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The bankruptcy of Sam Bankman-Fried’s FTX.com put an end to questions about its survival and opened a panoply of new ones, most urgently: how far will the influence of its collapse reach?
Overstating FTX’s heft in the cryptosphere is difficult. From blue-chip venture investors to celebrity endorsements, from Silicon Valley to Washington, from lenders to yield farmers and market makers, the three-year-old firm cut a wide swath through online commerce. Getting a handle on the repercussions of its demise is apt to take months.
“The big fear right now, that indeed seems to be materializing, is a contagion effect,” said Greg Magadini, director of derivatives at Amberdata, a blockchain data provider.
Painfully, the least sophisticated of FTX’s constituencies — people who put money on the exchange to trade or even just to save — may end up bearing the deepest wounds. Bankruptcies like the one it filed Friday in Delaware are notoriously slow-moving processes in which claims on a firm’s remains are judged against a host of stakeholders.
It’s likely a judge will decide what happens to the everyday traders who had money on the platform, according to Owen Lau, an analyst at Oppenheimer & Co..
“We don’t have precedents,” said Lau. According to Lau, a court could rule that retail customers could be treated like general unsecured creditors, meaning that their priority for getting money back would fall below creditors, most of whom are institutional players.
