exchange’s shortfall. The latest presentation reveals a significant shortfall, with approximately $2.2 billion of the company’s total assets found in FTX-related addresses, but only $694 million considered “Category A assets,” or liquid cryptocurrencies such as Bitcoin, Tether, and Ethereum. John J. Ray III, the current CEO of FTX, also said that the debtor’s efforts were significant, adding that the exchange’s assets were “very mixed.”
Preliminary summary of factors contributing to FTX’s $8.9 billion shortfall
FTX debtor and CEO John J. Ray III has released a comprehensive presentation documenting FTX’s shortfall. The preliminary report refers to a cyber attack that occurred the day after FTX filed for Chapter 11 bankruptcy protection on November 11, 2022. In a now-deleted Telegram chat channel, FTX US General Counsel Ryne Miller explained that the exchange had been hacked and the platform was insecure. Preliminary shortfall analysis mentions this particular cyber-attack throughout.
We also note that both FTX and FTX US typically held their digital assets in sweep wallets, which were not segregated for individual customers. The debtor noted that its computing environment remained protected and “subject to certain restrictions” because of the cyberattack, limiting access to critical data. The report categorizes FTX’s holdings into two groups. Category A assets, which have large market capitalization and trading volume, and Category B assets, which do not meet the liquidity requirements of Category A assets.
However, despite identifying all assets, a shortfall of $8.9 billion remains.” The report states that “there is a significant shortfall in the FTX.com exchange at the time of filing, defined as the difference between the digital asset claims on the FTX.com ledger and the digital assets available to satisfy those claims.” The shortfall is particularly pronounced for Category A assets: there are only small amounts of cash, stable coins, [Bitcoin], [Ethereum], and other Category A assets remaining in wallets pre-associated with the FTX.com exchange.”
The report is as follows.
