Title: FTX’s Bankruptcy Sale of SOL Tokens Draws Attention in the Crypto Community
Author: Nina Bambysheva, Forbes Reporter
Translated by: Luffy, Foresight News
When FTX filed for bankruptcy, savvy cryptocurrency traders sniffed out a profitable opportunity. Sam Bankman-Fried’s (SBF) cryptocurrency empire had lost billions of dollars in customer funds but still held various cryptocurrencies worth $3.4 billion. This inheritance had to be sold to satisfy creditors’ claims and was likely to be sold at a significantly lower price than the market value.
Most companies responsible for managing bankrupt assets have little to no experience with cryptocurrencies, and early attempts at consolidating funds sometimes result in embarrassing losses of tens of thousands of dollars. In September 2023, bankrupt FTX enlisted the help of billionaire Michael Novogratz’s Galaxy Digital Holdings’ asset management division to assist in managing its vast cryptocurrency reserves, including selling, hedging, and pledging cryptocurrencies. This process allowed token holders to earn passive income by validating transactions added to the blockchain network.
FTX held approximately one-third of its cryptocurrencies in the form of SOL, the native token of the Solana blockchain advocated by SBF. According to the Solana Foundation, from August 2020 to May 2021, Bankman-Fried’s company purchased nearly 60 million SOL, with most of it locked up. By late August, the trading price of SOL was around $20 per token, but by the end of the year, its price had quintupled, exceeding $100. It seemed that if FTX could quickly liquidate its SOL and other assets, it could fully satisfy its clients’ claims (calculated at the USD value on the application date), a rarity for creditors in major bankruptcy cases.
It is worth noting that most of the tokens owned by SBF are locked, meaning they can only be sold in monthly batches between 2025 and 2028. Such long-term vesting plans typically result in tokens being auctioned off at a substantial discount to compensate buyers for the significant risks associated with cryptocurrency volatility. However, the potential returns could be enormous. Galaxy’s trading division was one of the buyers at the FTX asset auction.
In the fall of 2023, the debtors faced a daunting task. Rapidly selling billions of dollars worth of SOL would disrupt an already volatile market, and the crypto market was just beginning to recover from the damage caused by FTX’s collapse. Consequently, after consulting with Galaxy Asset Management, FTX chose to conduct multiple auctions to sell off the assets separately.
The first batch of SOL tokens (ranging from 25 to 30 million) was sold at the end of March for over 60% below the market price of SOL at the time. Only a few companies purchased the auctioned tokens, including hedge fund Pantera Capital and Neptune Digital Assets.
According to an insider familiar with the transaction, undisclosed buyers in the first auction also included Brevan Howard Digital, venture capital firm Multicoin Capital, and the Solana Foundation. The Solana Foundation is a non-profit organization headquartered in Zug, Switzerland, initially established by the developers behind the creation of the blockchain, dedicated to the development and security of the Solana network.
However, Galaxy, led by Novogratz, was also one of the first buyers of locked SOL tokens from FTX. According to Bloomberg, Galaxy Trading purchased tokens for a special purpose fund representing investors, which raised approximately $620 million and charged a 1% management fee. Assuming Galaxy’s fund traded at a discounted price of $64 per token, it would eventually acquire 9,687,500 SOL tokens. Pantera, which also participated in the bidding, created a similar fund to purchase up to $250 million worth of SOL. Based on current prices, Galaxy’s fund is estimated to have made a paper profit of $1.03 billion from the 97 million tokens it is projected to have acquired.
In the second auction held in late April, FTX sold 1.8 million SOL tokens with winning bids ranging from $95 to $110 per token (15% to 26% below market price). According to The Block, Galaxy Trading once again raised funds from investors for this auction, with the minimum commitment cap set at $5 million. Pantera also participated in the auction. The final batch of SOL was sold on May 22, attracting Pantera and the newly established cryptocurrency exchange Figure Markets. Figure acquired 800,000 tokens at $102 per token, approximately 42% lower than the recent market price of $177. The potential profit from the second auction is estimated to exceed $130 million based on current prices.
When details of the first auction emerged, many FTX creditors and other bidders were surprised. “It looks really bad when the buyer and seller of your house are involved in the same transaction,” said an anonymous source familiar with the sales.
“It’s not uncommon for multiple stages of sales or liquidation activities to involve investment banks, as is the case here,” said Rob Hadick, a general partner at Dragonfly, a risk investment company specializing in cryptocurrencies. “Having said that, it’s obviously not good and will draw attention from the creditors’ committee… concerns about unfair information access and shaky price discovery are valid.”
A spokesperson for Galaxy declined to comment on the specifics of the SOL token sales and its dedicated fund, redirecting Forbes to contact FTX instead. It is currently unclear how much profit Galaxy’s Novogratz will make from the FTX bankruptcy restructuring. Galaxy Digital’s stock is traded on the Toronto Stock Exchange and has risen by 161% in the past 12 months, with a current market capitalization of $3.6 billion. According to the company’s first-quarter financial report, as of March 31, Galaxy held $104.1 million in investments from the Galaxy Digital Crypto Vol Fund, a fund that made significant purchases of SOL from FTX assets this quarter.
FTX’s official Unsecured Creditors Committee, comprised of former customers and market makers of the exchange, has approved the token sales. An FTX spokesperson released a statement supporting Galaxy’s dual role in the bankruptcy restructuring:
“The bankruptcy court has approved the retention of Galaxy Asset Management, which has been subject to review by interested parties (with no objections received), including the ability for Galaxy to transact with Galaxy-affiliated entities… The prices paid by Galaxy-affiliated entities for Solana are the same as or higher than those paid by other buyers, and all Solana sales have been approved by the Unsecured Creditors Committee and the Non-US Customer Special Committee. The sales to Galaxy under the framework approved by the court do not involve any conflicts of interest, and any reports to the contrary are false.”
Despite this, some FTX creditors and customers continue to complain. Sunil Kavuri, a former customer of FTX who invested over $2 million in the exchange and is a member of the unofficial “Non-US Customer Special Committee,” consisting of over a thousand former FTX customers, voiced his grievances: “I think the people in charge of handling the bankruptcy assets have lost over $10 billion. So, it’s more than the initial losses caused by SBF. The biggest loss is Solana.”
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