Unchained - Will FTX Customers Ever Recover Their Assets? Two Insolvency Experts Weigh In - Ep. 420

Episode Date: November 15, 2022

Wassielawyer, a lawyer specializing in restructuring and insolvency, and Thomas Braziel, founder and CEO of 507 Capital, talk about the bankruptcy of FTX.  Show highlights: what the bankruptcy process of FTX is expected to look like why FTX got to the the point of filing for bankruptcy protection why Wassie thinks Alameda is dead why FTX filed for bankruptcy in the US given that it's a Bahamian company how FTX's balance sheet is composed and whether it includes Alameda whether Justin Sun will be dragged into the bankruptcy how FTX's terms of service differ from Celsius’s and Voyager’s how the $600 million hack affects the bankruptcy proceeding whether it's worth it to spend millions of dollars in law firms to go after the hacked money what's the impact of the 192 million FTT tokens that were printed Saturday night what will happen with the fork of Serum and the forked tokens the consequences for all the projects that FTX invested in why Wassie thinks that tokenizing the liabilities could be a good potential solution how the FTX's bankruptcy affects Voyager's proceedings and customers whether FTX’s bankruptcy has put BlockFi in trouble Take Unchained's 2022 survey!   Unchained is doing its annual survey. Tell us how you think we’re doing and how we could improve, whether it be on the podcast, in the newsletter, or in our premium offering. Looking forward to hearing your thoughts!  Thank you to our sponsors! Crypto.com Chainalysis Minima Wassielawyer: Twitter Thread on community buyout Previous Unchained episodes: Why the Messy 3AC, Celsius, and Voyager Bankruptcies Will Drag on for Years Three Crypto Bankruptcies: 3AC, Celsius and Voyager. What Happens Now? Thomas: Twitter 507 Capital Previous Unchained episodes: Will Celsius Survive the Bankruptcy Process? Episode Links Previous coverage of Unchained on FTX: Erik Voorhees and Cobie on Why FTX Loaned Out Customers’ Assets The Chopping Block: FTX: The Biggest Collapse in the History of Crypto? Sam Bankman-Fried on How to Prevent the Next Terra and 3AC FTX Collapse: FTX filed for Chapter 11 bankruptcy protection Sam Bankman-Fried built a "backdoor" to his FTX exchange to change financial records and move funds without alerting others. $600 million hack Unchained coverage: The Bahamas Loophole: FTX Users Buy KYC Accounts to Withdraw Crypto Could FTX’s Bankruptcy Trigger a Domino Effect? FTX May File for Bankruptcy After Binance Walks Off the Deal FTX Needs $8B to Meet Investor Withdrawals: Report Tron Founder Justin Sun Says He Is Working With FTX on a Solution US DOJ Joins SEC and CFTC Probe of FTX FTX-Issued Wrapped Solana Tokens Could Add to DeFi Contagion: wBTC Creator Sequoia Capital Writes Off $214M FTX Investment to Zero Contagion: Serum Fork in the Works Amid Fears That FTX-Owned Upgrade Keys Are Compromised BlockFi Halts Withdrawals Amid FTX Crisis Voyager had to reopen the bidding process for its assets Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor of Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the November 15th, 2022 episode of Unchained. We want your input on Unchanged. Tell us what you like about the show, plus any ideas you want to see, whether it's for the podcast, our daily newsletter, or our pre-chained. premium offering. Visit surveymonkey.com slash R slash unchained 2022. Minima is a new layer one blockchain designed to run in full on a smartphone. Join over 300,000

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Link in the description. Today's topic is the bankruptcy of FTX. Here to discuss our Wasi lawyer, a lawyer specializing in restructuring and insolvency, and Thomas Brazil, founder and CEO of 507 Capital. Welcome Wasey and Thomas. Hi, Laura. I honestly, I'm glad to be back, but not really. Thanks for having me on.

Totally get it. To catch listeners up since Friday's episode, we'll just start with the very basic development that prompted this episode, which is that FTX, FtX, U.S., and Alameenia. as well as other entities totaling about 130 altogether are all filing for bankruptcy. There are more than 100,000 creditors, and according to the block, there's $8.7 billion in assets. However, it looks like also a good chunk of it is missing. Why don't we start with just what the basic bankruptcy process will look like? Sure.

I guess I'm like the American bankruptcy person here. Less crypto, more bankruptcy. Yeah, so they filed them down. Delaware, not that surprising. I guess people were maybe thinking since they were Bahamian or predominantly Bahamian that they would file in the Bahamas. The Bahamian cases I've been involved in were not pretty for a number of reasons. I think the laws are a bit restrictive and actually I'm glad they filed in Delaware, or at least in the States. The Chapter 11 process is very used to dealing with complex sophisticated cases. You have Voyager and Celsius already going on in Southern District of New York.

this in Delaware. There won't be many differences. There are some differences in how things are interpreted from like federal district to federal district, but for the most part, it's, you know, federal bankruptcy law. I don't know if we want to go into this, but the petitions were basically empty, which is pretty shocking. You don't always see that. It shows you the speed with which the whole thing unraveled, or at least the maybe the unorganized nature with which FDX was even run, with like not real proper governance structure boards, things like that in place. So there's a lot of information that hasn't come out. I'll just talk about the bankruptcy side.

The petitions are generally filed with petitions, board resolutions. You have your top 20 or 30 creditors, depending upon the district you're in. So it's all top 20 creditors, unscrued creditors. And then you normally have a whole slew of what are called first day motions as well as the first day declaration from the CFO or CEO or founder, a majority shareholder, something like that, some executive officer of the company. None of that stuff was there. They're all blank. Just we're going to file. Here's our emergency petition. We've got no information, you know, to file here this morning. And, you know, we just need protection now. I assume it was because of the backdoor of the Bahamas, people basically taking money off through the Bahamas through the Bahamas, through the Bahamas, people basically taking money off, either accounts or I guess there was some NFT swapping that allowed people to take money off as well through the Bahamas. So people were, there was a real little subunit of people. that were doing this and maybe Lazi, you maybe have some, more color than I do on that.

But those are things that are missing. And we could talk more about the bankruptcy. Yeah, I think we'd probably expect to see some of those documents sort of emerge over the course of this week, which would actually be very, very helpful for sort of understanding what state they're in right now. Because everyone just has like speculations at this point as to, you know, what happened. People probably have a reasonably good idea, or at least, you know, the structure charts have come out, the balance sheets have come out. You've got a reasonably good idea, but there's still some questions sort of floating around as to exactly how big the whole is, so to speak, where the whole is is very important as well, what assets and what liabilities

are in there? Where they sit, are they in FTX U.S.? FTAX international and Lameda? These are all very important points, which I think we'll start seeing as these filings come out over the course of, hopefully this week. But I completely agree with Thomas. I think they pretty much, when the Biden's deal fell true, I think Sam was sort of running around trying to find emergency liquidity, you know, bits and blobs, trying to keep things running a little bit. That's why it was a very strange, Tron facility. Maybe you can discuss the later. Thomas, I'm not sure what you make of that. It just looked like, you know, adding even more, an even messier structure construct into a very, very messy structure.

And then, as you say, the Bahamian loophole was probably the one where, you know, fuck it, we need protection now. Freeze everything. let's go from there. But obviously they froze everything and then they got hacked for $450 million. So Jesus. Yeah. Yeah. I mean,

the Tron thing, I wasn't totally following the news flow on that. It seemed to me that I don't know if capital actually left the entity. It's clearly within what's called the preference period. Clearly, like either a preference or fraudulent transfer. So anything that left will be clawed back. The same probably with these Bahamian offshoots.

We can unpack that at some point. Well, define what is that preference period? So in the Bahamas, it's actually a six-month look back, but I have a feeling that we'll be going by the 90-day preference period under the U.S. Bankruptcy Code, which is like, if you want to Google it, it's 546, no, excuse me, 547 of the Bankruptcy Code. The bankruptcy estates generally, when you file this thing called the estate is created, and that estate has, you know, many powers. So the two large avoidance powers, as they call them, are preferences and probable and transfers. A preference. A preference. is a preferential payment made within 90 days of the petition. And a fraudulent transfer is basically a transfer within two years that was for their other prongs to this. But let's just keep it simple for like non-equivalent value. Like, you know, I gave you $100 and you only gave me $50 back in value.

Or donations to Democratic parties. There's one right there. So very likely to be a preference slash fraudulent transfer. I would love to discuss the sort of preference and clawback issue. issues in a lot more detail. I mean, I get a lot of DMs about it. A lot of very sort of sensible, intelligent people who are asking those questions right now. It is complicated because of the way FTC structured the terms. There is a world where it's not a sort of preferential payment to creditor because you're never a creditor in the first place. I think we can unpack all of that.

But I don't know, Laura, do you want to start us off with how we got here? And maybe we start talking about, you know, what is happening within the three entities, three groups, if you and how we even ended up in this date? So we did a big show on Friday about everything that happened, which is why I started with the bankruptcy. But yeah, I'll give a little bit of the background. Essentially, Sam Bank of Enfrey has two companies, one was the trading firm Alameda Research,

and then the other was the exchange, FTX. And for the longest time, you know, the last time he was on my show, I did ask him about, you know, this kind of apparent conflict of interest. And he said, you know, there are two separate entities. Yes, I own both. But, you know, just they don't, there's like a wall between them. And actually other people that I've interviewed who interacted with them, like third parties, said that their interactions were that FTX and Alameda were very different in their minds. So that was really interesting. Essentially a few weeks ago, CoinDesk reported on the financials of Alameda, and it showed that Alameda's balance sheet was heavily reliant on FTT tokens, which were

tokens created by the FTCS exchange. They offered kind of like discounts and stuff for activities you would do on the exchange. And it was, you know, to the point where it showed, like basically this is a very illiquid balance sheet. You know, if they were to actually, you know, if they were to actually try to recoup what they're showing here value-wise on their balance sheet. It wouldn't work. And CZ, the CEO of Finance, happened to have $580 million of FTT tokens on finances valensheet because years ago, he had invested in FTCX. And once they became competitors, Sam bought him out of his stake and part of the payment was an FTT token. So CZ tweeted that he was going to be selling his stake. And Caroline, the Caroline Ellison, the CEO of Alameda Research,

tweeted, I will buy your FTT from you at $22. And so of course, because it's crypto Twitter, everyone's like, what's the importance of $22? So essentially, um, CZ said, no, we're not going to do this in a closed door away. I'm going to sell all the tokens on the open market. And the FTT price kind of held up for a short while, but then it began to collapse. And people became concerned about their funds on FTC. So there was a bank run. And later, Sam said that it was $5 billion of customer deposits that were being withdrawn on the Sunday alone, which was Sunday, I guess, November 6th. And he during that time was, you know, saying things like assets on FTCS are fine. The exchange is fine. We're just processing what's wrong.

blah, blah, blah. And then we all woke up last Tuesday morning to the news that things were not fine, and they actually needed potentially Binance to buy them to resolve their, what at that time, maybe people might have thought were liquidity issues. Then ultimately, after Binance backed out, it became very clear that this was much more than something like that. And not only that it was insolvency, but it was like leave fraud. There's a lot more details around how. So this, this has been reported by other outlets. I don't remember which, but I think the three that to my mind have been, have had the most scoops are like Reuters and the Wall Street Journal. So Bloomberg as well. So, you know, I'd remember which outlet reported which scoop. But, you know, some of them were

saying things like that Sam had this little backdoor that enabled him to commingle the FTCS and Alameda research funds and that at some point Alameda suffered from the contagion from last spring and because they were in the whole FTX lent them. I think it was like $8 billion or $10 billion of customer funds. I don't remember the exact number. And what Alameda did was put up collateral on FTT. So I think that is at least part of the issue. You know, I read other things saying that actually this, you know, co-mingling of customer funds with Alameda's trading activities happen even before. I'm not clear on that. I didn't report on that in particular. What ended up happening was that people that still had their money on the exchange were freaking out. And that's

when we had these shenanigans around people trying to get KYC'd, I guess. And so once they could kind of, you know, once they had the paperwork showing that they were Bahamian or some, you know, through some other way they could do that. Then they were able to withdraw funds, maybe illegally. You saw this all go down on Twitter with people tweeting at them literally, things like, you know, don't do this. What you're doing is illegal. But anyway, yeah, then ultimately Friday morning is when we woke up to hear the news that FTCX, FTX, US, and Alameda, amongst the other 130 entities were going to file. If you asked you, why do you guys think that you were able to get out the back door? with the Bahamas. I mean, my secret suspicion when I was reading the Bahamian insolvency code is that any customer that has their account or frozen could have involuntarily filed

FDX down at the Bahamas. That was my only suspicion of why they would allow people in the Bahamas to continue to withdraw. Yeah, the Securities Commission released a statement on Saturday saying that actually... Wait, sorry. So I guess on Friday, FTCS had said something

like they were being ordered by the Bahamian Commission to enable Bahamas customers to withdrawal. And then the Bahamian Commission, the securities commission on Saturday released a statement saying that they had never ordered that thing in that FTX. It is just on these involuntaries, they can really create jurisdictional issues. And I've seen, you know, like big debtors getting the little fights over, you know, if there was an involuntarily filed in a foreign jurisdiction or even in the States, but in the, wrong district that you don't want to be in. It creates a real habit, and then you can end up splitting up the estate. In this instance, we were talking about it earlier with all the co-mingling

of assets, because if there really was this backdoor and the balance sheets were all kind of slushing around together to either fill each other's holes or even in a real way or in a fake way. I mean, the states really need to be substantially consolidated. Anyway, they probably will be, but we can talk about that. Well, let's just talk about it right now. So given all the facts that we know at the moment, which obviously things are still coming out, I mean, this just looks so messy. There's the $1 to $2 billion in assets that are missing. There's, you know, the 130 entities. There's the sheer number of kind of weird assets that they're listing here, which I can, you know, give some detail on that.

But I was just curious for your overall take, like, at the moment, you know, what do you think are kind of the main flags? what do you think, you know, given what we know now, like, will happen in this process. Okay. So my take in it is I've seen that structure chart of 130 entities on it. And I mean, my first reaction is it's not that bad. Like, I've seen frauds and restructurings and bankruptcies with like 900,000 over entities on it. So I must say I was able to make some sense of it and sort of be able to sort of carve that up into sort of broad groups. So I think broadly what you have here is you have your under the bit that says West Realm Shias, that's your US FTX US arm.

And then you've got your Alameda stuff and all the Alameda ventures, which is another sort of group in itself. And then you have the FTX international group, which has all of the weird companies in Germany, Nigeria, Singapore, Switzerland, etc. under it. when you want to look at the sort of the back door, as you call it, well, Sam was right in the sense that they are separate entities. Legally, that's right. He wasn't lying, right? FTX Trading Limited in Antigua is a different entity from Alameda research. But there are a lot of agreements between Elameter Research and FTC Limited,

if you look at the structure shutters on the FT. And the big one there is the intercompany loan agreement. And I suspect, and I'm very, sure that it is this intercompany loan agreement that's created this massive hole in the FTX balance sheet. Because look, if we think about it, and if Alameda and FTX were actually separate, a bank run on FTAX would not, I mean, sorry, Elamida going in insolvency wouldn't have affected FTCX, correct? The fact that the bank run happened and FTCS went under meant that something fishy was going on. And what was going on was that FTCS was very, very likely

the lender under this intercompany loan agreement to Elameda, which is the borrower, and as you say, likely to bail Elameter of positions, likely to finance Elameter, bailing out Voyager and all these other guys. It's very likely what has happened. And so when customers now are trying to get their money back, or the creditors or whatever, during what sounds like it's going to be a multi-year process, I'm curious, like, what does that loan agreement mean for them? Like, are those funds considered Alameda's because of the agreement?

Or? Oh, no. No. So essentially, let's assume there's $5 billion that's owing from Elamida to FTX, right? And what needs to happen is that debt position needs to be unwound and the Alameda needs to pay $5 billion back to FDX. Now, the question is whether Alameda has $5 billion paid back to FDX. If it did, we wouldn't be in this spot of border because Alameda would just hand over $5 billion of cash and FTCX would hand it back to, you know, its customers.

The thing is, Alameda is stuck in some very questionable and very illiquid assets, which is making it very difficult, you know, to pay back on that loan. I mean, personally, my thinking, as I've sort of shared a couple of times, is that at some point, a Voyager-like deal sort of makes sense. makes sense for someone to come and take out FTX and then sort of seek to liquidate Alameda because I think Alameda is dead. It's gone. It's not coming back. But do you think that will happen at some point? I mean, according to you, so when Voyager went under, FTX offered 72 cents on the dollar effectively, the customers, who could then sort of move over to the FTX platform.

when they made the bid, if you recall initially, there was a little bit of, it wasn't really done properly in that Voyager went and complained to the court that FTX had submitted a term sheet outside of the bidding process and so and so forth. And in that letter which they filed to the court, they said, look, we have over 80 interested parties. So there needs to be a competitive process. So it could well be the case that, I mean, if there's 80 interested parties in Voyager, presumably FTX, which was, you know, if we take the Alameda bullshit out of it, it was an exchange that apparently was operating a 250 million operating profit a year and had investors like, you know, SoftBank, Tamasic, what were Secoa, Black Rock, these are all big names in there. So it was a very, very functional business on its own. And God knows why Sam decided he had to

bet the bank and use customer funds to essentially fuel Alameda. You should have just wound down Elamette at the moment everything you know shit hit the fan just a touch on the Voyager process i think it was robust but just from people i've talked to probably a lot of people looking but very few people actually having the capital and the ability to transact so that's what i would worry about here and we can unpack this but you know 363 sales or auctions you know bankruptcy auctions. It would be very tough, in my opinion, given what I've known for the other auctions, to see a bidder actually show up. So I'd love to see, Wazi, this was your idea. I mean, you know, I think a tokenization, an actual debt for equity swap, like the good old

days in bankruptcy when that was actually occurred. That would be so interesting. I really want to see that happen. Wait, okay. You need to explain this to people. Like, you guys are talking to each other, but you need to talk to the audience. So what's a 363 thing? So it's, I'm sorry, it's the section of the bankruptcy code, but that lays out what you do to run basically an auction for the assets. So if you were going to sell your assets to the highest bidder, I mean, I'm not like a scholar on bankruptcy, but the move in the last probably 20 plus years is don't bother doing death directly swabs. Just do a 363 sale. So just do an auction. There's no evaluation fights. We're just going to do an auction, sell the assets. The highest bidder,

wins and then we're going to liquidate out the estate. I would call it the rise of liquidating 11. So in a chapter 11, which these are, you can get releases for third parties, everybody loves a release. Who doesn't want to, you know, release meaning can't be sued. And meanwhile, the assets are sold to the highest bidder. That's what people pushing back with in Voyager, with the gentleman Steve who was the founder, and I'm sure Mission Steve would love a release, but I don't see that happening. And now that I would say the premium buyer for these assets, It's in this restructuring cycle. Because let's go with the assumption that crypto's here to stay.

This isn't just like the end of crypto. Because I don't want to see people like that. I don't want to go there. Just turn on a different channel. This restructuring cycle, the large buyer is gone. I think the only real choice is a tokenization. It doesn't have to be a tokenization, but a debt for equity swap. So creditors become the owners of your business.

And there's some sort of tokenization feature, which, you know, I think it could be very, very interesting. And Wazi and I were going on Twitter back and forth. I mean, you know, you do have codes in the bankruptcy section of the bankruptcy codes that allowed you to exempt security offerings to creditors. Okay. Yeah, that is really interesting. Let's talk about that later. There's a few, like, really basic things I want to be sure we cover.

So, you know, earlier when you talked about how it's being filed in Delaware, not the Bahamas, I was curious, because, you know, much has been made about how, FTX was not a U.S. It was an offshore exchange. What does that mean for customers since, you know, we could presume that the majority, I guess, of FTAX customers are not Americans. Does that mean anything for them or no? Yeah.

I mean, I can probably try and take this one because I've had a lot of questions on this one when I said, look, FTAX is going to go into chapter 11. And a lot of lawyers said they're going to go to chapter 11. And people started saying, it's a Bahamian entity. How can it go into chapter 11, et cetera, et cetera. All right. So here's the ridiculous thing about chapter 11. basically every company in the world could probably go into chapter 11 if they wanted to

because it's fairly it's very well-established case law and apparently what you need to get to chapter 11 I don't know the exact statute Thomas maybe knows what the wording is but essentially you need to have property you need have property in the US and apparently the definition of property in the US is so wide that if I had a company you know let's say in the UK or at a company in Argentina with no business in the U.S., nothing in the U.S., and I decide, hey, I want a chapter 11, I could just open a bank account of the U.S., hire a U.S. lawyer, and now I've properly in the U.S. and that allows me to file for Chapter 11. And why do I want the Chapter 11?

Because the U.S. courts, the jurisdiction of the U.S. courts, and that sort of the moratorium you get is a worldwide one. You basically get a stay on all your liabilities across the world. So you've got customers in, you know, Hong Kong, Singapore, not Australia, we can talk about it later, Europe, so and so forth. Well, they can't make claims for you anymore. Trade creditors, guys who sponsor stadiums for, everything's stopped. Now you have time to sit down for, I think it was a period of 120 days if you want to

take the 120-day exclusive period to figure out a plan. So it gives you sort of space to think, figure out what's going on, get the professionals in. And that is sort of why Chapter 11 is sort of so widely used. It's incredibly expensive. Lawyers and the financial advice is going to make killing out of this. But it's probably a good thing given the circumstances. And so talk about the Australia bit.

What's happening there? Right. I look into this earlier. And again, this is not legal advice. It's pure speculation, et cetera, et cetera. But what's happened in the announcement is to say, look, we are putting everything in the Chapter 11. We're putting FTCS U.S. in Chapter 11.

We can talk about FTX US later, but we're carving out FTX Australia. And that was very interesting to me because I got a lot of DMs from Australian guys going, what's happening to me, what's going on? You can explain why are we screwed? Right. And, well, the honest answer is I don't know. What my feeling is, it's probably a reasonably good thing. I look back at the structure chart.

I look back in the terms of service which the Australian customers sort of entered into when transacted FTCX. And they haven't transacted with the FTCS trading limited to the big FTCS. national company, so as you will. They've saw a transacted of the FTX Australian guy, Australian entity, which is a sort of a subsidiary. So my hope, at least for the Australian guy's best case scenario, is that all of the DGEN stuff that was happening with Alameda, FTX international, so and so forth, didn't affect the Australian side of things. And so when everything went down, they went, all right, this is fine. We can just put this into the administration,

wind it down, potentially referred to the funds to use this, potentially sell it to another Australian compliant exchange. And the reason for that, ironically, is probably because of regulations, because the Australian regulators could have been sort of stricter. Maybe that's why. But this is potentially, I don't know, potentially good news. Potentially. We'll see because I think the Australian administrators are moving quite quickly on it. And according to some sort of tweets I've been going around, I think they're going to hear in like two days or something. So, but then what that means is the Australian customers, their, funds will just be treated as their funds because, you know, we want like, I don't know how this,

the missing assets plays into this. Like, does everybody get kind of an even haircut or how does that work? And then also, it's not even just the missing assets, but then as I kind of alluded to earlier, you know, for, I don't know if people saw the the spreadsheet of FDX's assets, but I mean, this, this is kind of bananas to me. First of all, we'll talk about the liabilities. So the 05, billion dollars in USDA. They owe $1.4 billion worth of Bitcoin. They owe $672 million worth of ETH. There's a whole bunch of other assets also in the liability, so I'm just calling out the big ones. Then their liquid assets were $4702 million worth of hood equity, $200 million of U.S. dollars in Ledger Prime, some other staples and fiatur currencies. Then it went into what they

called less liquid tokens, which was $550 more $5.50. $250 more million of FTT, which probably needs to be zero. $2 billion of serum. Again, you know, it's undergoing its own issues right now. $982 million of Seoul. And then totally random coins that nobody ever heard of until this whole disaster happened. And then hilariously, under illiquid, so they had Twitter equity at $43 million. They had some coin called Trump Luz that wasn't even

on CoinCucco. And it was listed for $7.4 million. And I was just like, like, I was just like, okay, did a child make this out? I don't know. So if we're FDX creditors, we're all hoping that Trump loses 2024 now. So Sam can double up on the bed and add a $7 million to the bankruptcy estate. Yes. You're probably correct about that.

But so for the, so like given, you know, not only the whole, but then what I just explained about the assets, clearly people are going to get back some fractions. So for the Australian people, especially if that moves more quickly, like, how do they know what fraction it will be unless they're, yeah, how does that part all work? So, so, so, so what, I think there's some question about what is this balance sheet, right? Like, what are we looking at? Are we looking at FTX International's balance sheet? Are we looking at Alameda's balance sheet? Are we looking at some, you know, merge?

the balance sheet, which is weird to consolidate the balance sheets of two allegedly independent companies with massive Chinese walls between them. Is FTX, US, liabilities in this as well? Like, there's a lot of questions here as to what this balance sheet actually is. Because when I looked at it, those were I was trying to understand as well. Like, are all the liabilities customer deposits? Do we know this? Or are there sort of, you know, loans with other people? Are there sponsorship deal? I mean, there's sponsorship deal for an arena. Like, where is everything, right? But what I can say is that this balance sheet, I'm assuming it excludes the Australian entities, because otherwise it would be part of the same process. But maybe I'm

wrong. Like, end of the day, we need to know what this balance sheet actually is. You did get siloed off in large restructuring, just from my experience, you will see siloed off entities. You're supposed to kind of respect the legal structure unless there's like hopelessly interconnected. And the way Wazzi was describing it is like you have separate illegitoneys, but you might have intercompany loans going back and forth. And so it's not like you don't have claims on anything. It's just, you know, sometimes you'll have something siloed off because of regulatory reasons. Like, I don't know, like you'll have a group of entities in Australia that, for whatever regulatory reason, never touched anything. And it's a small piece of the pie.

FTX, you ask, right? Yeah, FTXU.S, that's siloed off. And when, when, when Sam first came out and set, FTX, US users are fine, everything is back one to one. That was somewhat believable, right? Because he's going to DC, his lobbying, he's going to make sure at least his US side of things is completely clean before attempting something like that, right? And presumably it probably was a lot cleaner because if you look at, again, if you look at a structure chart, you don't see the same amount of, you know, strange intercompany loans, into company agreements between the U.S. side of things and the U.S. side of things and the sort of

international side of things. So it does make me wonder what, you know, the reasoning for putting the FTX U.S. into the 11 is. Like, you know, is it to sort of realize some value out of that so he can pay off international creditors? Because what I did here sort of in the rumor mill was that he was trying to sell FTX U.S. and then use the proceeds of that to sort of fill the whole at the FTCS international side, maybe it's the case that FTCS had entered into loans, you know, like, was the thing it was BlockFi, entered into loans, and perhaps those credit support and therefore sort of, you know, it sort of poisoned everything. And there was, to some extent, a little bit of intercompany exposures and liabilities that are not very sure, but presumably the FTX US side is cleaner than

the FTCS international side. And I was actually going to ask Thomas this, like if it goes to an 11, Do you think the FTX U.S. customers are in a different class from the FDX international customers? Hey, I'm sure they'll try to stay separate, just like the Australian guys. I mean, you know, I don't actually know because I haven't seen anything. Literally, there's nothing followed in the bankruptcy court. So it's pure speculation. I worry that you're going to see so much intertwined balance sheet,

the whole plugging stuff that it's going to be impossible to understand. line. Yeah, we really don't know. I mean, what was in what was in FDXUS? Honestly, I don't know. All right. So in a moment, we're going to talk about some of the other messiness. Well, it's really all messy. But first a quick word from the sponsors who make this show possible. Join over 10 million people using crypto.com. The easiest place to buy, earn, and spend over 150 cryptocurrencies. Spend your crypto anywhere using the crypto. Visa card, get up to 8% cashback instantly, plus 100% rebates for your Netflix, Spotify, and Amazon Prime subscriptions. Download the crypto.com app now and get $25 with the code Laura. Link in the description.

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Back to my conversation with Lassie and Thomas. So, yeah, the whole FTXUS thing was crazy. we, you know, kind of just went over that. But I think what really stuck out at me was the fact that the day before they filed for the bankruptcy, Sam tweeted that FTXUS was fine, which maybe now it shouldn't have surprised me because obviously a lot of things he said during that period were false. But anyway, I do want to talk about one other thing that kind of happened in that period after Binance pulled out of the deal, which is that Justin Sun struck some deal for holders of

various different Tron tokens. And I wondered, maybe this goes into kind of the clawback issue, but I wondered what would happen to that? Are those users good? They got their money and they're out? Or, you know, is this going to end up being dragged into the bankruptcy too? Oh, boy. I don't even know what to start with the Tron facility.

I mean, obviously, I think Justin wants to protect his own users and want to come in, you know, and provide that sort of confidence that the industry would sort of at least help its own ecosystems, which is great. But when this deal was basically announced in what a two to three hours spent, I told myself, look, there's no lawyers to have looked at this, right? Clearly, it was kind of a handshake deal probably over the phone. And nobody's really thought through the repercussions of this. Nobody's really thought through how this is going to play out. And presumably, Sam was very desperate at the point of time. Presumably, he was just picking up the phone, calling people, give me some emergency liquidity.

You know, maybe if I can get Justin's son to, you know, backstop all the Tron stuff, you know, give me a one-for-one for the Tron stuff. And then I can maybe call CZ and be like, all right, help me out here on whatever finance tokens might be on there. I can start calling all these random people to start bailing out, you know, provide me emergency liquidity. That's probably where I said at the point of time, right? Like, imagine your entire, you're like the golden boy of crypto and your entire world

just collapsing around you. he's probably not in a very good state of mind. And yeah, this Tron facility, no idea what it is, no idea how it's structured, no idea how it's worded. And I think like a tweet it is it would have been really nice if Justin's son tried to put something like this in after it went to chapter 11 so that it would make more sense, it'd be more structured. It wouldn't just add more complication to the whole thing. I think that's my take on it.

I don't know what it means for clawback. Thomas? I mean, I have to think about it more, but my initial reaction is it's clearly like too close to the filing. And if someone got a better shake, then they would get through the bankruptcy or there was value that was pulled from the bankruptcy or the estate, I should say. It's clearly going to be reversed. I mean, the whole thing is ridiculous. I mean, all this stuff leading up to the bankruptcy, I mean, you have to really paper it well. And there has to be, you know, contemporaneous exchange of value and like all papered correctly by real lawyers to be able to be able to. to have it even defensible in court to prevent quote-unquote clawbacks. I hate this word clawbacks, but now I'm using it, Jesus. But avoidance, you know, for the transactions to be avoided.

All right. Well, a similar incident that happened around the same time was what we were talking about, the Bahamian loophole. However, I was curious because, you know, a lot of people called out Algon trading as one of the accounts that very explicitly kind of stated what they were doing and how they were going to pay $100,000 to anybody who could help them get KYC so they could remove their funds. And, you know, I didn't get to watch this in real time. I kind of pieced it together using screenshots afterwards.

So hopefully I got the story right. But I was wondering what you thought would happen to people like Algod trading and then also anybody who helped people like that. You know, as Wasi mentioned, for instance, if they were minting NFTs that were worth exactly the user balance of, you know, whatever user they were helping at that. I mean, it's, I don't know if it's illegal to pay someone of large fee to help them do something. I won't comment on that. But clearly, again, transactions that'll be scrutinized to be unwound. Wazi brought up a good point, which is like when you have customer deposits, these are demand deposits, look at the terms of conditions.

And if you look at very simple defenses to preferences, you know, you have ordinary course of business and also from the 2005 updates of the U.S. Bankruptcy Code and Babsy, which is an update. You also have ordinary business terms. You have like two good, decent arguments against preferences for retail clients, but this might rise to the level that is a little different. It's not in the ordinary course. You'd be bribing someone to, like, help you, like, NFT your way off of the exchange before you get NFI'd or whatever.

I'm trying to go with something there, but you know what I mean? it rises at a due level. I don't think it would rely on the same, as you refer to it as permanent defenses for preference there. Hard to say that's in the ordinary course. I think when I saw it, I was like, look, we're just living in a simulation at this point. This is absolutely ridiculous that someone's buying KYC information and then bribing someone publicly to register that KYC information so he could cash out money and then allegedly

went about trying to buy people's deposits on 10 cents on a dollar. so he could use the same loophole to cash out money. I mean, look, maybe that's just the best distressed debt trade ever, right? But there's so many things wrong with it. After they got KYC, they tried to help other, quote unquote help. I shouldn't use that word. Wow. Yeah.

Anyway, and I think, yeah, the other part that's so. But the point, but there is, this point has made me very, very uncomfortable with the whole clawbacks thing because, and I'd like to think back, because we're not familiar, right, with like Voyager and Celsius. With Voyager and Celsius, the terms and conditions sort of state that if you deposit, and we had this discussion last time, Laura, I think with Adam, right, about custody and who owns what, with Voyager and Celsius, for the most part, for the most part, unless you opt into custody product, if you deposited a Bitcoin into Voyager Celsius, you gave them the right to on land that Bitcoin,

to generate yield on it, to hypothesate it, to do stuff with it, right? because that Bitcoin is longer yours. What you have is a claim against them for one Bitcoin on demand when you want it back. What we have, according to FTX's terms, is something incredibly different, which is it specifically states that title doesn't leave the customer, which sort of implies, sort of, you know, we have the same relationship as if there was a sort of custody arrangement in place where I've given FTX my Bitcoin, but I've not given it, given it, given it, they're just storing it for me. And what's happened is when I asked for it back, at that point, am I just taking back what's mine,

legally, physically possessing it, or am I claiming it back as a creditor and they have paid it out to me? Now, if I'm claiming it back as a creditor and they've paid it out to me, it's a very, very clear unfair preference to me, very clear. But is it? Like, am I claiming back as a creditor? Maybe not, because title never left me. But this creates a terrible sort of moral quandary, right?

Because if you can't have fallbacks, that means that FTX, who had breached their own terms and conditions by effectively stealing, converting user funds, funds that legally belong to the users to pluck their own holes on their own sort of trading firm. Then, do they then get to pick winners and losers? It just doesn't sit right with me. no no it's a very good question and you know in celsius and voyager everybody was looking at the terms and conditions and how they all changed and changed and changed and in a weird way like the custody product in celsius the custody product itself is likely a preference because it was created 89 days before the petition but let's go back to fdx so on fdx i haven't read the terms of conditions uh and what's interesting about bankruptcy law this is like i can actually add something this conversation is you know it's kind of a conduit for all sorts of different laws, all the state laws. And so if these contracts are Bahamian, it's, believe it or not, the U.S. Bank, this is why I actually love the U.S. Bank's because it'll actually look through to like, okay, this was a contractor under Bahamian law. I mean, maybe it said New York law, I don't know, because they haven't seen in terms of

vision, but if it said Bahamian, then they're going to look at whether there's a custodial relationship as you're framing it under Bahamian law. And it'll be super interesting to see what the court says. It kind of throws a wrench into the entire bankruptcy process, though, because if everybody has quote unquote title, they never gave title to the estate, then what assets are in the estate? Well, technically nothing because everybody is not a state property. They just said, we never gave title. We'd like our property back.

And if that were the case, it's kind of weird issues around equity here because then it doesn't make any sense. You can't even be in bankruptcy. There's no assets to even administer. So I'm not saying that's the wrong determination if the TOCs or the terms of conditions say that you've got, you never gave. title, but I've seen cases where that is an issue, where almost all the stuff is not a state property. And the judges have a very sneaky way of saying like, maybe it is, maybe it's not,

but I'm not going to rule in it right now because if I do, basically, there's no case for me to hear, you know. I've got to throw a spanner in the works here. It's an English law governed terms and conditions. And I discussed this with, you know, another law in the space, gone to be good on Twitter. an incredible lawyer that abound's more senior than I am. And he had some thoughts on this and he said, according to the dogs,

and these are English law dogs, the assets are probably held on trust. And therefore, legal title may have passed to FTX, but the beneficial title in it may not have. Which means now you're in the realms of talking about trust law. And FTX working on FTCX

sort of dealing with those assets, sort of lending them on to Elameda, there was a breach of trust, potentially fraudulent. And what's interesting, there is some case law in the UK on this very issue for many years ago. I'd have to go back and find it. But from like 2014 or 15, there was an exchange that went under and there was an issue around like what the terms of conditions who had title. Was it a custodial relationship or there were these held in trust? And actually there were two other decisions or I guess one decision. They just both look at the same same decision. In

Cryptopia, which was in New Zealand, which are very interesting. In both cases, they said that they were held in trust, but at the same time, I believe they allowed the kind of a state to be administered. But I think it does lead to more litigation around the people

that were in breach of trust, you know, the SBFs of the world that, you know, we're not following the terms of condition. Okay, you guys, we need to, we need to, need to just back it up and just make sure because I could I could barely follow I was trying to follow but let me try what I mean oh actually what's interesting Laura is what that really technically means is any other creditors are absolutely screwed because all the properties in the estate belongs

but like held in trust and for the benefit of the customers so the customers are going to come way before any other creditor sorry go ahead Wazi oh sorry Laura I'll try and make it I'll try and sort of explain it in like non-lawyer terms with Voyager and and Celsius, right? We had this, a lot of arguments around custody because there was this, it was sort of PVP between the people who had funds in custody and the people who had funds in the earned and the yield products, right, who were creditors because the guys who had funds in custody or on trust would be arguing that this part of the assets need to be ring fenced out of the estate. Okay, I remember that.

Right? So I'm taking, let's say, $300 million out and I'm getting one for one the dollar because this was always my property. It never passed to Voyager and therefore I'm just taking back what's always been mine. It's just been in a vault. Now with what's happened on FTX, imagine if everything was in a vault. So everyone's saying my stuff's in a vault, but there isn't enough in that vault because someone's been taking this stuff from the vault and doing weird stuff with it. So like what Thomas was saying, what Thomas was saying was, all right, well, if everyone says they have their stuff in a vault, then there's no estate left. Like there's zero because you've

just taken the whole safe away. There's nothing to fight over anymore. And all you're doing is you're then going after SBF, you're saying, hey, there's a fraudulent breach of trust or something like that, trying to claim back stuff from him. So that's sort of the point we're trying to make here around title and around, you know, custody around trust. But when you said that there were cases like that in the past, how did they get resolved? Like is there, there must be some kind of precedent around how to deal with situations like this. Not in the crypto context. And in the non-crypto context, for instance, we were involved in, I think it was a catfish co-op. And everybody had a packet claim. I'm pretty sure that's that's that's that was a fact pattern. Or maybe it was a

some sort of processor of something where there were packet claims, don't worry about it. But basically, if you make fresh, like, vegetables and things, you're supposed to have like this, this packet claim It stands for something. Someone can Google it. And basically your goods are held in trust. So the problem is the processor ran out of money, filed for bankruptcy. And now you've got all these guys who say, oh, everything's held in trust, your honor. And he's like, well, yeah, but then like there's 10 million of you guys saying you're all held in trust.

There's no estate property. How am I going to even sell off the assets to give you anything for held and trust? But the one nice thing about it is, for instance, Voyager is going to have a huge claim against the FDX estate. and that'll be subordinated if it's held in trust. That's a good way to think about it. There's a good example of actual concrete, which is if they have a $300 million or even a billion dollar claim against the estate, it's going to be subordinated if these,

if customer deposits are considered held in trust, and if they're under English law, which is what happened. I'm going to get the case and send it to you, but I can't remember the UK one, but the one in New Zealand was Cryptopia, and that went all the Supreme Court. And wait, so when you guys are citing these cases from other countries, Like what bearing does that have here?

Well, the English one, and you're saying English law. I mean, we're probably looking at English trust law. Yeah. So if the documents are saying English law, we're looking at English trust. And then... Wait, I'm sorry, the FTX documents say that English law applies? Correct. English law applies.

So you have got a company that's incorporated in operating out of the Bahamas, with filed for Chapter 11 in the U.S., with terms and conditions that potentially create a trust over customer funds being under English law. So yes, we are looking at few jurisdictions here and sort of Australian, New Zealand, Singapore and I think the Singaporean case,

Kion and B2C2, but let's not go into too much detail here. So all of these sort of Commonwealth countries and their own rulings on trust would be very, very relevant because all of it stems out of the English law of trust. Okay. Okay. So now I think we,

I mean, there are like five million different rabbit holes we could go down, but let's make sure we hit at least the big ones because another rent to throw in here was, of course, the hack on Friday night, where $600 million worth of tokens were drained out of the exchange. You know, I happen to be asleep. I don't know why I miss all the fun stuff, but during that period, Telegram posted a message saying FTCS has been hacked.

FTCS apps or malware deleted them. Delete them. Don't go on the FTCS site as it might download Trojans. So I was curious, like, first of all, by the way, People think it's an inside job, which that's also interesting. So, keeping aside who did the hack? Let's just look at what happened and how that affects the proceeding. Well, you now have less liquid assets in the estate to distribute, right?

You could try and recover them. I'm not sure how successful you're going to be. Look, I mean, when I saw it, I'm like, this burning dumps the fire just how I managed to explode. Like, it was, it was absolutely unbelievable. like when they filed the chapter 11, I genuinely heathed his hour relief going, finally there's going to be some sanity to this. Nope.

Suddenly, FTX is draining, has his wallet drained. Its app become malware. That's just insane. Like I genuinely was wondering what else just asleep and dreaming and some sort of nightmare at that point. But from a legal perspective,

I don't know. I don't know what can we do. It's like, all right, we just lost the money. Right? We just lost $450 million. can we claim it back, hopefully.

I know nothing has been proven in this regard, but just because this was the prevailing theory, I do want to ask this question. So if it turns out that, it was an inside job, meaning one of the quote-unquote inner circle that has been reported to have known about the loan from FTX to Alameda,

which is SBF himself, but also Gary Wang, and then the Shod Singh and Caroline Ellison, obviously the CEO of Alameda, Alameda. So if it was someone, you know, kind of that already has that level of, perhaps level of culpability, alleged level of culpability, then does that affect anything at all or no? I mean, it's definitely criminal. It's definitely criminal. And I mean, but, and we would like to say that someone's going to go to jail, but I mean, I'm a cynic at this point. And I'm assuming that

they're just going to disappear for three months, going to holiday to Thailand or Vietnam or somewhere in China or maybe in the Middle East. And then when the next big crypto implosion happens, they're all going to come back. I mean, I hope we can trace it. It just makes it that much harder and it just adds to the expense, you know, lawyers to help retrieve it, even if you bring, you know, like a multi-jurisdictional litigation potentially to recover it. And even if you get it back, like, you know, you just have maybe if it gets part of a forfeiture, then you'll have to hire lawyers to go up to the forfeiture. Thomas makes a very, very good point, by the way, in that you have got to do the sort of risk reward on actually recovering the assets, right?

Like if you have no idea who is going to, what has happened, and then you go and spend five mill on a sort of on a firm to help you, an investigation firm to help figure out what happened. They find out, they bill you five mil, you're paying the five mil out of the bankruptcy estate. And then you have to go find lawyers in the specific jurisdictions, try and freeze those assets, debt money is coming out of the bankruptcy estate. You know, you could basically go on this sort of, this sort of, old goose chase. And all the way at the end, oh, tough luck. He's just runoff with a wallet, hardware wallet. We can't do anything anymore. And you just trolled $20 million trying to

track down assets. So there is a sort of risk reward calculation there. What are you even? I would like to think that one's big down to try to go after. But yeah, I hear you. No, no, no, it's a real thing. I mean, even when you talk about preferences, let's talk about the back door, like risk reward on Bahamian. I mean, even if someone pulls out a few million dollars, like you're going to have to prove it with facts. I mean, these are fact intensive of questions, as my attorney would tell me when he doesn't want to answer one of my questions. But he's not, he's not, he's not wrong. Wazi knows what I mean. But he's not wrong. He's sort of, yeah, I know exactly what you mean. So you have to like pick and choose your battles

on some of the stuff because it is a dollar and since game. You're trying to get the best recovery for creditors. You're not like, there's no vendettas. And hopefully that's how the estate will be pursued. I'm sure it will be. But it's just something to keep in mind when people are like, oh, why aren't they doing this? Why are they doing that? And we're like, but what's the point? that guy doesn't have anything to go after anyway and you know it's anyway and the jurisdiction isn't great and it's a small amount of money so there will be people that hey they got money off the back door and they'll be like oh my gosh it's amazing I got 200 off and I got made 100% recovery and it's like is it really worth the estate's time to like go after that person probably

not exactly exactly yeah if you have withdrawn $5,000 and someone sends you a letter saying A, our records are that you have clawed back some money. Sorry, you have taken some money out. We want to claw it back. And assuming, obviously, it's not legal advice, you maybe should have complied if you want to be completely, you know, on the up and up. But if you didn't comply, what are they going to do?

It's going to cost them a lot more money to come in and try and get that rest at $5,000 from you. But it's just like my take on it. It's completely a risk-rewarding because the whole point is to maximize recoverability, right? Right. I just think $600 million is a very, different situation. Oh, that's a very different situation. Yes. Absolutely.

We're hoping, we're absolutely hoping that we'll be able to recover the $600 million. Yes. That will be ideal. And it would be negligence, I feel, to not try and figure out if you could try and get the $600 million back. Right. Okay. Yeah. Because when you made that example, I was like, wait, I think this is a different situation. Okay. But speaking again of, oh my God, just so much craziness. So the deployer contract for FTT tokens created 192 million new tokens on Saturday that was worth $380 million. And Binance had to call that out and say it was halting deposits of FTT to the platform. How does that affect things?

I mean, are they just worthless? Or I don't even know how they had that value. But anyway, what is your take on how this affects things? With the token stuff, I don't even know anymore. like honestly like the token stuff just adds a whole new level of complication um to everything first of all like you said how much is fttt even worth now right because the fundamental value of ftt when you think about it is that well the exchange is going to operate and they're going to buy it back from you um therefore increasing its price but it's not operating anymore so what's the

value of tt probably mark it on zero right so i'm not sure how that plays out the serum stuff is a lot more interesting though. Just to finish on FTT. There's a really open question around when you strike the claim. Does it strike at the petition date or not? And so like people with FTT, do they get that, even though the asset's not there, do they get the liability as a claim? But anyway, but it's an open question. We honestly don't know. Celsius is going to have the same issue. Wait, and I'm sorry, what is that to strike something date? Okay. So like, if let's, if I have a $100,000 of FTT, do I have a claim for $100,000 FTT or do I have a, you all talk about it last time when you're talking about Celsius, or do I have a $100,000 claim because at the time of the petition,

like when they first filed a bankruptcy petition, the claim is struck. And that matters, because if I own FTT, I'm like, I'd really like the petition date value. And if I'm a creditor, I'm like, no, no, you are in, you know, a poo-po coin. I won't use the S word. And so, you, you know, you got nothing or, you know, we're going to treat it differently. So there is some issues around that. I definitely think it's probably going to be struck at the petition date, but it is a little hairy for the people that own FTT, and the same thing with Stelsea's. But go on to, I like, I wanted to talk about the subject of the moving up the manager or moving up the chain with serum. Yeah, but wait, just one thing that I wanted to say about the petition

date issue is that it strikes me that, so with Mount Cox, it's, you know, to tell me if I'm wrong, but it seems that the petition date is what was used to determine what creditors would receive. And so it's sort of one of those things where in different cases, people might want the petition date. And for others, they might not, which is just funny because it really just depends on you know, which coin they had. But frankly, I personally think it's better if you just get your asset back. Well, if it's held in trust. It depends. I mean, if your asset's worth shit. Hey, if it's held in trust, you don't get a choice. I can return you your property. property. I never had title. But if it's not held in trust and your general and your creditors

I'm just saying, you know, the legal arguments cut both ways. So, you know, the guys that have FTT, if it's all held in trust from English law and trust law, then they're there, yeah, oh, well, let me just give you your property back. Now you're made whole. See you later. They're like, yeah, I made whole, but now it's a zero. You're like, I gave you your property and gave you your phone back, what you wanted. Yeah, I think in terms of of sort of legal ambiguity and questions, this FTIX-Elemeda sort of bankruptcy is a lot more complex than Triacy and Voyager itself just put together. You've got the same, you've got very similar questions, but you also have a very, very different factual matrix that complicates things

even more. Like, I mean, the only thing that even comes close is, to be honest, is Terra. Like, you know, I think Terra creates a lot of problems as well from a legal perspective, but we're not talking about it now. Okay, well, we'll move on to serum because, yeah, this was yet another. I mean, just this is just quite the saga. I mean, it just kept going. I just feel like I've barely slept for over a week. So, okay, the serum project, I believe it was Saturday. They forked because apparently someone at FTX had some admin key that enabled updates, but obviously there was nobody there or maybe whoever had that might have, you know, deployed malicious code or something on the project. So they forked it. I don't know what that

means for the people who held serum on the exchange. What do you think? I'm going to go on the offensive and ask Thomas' first views because I have no freaking clue. I mean, I have my thoughts. I'd tell us you could go first. So there have been cases where the GP has filed for insolvency and the LP had the LPs have decided to move the manager. And that's been decently allowed, sometimes the states have tried to fight it. So that's what I would, I would characterize the question in that way. Wazi, any thoughts here? I mean, is that, I mean, it's different.

It's crypto. Right. But wait, so talk a little bit more about what that means when you say that. So then what does that mean? So then the creditors, what they can put a claim on those forked serum tokens or they can't or what just plain, explain it in non-lawyer terms. So like, okay, if you have a non-debtor who has a management agreement, with a debtor. But as part of the non-debtor, they're allowed under their contract to change

who the manager is. That's kind of allowed. We're all like paraphrasing things that can get quite technical because it really depends on what the agreements say. But if they're allowed in their contract to do that. And so in this instance, if the governance token, I don't know exactly how it's here works, but if the governance token or someone who controls the governance function is kind of allowed to do it and it doesn't affect, it's going to be a question of whether it's a breach of the automatic stay or not for someone to fork, I guess, the kind of the chain. But Wazi, do you have another way of describing this? Yeah, yeah.

I've thought about this a lot, actually. So I thought about this in like after Terra Luna when they fork the chain to basically, in my head, right, as a restructuring lawyer, they basically fault the chain to as what looked like equity holders to sort of shed off the debt and start all over again. And I asked this question. I went, you know, how does this even work? But obviously, that wasn't, like, properly challenged. And then when 3AC went down, I actually thought about this again going, wait a minute,

3AC had a ton of lunar tokens. As a thought experiment, is it possible for Luna to fork again and just take out 3AC tokens? Just be like, all right, we just deleted all of their tokens on the new chain. Right? And now with serum, now it stops becoming a thought experiment because it's actually happening with serum, where they're sort of forking and potentially taking value away from the tokens on the old chain. So the way I'm thinking about it is that let's say you've got a company, let's say you've got like a fast food joint that's sort of caught into insolvency.

But the very next day, your employees or part of the management team rock up next door open up exactly the same fast food joint called fast food joint 2.0 and start running it the same way, how does that play out? I'm not sure, because they're taking value out of the estate, right? Because what's valuable about those tokens is that there's an ecosystem around it, there's a use case for it,

there are developers sporting it, there are users on the network. If you simply just clone it, move all the users away, move all the developers away, and drain that token of value, as you say, is it a breach of the alternative?

I don't know that it is. Wait, and wait, I just, I just need to clarify a fact here. So are you saying that when they forked it, that they removed all of, like, whatever serum was held on FTX or just whatever amount FTCS owned as like part of its, I guess maybe like a venture investment or something? Because there, so, so presumably FTCX had two types of serum, right? The, the, whatever it received from being in. involved with the project and then whatever like customers held on it. So there's kind of two different types of serum that could potentially be affected here. So let's let's talk about the two. If you're a customer with serum tokens on FTX, how will this affect you? Does this mean like you still can claim a value on those serum tokens or not? Let's just start with the customers.

Wazi, do you know how you interpret the customers are affected? I'm going to just think about it. I honestly can't have a good... I mean, you would get the fork, too, if you own the original, no? I mean, I'm not... The whole... Would you get the forks thing? But you're not getting it, but then it's hacked, right?

There's some hacked serum. So they forked it. Oh, wait. I'm sorry. I thought in that tweet thread that it was a developer. I have to look at the tweets in a bit more detail. I thought the news was that they were basically kind of like forking it to deal with the fact that, like, FDX wasn't going to be able to perform

and they were just going to move the community over. That's happened some, and there are some bankruptcy cases. I mean, at least the ones that I've been involved with, that's happened. There's an asset management firm where all the guys basically left and set up shop across the street, like in a lot of these examples.

I mean, they were an asset management firm. And there was nothing to preclude them. There were no non-competes. And they just got up and set up shop next door and it wasn't a breach of the automatic stay. The same thing, when we had, it was a Ponzi scheme case we were involved in that had real estate investors and the LPs were allowed, excuse me, limited partners in the real estate deal were allowed to

change the manager, the general partner manager. And that wasn't a breach, even though I think the trustee did try to fight it because, of course, it severely, you know, cut the value stream because they were going to lose the like 2% manager fee or whatever they were going to get. Plus, they were still entitled some other thing. But I thought that was the news. I didn't, maybe I misunderstood what they were trying to do with the fork. Yeah, and by the way, yeah, it was a community member, which is totally fine. It's, you know, there is a, it was saying it's a Dow or something. So, okay, but then, so this actually maybe is a good segue to the other thing that I wanted to ask about, which was obviously there's 250 startups or, you know, different token projects that received funds from FTCS ventures.

So what happens to the equity or tokens that FTX Ventures owns? I did see, so Chris McCoy, some of you might know on Twitter, I think he does something called store coin or something like that. He's been suggesting that these projects buy back their equity or tokens so customers can get their money back and then the products get to remove FTX from their cab table. Miles Jennings of A16C basically thought this just did not make sense because it contradicts everything about existing law. but what do you guys think of that suggestion? I agree that you can't just unilaterally delete tokens or unilaterally delete the equity you have given up. Presumably, a lot of these are done by safes or safes.

So you can't do it. That's a clear breach of the automatic stay. That's an easy answer. No, no, no, but he's saying that they buy back, not delete. He's saying like that's fine. Hold on and saying back in a second. It's a state property. And so the estate has.

rights. And if you want to buy it back, you can engage the estate to buy it back. I was hoping we would end on a nice point, which is like, what are the recovery like pathways for creditors? One of the biggest one is this big portfolio venture deals. And look, some of them could end up over a very long period of time leading to decent recoveries. And I was giving the Com Disco one. We were talking offline and there's CMGI or whatever. These were two like dot com bust that as part of their business, they had a big venture arm and the venture arm over like a very long time. or like a 10-year period. It ended up making the estates entirely solvent.

Of course, it took 10-plus years for that to happen. But that's another here to there. Well, no, I mean, it could be very relevant here. No, it could be very relevant. No, no, no. This is a silver lining. Yeah, because this could take 10 years. Am I wrong?

Or how long do you think it could take? It could take 10 years. You could take six months. It depends on what deal you end up with, right? Yeah, I mean, I guess you could have someone come in and like come up with some restructuring plan. But even if you do that, unless you sell the venture portfolio in one fast swoop, which I don't think is likely, I think the unwinding of that will take many, many years.

But if someone wanted to buy back the tokens or the equity they gave, they'd have to buy it back whatever the market price was. And the estate would have to engage with them. They'd like, because we want to sell it versus holding onto it. I'm actually just flipping over to the structure chart looking at it right now. The FTX venture arm is actually fairly ring-fanced away from FTX trading limited, it's owned by this company called Paper Bird Incorporated. And the way it's linked to Alameda is there is an intercompany loan agreement between paper bird and Alameda research.

So that's sort of how FTA's ventures is sort of linked to this entire shit show. So what does that mean since Alameda clearly is probably, I don't know if like more insolvent is even a phrase. Yeah, it's basically just a matter of, it's basically just a matter. of unwinding all of these transactions to sort of see where we end up. The money is going to have to flow through to the intercompany loan. I mean, it's an intercompany loan, an intercompany loan. Yeah, yeah. The intercompany loans are the pipes.

Yeah. So these intercompany loans are basically the pipes by which Sam and, well, FTX, Elameda were sort of funneling funds around. So when we, now that we've sort of frozen everything, we're going to start, if we're in the liquidation is there, we're going to start unwinding everything and sort of see where we end up, right? Because let's say this Paperbird Incorporated owes Alameda money, assuming it's the case, right? Let's say they have borrowed money from Alameda to make their venture investments.

Then Alameda calls back this loan from Paperbird. To do that, Paperbird has to go to subsidiary to liquidate its venture holdings in order to upstream proceeds into Paperbird to then pay down Elamida. Elameda then owes intercompany loan to FDX trading. It would then sort of take the proceeds. It's recovered from paperbird and sort of pay down its loan to FTAX trading. It's basically, we're basically just unwinding all these transactions at this point. Okay.

So another solution, which actually Wasi, you tweeted. It was you. And I saw Zane Tackett, the head of institutional sales maybe at FTCS. he used to work at BitFinex at the time that it was hacked and they ended up issuing a token that actually worked. It did eventually, you know, make customers whole there. And you tweeted a similar suggestion. And I was curious, first of all, actually, why don't you describe how this would work? And then talk about like how this is similar to the BitFinex situation where it's different. Like, yeah, just give the odds of, you know, how likely this is to pan out or to have.

and pan out. Okay, I mean, to some extent, it's basically a sort of a modified debt to equity swap, which sort of practitioners in the space would be quite familiar with, except we've sort of adapted it for the crypto space, so it's now a debt to token swap. So we're basically looking at, so in the chapter 11, you've got all your assets frozen, right? And now you're looking at a plan to potentially maximize revenue, potentially maximize recoveries for creditors. So what we have here are broadly, but you know, I said there are three groups.

It's the FTX US group. There's a FTX international group. And there's the Alameda group. The Alameda group is the sort of trading arm, which has lost a crap ton of money, which is why it had to borrow money from FTX international. And that's why it tipped FTX international into insolvency as well when you couldn't make money to pay it on the bank run. So the thinking is this, right, you've got a bunch of customers who have money stuck in FDX International, and FTCS International cannot pay back these customers right now. So what you could do is you plug that hole in the FDX International balance sheet and issue customers' recovery tokens, which will over time, depending on how you structure it,

what you do with a bit of FNX style, you make it look a little bit more like equity. it basically turns FTX international sort of solvent again, balance sheet solvent again, because you've got rid of those liabilities. These are now sort of assets on, yeah, you've got rid of those liabilities, or you've deferred them even, depending on how you've done it.

And it came to me sort of in the middle of the night because I thought, wouldn't it be an incredible comeback story if, you know, one of the best exchanges in the world was run so fraudulently and run in such a horrible manner. And then at the end of day, you have debt to equity swap and you turn into essentially a decentralized ownership, but centralized exchange that's run by the community for the community, which is by trade, you know, buy traders for traders, which was the FTX slogan. So I thought that was, that was quite, that was quite an interesting idea.

Just to kind of distinguish it from the FTT token, which many people, you know, are aware was part of the demise or, you know, was part of the cause of the demise of FTCX, the difference here would be that it wouldn't be something kind of like more centralized, but basically a community-owned token, like hopefully more properly decentralized. Is that kind of what the difference would be? What's ironic is that that was part of the reason that FTX went under. But now you're saying a solution would be for FTCS to have a token. So I'm trying to explain. why this would be better and not. Okay. So let me sort of, let me sort of explain from a study.

You'll take maybe three to five minutes, but I'll go into it in some, some, not too much detail, but some level of detail. And I've sort of gone through this in my tread a little bit, but I'm assuming not all of the viewers have sort of read it. So I'll sort of just, you know, run through it quite quickly. So according to Zane, as you say, we have about, you know, eight billion of liabilities, 900 million of liquid assets. You mentioned this earlier. you have got, you know, the semi-liquid assets and the illiquid assets that you were talking about earlier, including, you know, Trump-Diluse 2024. What we're looking at here is that there is a hole in the balance sheet.

By a hole in the balance sheet, it means that there are more liabilities than our assets right now, therefore rendering this company insolvent and incapable of operating. Let's just assume, okay, we've also lost $450 million, right, to the hack. So let's just assume semi-worse case. I'm hoping it's more than $3 billion. dollars, but let's say there is a $3 billion hole in the balance sheet that needs to be fixed, some way or other, right? Now, we're in the chapter 11 now, and the good thing about chapter 11 is you can sort of

pick and choose out assets and liabilities, which you otherwise would not be able to do outside of chapter 11, because you've got all the, it's what you call a clean buy. You're able to sort of have a court sanctioned, you know, transaction that sort of releases you from any potential liabilities. I sort of a quick segue. This is why we really didn't think a Binance deal outside of a Chapter 11 was going to work because if CZ bought FTX, CZ were to deal with the burning dumps the fire while it's still on fire. Whereas in this Chapter 11, you can sort of put out the fire and sort of pick through the ashes

and see what pieces of it is still savable, what's not savable, what you leave and there, what you don't leave in there. So a Chapter 11 is actually a really good thing because now you can start, in this case, at least the Chapter 11 is a good thing because you can go. in there and sort of pick, pick out bits and pieces that you want. So this proposal assumes that CZ isn't going to save us. Justin's son isn't going to save us. We're going to have to do it all on our own. There's no money. There's no money coming here. Right. So what is valuable in FTCs right now? In the FTCR group, what's valuable is you have, quote, quote, customer goodwill, the users,

user base in crypto, well, at least a few months ago was very, very valuable. So you've got your user base, which means you have to assume their liabilities, right? Because you can't be, oh, come over in exchange, by the way, you're worth zero. So you have to assume their liabilities. But what else do you have? You have got potentially good assets in there? You know, potentially there's some assets they are liquid or assets they convert to cash, potentially good assets in there. You could take with you. There's potentially the trading engine, the FTX engine, the FTC, I mean, the brand is worthless now. But everything that made it work, the structures, the know-how, so and so forth. There's something that's valuable. You could take it with you.

assuming that you're allowed to take the licenses. You can take the licenses with you, and the licenses sort of make your life a lot easier because otherwise if you ran your own exchange, you're going to have to apply for licenses all over the world. FTX already has some of those, especially those in the US, which I assume are going to be quite valuable.

Now, you've taken all of that out, and now you've got all of those good assets and you've got those customer liabilities. You take it all out, you put it in a new company, right? So now what you have is you have the capacity to run FTX 2.0. You could run an exchange that has really good URUX, really good trading engine,

stuff that people like with the licenses, potentially with the sort of, I'm not sure if you can still get the banking facilities. You get all that good stuff, but you also have a ton of customer liabilities which you cannot currently meet, you know, because you just don't, you just don't the liquidity.

What you do now is you basically try and you offer the customers a swap on their debt, right? Instead of the, so the sort of scenario I use was, let's say, you have taken all the liabilities and liabilities, this is $8 billion, right? And let's say have only got $4 billion of assets left, right? Four billion dollars of assets, some of it is trump to lose 2024. So it's not like you can immediately turn that into cash to meet withdrawals. Or ever. So what?

So what are you going to do? So what you could do is say, all right, I've got $8 billion in liabilities. I've got $4 billion in assets, including some very illiquid assets. It's fine. I'm going to swap 50% of my liabilities into tokens, right? So if you had $100,000 on FTX, you now have $50,000, which you can use, you can withdraw, you can do whatever the hell you want with it. you can trade with it, $50,000.

The other $50,000 gets converted into a token. And I've sort of called them FTX recovery tokens, FTR, if you will. Now, what FTR is meant to give you, at least in the sort of initial pitch I had, there's probably other ways of structuring, but to keep it quite simple, what FTR could do is it gives you a percentage of, of the trading revenues of the new exchange. Now we're assuming this new exchange works, right? The assumption here is that a new exchange is born.

We use employees that are competent. We have a competent management team. People still want to trade on it because it's a decentralized ownership owned by the community, but centralized exchange with transparency. And people still want to use it, right? If people still use it, it's going to generate fees.

It's going to generate cash flows. And you can over time use the cash flows from running this exchange to pay back your users, the people who hold FT recovery tokens. Yeah, this is super similar to the BFX token back in the day. Yeah. So exactly. And because they are tokens,

you would then sort of have a market for them either officially or unofficially, right? Where, you know, if I don't price this, I want to get out of this at, you know, 20 cents of a dollar, fine, you can get out. Or I want to hold on to it. maybe over time, the value of an FTR token will be a lot higher as the exchange sort of ramps up in value. So that creates a sort of liquidity as well for someone who's holding 50 grand in cash on the exchange in 50 grand in FTR tokens. You could be, I don't want this, giving you 20 grand and I'll give you my FTR tokens. So that sort of takes you to a point where you're

balance sheet solving. Because not your $4 billion in assets, $4 billion liabilities, right? I go into a bit more detail in my tweet. Maybe you can sort of maybe create share it or something. Yeah, we'll put it in the show notes. Yeah. So essentially to sort of make those illiquid assets a bit more liquid and sort of talking about how you could do governance structures around it. But I don't want to take up the rest of this, this is the show. Well, one thing that I did want to add was that I don't know how closely you looked at the structure of the BFX token, but if I I remember correctly, so because there was a market, you could, like you said, just be like, I'm just going to take my 20 cents on the dollar. Like, I'm happy with that. But the other thing is

that you could actually cash it in for equity in the companies. Yes. I saw that. Yeah. And then the last bit was, yeah, you could just hold on to it and wait to see if the value of it would rise. So it would be like one to one. But yeah, that, you know, these are all kind of really interesting things that happened back then. And you're right. I mean, it worked for BitFinex. So. No, just to add from the U.S. Bank's perspective, many times you'll have either a company sold or restructured, but then you have two other pockets of recovery. One is maybe like a liquidation trust with some special assets in it and sometimes also in addition or as part of it, a litigation trust. And so sometimes you'll get units in these things. And so it's nice about

tokenization. This is ripe for disruption from crypto is, you know, these probably things probably should be tokenized. And so you could swap up whatever you want. So you want to keep the litigation trust, but you want to sell the venture portfolio, but you want to keep the equity in the new co. So if you have probably three tokens, I thought that was the way that Wazi was. kind of pitching it or I don't know if you were but I'll add to it that if you you know people can pick and choose their poison I think that's I think it's brilliant yeah it's you want to own the venture but you don't want to own the equity or you don't really want to own litigation because that's not really your thing but you want to be longeditude crypto thing so

the venture portfolio plus the equity in the nuco so that's a fun part about crypto I mean and there's exceptions for security offerings and are 1145 of the bankruptcy code I mean there's some limitations to it, but for the most part, you should be able to issue equity. Again, that's good flexibility of the US bankruptcy code. I'm just going to keep saying good things about your bankruptcy code. I really, I really like the thought, actually. Thomas, I actually really wasn't thinking about literally carving up to that level, but that would be very interesting if we did end up carving it.

The venture portfolio was $1.5 billion put in it? I mean, you could tokenize the veggie portfolio, the Alameda bet that, you know, Yeah, bits and pieces of it. There's a lot of ways to carve it. That's interesting, actually. I'll be really, really keen to actually see this play out. I mean, I think it may be unlikely because what, I mean, presumably someone's going to have to step up and try and lead or run this whole thing. Yeah, well, that's what I was going to say. So, like, these ideas are floating out there, but for any of them to actually be implemented, then how would that happen? Like, what is the process to try to make that happen if for any listeners you were so inclined? You need credited support essentially. You need support from the customers because that's kind of what, it's kind of how a Chapter 11 plan works, right? You need, I think it's a two-third majority in at least one class of creditors in order

to approve a plan. So you definitely need credited customer support for it. I mean, I sort of thought that plan out, you know, in the spend of like two hours. But I, and there's a lot of better things you could do with it. Like, you know, as Thomas has sort of just improved the plans sort of on this show right here. Yeah, you need customer support. And I've got, I've really got DMs from people going, this is great. You know, I've got eight figures. I've got, I've got eight figures. I know

people have nine figures on FTX. How do we do it? Et cetera, et cetera. Maybe it happens. I don't know. But we kind of have to wait. I think we have to wait a bit for the, for more documents and more information to come out on FTX, on the status of all the entities and not what's possible. Totally. And just to add to that, it's, yeah, clearly it's about creditor support. The other thing is, and you mentioned it way, way earlier in the show, Wazi is you didn't have the exclusivity period for the debtor. That means if it's a debtor in possession, assuming there's no, I mean, usually it's in the case of whether there's no fraud, like actual fraud traditionally. And there's still be breaches of trust. Oh, you were moving around

money, you shouldn't have. But you didn't just like scond with money. Then you'll be a debtor in possession case and therefore the debtor generally gets 120 days exclusive period after the petition date to file their own plan. And so my point to sharing that is they sort of drive the bus. You saw this with Voyager and Celsius. So in Voyager, the Steve gentleman sort of quickly stepped to the side and was like, let's just either do a debt for equity swap or, and they have like toggle plans. So you have two, two plans going at once. But he said, let's do a plan where everyone gets the equity to company and will also market the company see if someone will buy us. But in Celsius, you saw a lot more pushback, basically because the guy driving the bus there,

probably other people in addition to Mishinsky, but Alex Mishinsky was, hey, I want to try to hold on my equity. Let's do like a new token. We're going to call it Phoenix or whatever the hell we're going to call it. And, you know, there was a bit more back and forth because he was trying to remain in control and he thought, hey, maybe the mining

assets is worth a lot and I can give that to creditors and the mining is going to save us all. So you see different things being proposed because the debtor has so much control. In this case, I don't know how SBF, maybe he's I guess he's left now, but who actually drives the bus and what their agenda is and how they view

these things? Because they do drive it a lot. Yes, creditors have a lot of input and the end of the day creditors vote on it. But it's kind of like, you know, you vote, but you know, the guy giving the sermon is the priest and so a lot of people listen to them, you know? So it's like the guys are driving the bus, the chief restructuring officer or the executive decisions are going to make a difference in the way these cases go. It'll be super interesting to watch how creditors come out And I would love to see a tokenization, whether there's a new coer or you just liquidate and everybody gets. I would love to see that. I think it's the right thing to do.

I think it's also kind of like a crypto solution for a crypto problem, which is we got into these C5 problems, you know, and we sort of dig ourselves out. And I love the idea. Yeah, I think it's sort of us cleaning our own house, right? Well, there's no central bank coming, you know. Yeah. So it's good that you brought up Voyager because I did want to ask about how this affects some of the other bankruptcies since Voyager obviously had this deal with FTX and I think they were buying the debt or I forget what the phrasing is. So describe what their relationship was up until this week and then how all these

events will affect that. So there was a plan in place for FTX to acquire the liabilities of Voyager customers and Voyager customers would get about 72 cents on a dollar. I think FTCS was sort of paying another $100 million on top of that or something. That that plan was sort of approved to go to the creditor vote, so the creditors were going to vote on it. I believe the latest news is that obviously the deal is no longer on the table and Voyager is now considering other plans. I'm not sure if you heard otherwise. But some interesting thoughts here. So if you all remember, SBF had lent some money to them and then he subordinated as part of the plan. So that's clearly off. So the creditors are going to not want to subordinate.

So that sucks for Voyager. But at the same time, Voyager is going to have a pretty substantial cause of action to offset that debt probably against the estate of FTX, right? Because he's a breach of contract. I mean, he was supposed to close. Wasn't there some sort of loans flowing from Voyager to Alameda? I'm sure there was. I recall there were some loans flowing between them as well.

So presumably I'm wondering whether you could even net it. Yeah, I don't know. I'm not sure you can net it. If it's not, the netting is going to be interesting. I'm not sure you're going to be able to do counterclaims where you can net. But then the other thing is Wazi, if you're right, if you... And that just means the two cancel each other out? Yes, correct.

That's right. Yeah. It'd be like, you know, I owe you $100, but, you'd paid you 50 some other time. And so we net that or something. I don't know. So you net the counterclaims against you other. But the Wazi, if they're all held in $100, but the wazi, if they're all held in trust and you've got to claim.

Exactly what I was going to say. I know, I know. I don't still, almost do your thunder. Say it. Wait, explain, explain it. People like me don't know what you're talking about. All right, all right, right. So, so, so think of it this way, right?

Nothing is mean, it means like, let's say I owe you $100 and you owe me $100. So, you know, we're just going to call it zero, right? We're just set off against each other. The thing is, if you. The thing is, if all the assets are held on trust, which means that my estate is well zero, and you can't net, you can't net, I'm claiming $100 from you anyway, so tough luck. Did I explain that wrongly? Oh, like, because the customers on FTX might actually just own, might just be able to get their assets back, quote-unquote, one-to-one, or whatever the ratio will be.

More child than trust. You can't sort of like go into the trust. Yeah. Because you'd have a claim, but your claim would be an unsecured claim. It's an unsecured, general unsecured creditor claim. You wouldn't be not a state property via this trust, English law trust, distinction. Yeah, the Voyager customers are non-secured creditors, but then the FTX people, their customers, they're... Potentially in trust. Yes.

You know what I'm saying is that they're lost. suit against the FTX estate and Sam would be a general unsecured claim. And now when you go into that docket, the FDX docket, what do we say? We said that, well, all the properties actually held in trust. So you've got to claim. The problem is you're behind all this trust property that can't be paid back. So all that trust property bucket can't be filled. So you're definitely not getting anything on your journal and secured claim against the estate. Yep. Right, right. So then they wouldn't cancel each other out. Yeah, they would not cancel each other out.

So then basically FTCS customers are going to be in a better position than the Voyager customers. I mean, these are all very fact intensive questions. Yeah, these are all very fact sensitive questions, but that potentially is a world where, you know, Voyager, the Voyager estate pays out money to the FTX estate without getting anything back. That's making it worse for the Voyager customers, but theoretically, be better for the could very well be because of course

remember he subordinated that debt and he didn't have to do that that was I mean you know that I'm not sure what the debt was wasn't like $75 million or something

something like that yeah something like that I think their claim against the estate is going to be more than you're talking about Stephen Aaron like this the former no no Sam Sam in a Voyager plan

um Sam Alameda FTX whichever any it was they subordinated their claim to customer account claims. I don't know if remember. He was like all high and mighty. Oh, you know, we want customers first and we're going to subordinate this $75 million check we wrote. So that's off. I mean, the creditors don't didn't agree to that. And I'm not sure that it'll be bound to the plan's not going to be approved. So then that's now back to being a claim.

Yeah. So sort of to yeah, to sort of explain that altogether again, I think, I think what Tom is saying to sort of remind everybody. When Voyager went down, Elameda land $75 million to Voyager. And then Sam was all high and mighty going, oh, you know, don't worry about the $75 billion. We'll pay all the customers back first. So forget about the Alameda $75 billion. It's cool. Don't worry about it.

And the thing is, now that the plan is gone and Sam is out of the picture. and the role of the sort of the guy is running FDX now is to maximize the size of the bankruptcy estate, you're probably not bound to agree to subordinate your $75 million claim to the Voyager customers. So now you're putting a claim in there as well for the $75 million back. Well, the subordination was part of a plan that's not going to be approved now. The bankruptcy plan is off. Correct. Right, right.

The one with Voyager, between. Alameda and Voyager. Right. Okay. Last bit now to talk about is BlockFi. It was a similar situation with BlockFi where they struck some deal with FDX. Can you explain what their relationship was before all the events of last week? I don't know. He bought it. I don't know. Wazi, what was the relationship? I believe that the relationship was that BlockFi was running into some liquidity issues, and then FTX or under me, the FTX US apparently, provided a $400 million revolving credit facility, correct me if the numbers are wrong, but it sounds about right, which would allow BlockFi to continue its operations.

When the news came out, everyone was very worried about BlockFi because, hey, you guys borrowed money from FTFI, and they may start recalling their loans. And if they pull their loans, how are you going to service your own customers? Sam came out of the time saying FTX US is fine. Everything is backed one to one, blah, blah, blah. And then BlockFi came out saying, don't worry, our counterparty was FTX US.

It wasn't the Alameda FTX international shit show. So we're good. A day later, they seized withdrawals saying, well, fuck. So I'm not 100,000. obviously we haven't seen the loan documentation. It could well be the case that they genuinely were contracting with FTXUS, but maybe there was a guarantee coming in from somewhere else. Maybe there was sort of other borrowers in the structure. We don't know. But it looks like contagion is already happening. It's already starting. And I'll be very interested to see

how this plays out over time. I think blockfire is more certainly in a whole world of trouble. there will be other guys who are in trouble as well. They're going to file. And they have the file immediately really. Well, Thomas is very direct about it. But yeah. Well, I mean, FTXUS, since FTXUS filed for bankruptcy, that would make sense because, you know, Block Fies 400 million was supposed to come.

So Block Fies, probably in a bit of trouble. We'll be, I'm very, very interested to see the documents that Alameda FTX file. Because you recall, uh, accord, it's also ironic now, right? that Sam was going around saying, oh, there's a lot of exchanges and platforms that are secretly insolvent. And you recall the period where he was walking around saying that he wanted to be the JP Morgan of the crypto world, bailing people out left and right, etc. Well, if you got a bailout from Sam or Alameda, you're probably shitting yourself right now because you've just delayed it inevitable, right? Let's say you've taken money, let's see you've taken money from FTX international.

Elmita, FTCS, whatever, you have taken money from them. They have gone into Chapter 11, which means that they are going to be pooling all of those loans, all that financing they're giving to you, which were there because you needed to pluck a gap in the first place, which means you're just ripped off the Band-Aid and the wound is still gushing, which is not good. So we know some people, right? So BlockFi is obviously one of those. We don't know who else has been affected.

We don't know who Sam has been handing out loans to. I mean, people are saying there's a very credible theory going around that Sam did some of these bailouts because he needed to stop them from liquidating the FTP collateral. I think there could be some leaks to that theory. But we don't know, the things we don't know what Sam has been doing behind the scenes. And if you look at the fallout from Terra, you look at the fallout from 3AC, people tend to keep very, very, very quiet about their finances saying everything is fine. if you tell us that we are insolvent, we're going to sue you for defamation, blah, blah, blah,

until they actually file for insolvency. So it would be interesting to see what happens, what comes out. All right, you guys, this has been a mammoth episode. Is there anything that we didn't cover that you think listeners should know about? I really think that over a very long period of time,

it's possible to venture portfolio leads to okay recoveries. I got us in the causes of action here are going to be absolutely astonishingly amazing than gone for a decade. But we covered that. Yeah, I think it could go on for a very, very long time. Like Thomas says, venture portfolio could well bail everyone out. Who knows, right? Everything goes to the moon and makes three cycles before this is all over.

And suddenly, FTAX is incredibly solvent and everyone gets made whole all over time, which is why it also quite makes sense if you then tokenize bits and pieces of it. And I'm really hoping we end up with some sort of crypto-native solution to, yeah, to this problem. Because the problem, if you ask me, has never been, is not really about a centralized exchange. It's simply the fact that centralist exchange was being run in this irresponsible and honestly rather fraudulent manner. We still need centralized exchanges if you ask me. I mean, maybe I'm a bit of a, you know, hard-fi, boomer, lawyer, web two, lawyer, whatever. But I mean, end of the day, if you want, if you want sort of mainstream adoption,

it's, it's a lot easier for someone to say, hey, this is the point where I go in, connect my bank account, buy some crypto and so on, right? Not everyone's going to self-custody. They should. And over time as they, I mean, that was almost my own journey into it, right? When a lot of people, you come to crypto, the first thing you do, you go and buy crypto on an exchange like finance, like FTX, over time, you get involved in the more, you know, D-Gen stuff. And you go, all right, you know what? I need my own metamast so I can go on uniswob and swap outs and then buy some shit coins and so on and so forth, right? But it's still helpful to have centralized exchanges, if you ask me. They need to be run in a manner that's a lot more transparent, a more compliant.

I think CZ is sort of really starting to lead the way in that. It'll be, I think for all the good is doing, I still don't think is a good thing to have like one exchange dominating literally all of the market share. So yeah, it would be really cool to see a centralized exchange that's being run in a decentralized manner. Yeah. And so, but the last kind of like takeaway for anybody who has funds on FTX would be, or FTCS or really any entity involved would be that if the community somehow manages to go this

token route or community Dow based route, then. and they could presumably kind of resolve it much more quickly and get access to at least some of their funds much more quickly. Is that the upshot? Yes. Yeah, that is the upshot. But the community you would probably need to organize. I don't know, maybe if you have eight, nine figures, you want to do this,

DM me or Thomas or Laura will put something together. Yeah. But for everyone else, because I know everyone else is very, very worried about this. Like, what do I do? Do I have to sue someone? I show a lawyer up? Can you be my lawyer? I've had a lot of these DMs.

If you've got, look, it's very, it's terrible. And I know it's like life changing money to a lot of people. It's absolutely complete tragedy in the space. But they really, I would say don't waste your money, lawyering up unless you have like, you know, eight, nine figures on there. Because at this point, there really isn't much you can do. Just kind of like wait for the process to play out. When if, for instance, the community does rally and there is a, that there is a push to,

to run this sort of restructuring plan, you will have a chance to come on board. If there isn't, and it goes straight to liquidation, you will have a chance to vote, you will have a chance to prove for your dad and so on and so forth. But, like, I mean,

it sucks, but right now you kind of have to wait for the process to play out a bit. If you're a bit bigger, obviously, you can see if you can do something else. Okay. All right. Well, you guys,

this has been a jam-packed episode there was so much to go through. All right, well, thank you both so much. Where can people learn more about each of you and your work? Oh, well, you can follow me on Twitter at Walsie Lawyer. I tweet the most when shit really hits the fan and things that go bankrupt. When that isn't the case, I tweet random stuff about a anti-animate penguin project, which most people probably don't care about.

Thomas. I'm on Twitter. You can just look at Thomas Brazil. Perfect. All right, well, it's been a pleasure having you both on Unchained. Thanks for having to talk. Thanks, Laura. I hope we don't speak again.

Thanks so much for joining us today to learn more about the bankruptcy of FTX. Wasi Lawyer and Thomas, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with the help of Anthony Youen, Mark Murdoch, Matt Pilchard, Fonervanavanovich, Sam Shri-Rom, Pamajimdar, Shashank, NCLK transcription. Thanks for listening.