If we go back to 2022, the FTX exchange founded by Sam Bankman-Fried is definitely one of the benchmarks in the crypto asset market. Of course, everyone knows the fate of FTX. The Sajie team has written several articles about the FTX exchange. With the sudden demise of FTX, one of the most bankrupt liquidation cases in the history of cryptocurrency has also attracted the attention of investors from all over the world.
After more than two years of bankruptcy reorganization, FTX's compensation plan has finally reached the implementation stage. The first round of compensation has officially started on the 18th of this month. According to FTX's established compensation plan, convenience users with claims less than $50,000 will be given priority to receive cash compensation of about 119% of the currency price in November 2022. This type of convenience users basically accounts for 98% of the total number of users. According to the latest reports, the first batch of $800 million has been paid to 162,000 accounts, and the remaining funds will be distributed in succession.
01. Mainland Chinese users cannot get FTX compensation?
However, just when everything was going well, Sunil, the creditor representative of FTX, issued a statement, clearly stating that users from five countries including China, Russia, and Ukraine [cannot participate] in bankruptcy distribution. Although users from these five countries cannot participate in bankruptcy distribution, given that the proportion of FTX users in Ukraine, Russia, Nigeria, Egypt and other four countries is basically negligible, and the proportion of users from mainland China is as high as 8% of the total number of platform users, it can basically be said that this [cannot participate] bankruptcy distribution strategy involves a large number of people and a huge amount of money. Although Sunil issued a statement saying that users from five countries including China and Russia cannot participate in bankruptcy distribution, he did not explain the reason for not being able to participate in the distribution. Statements such as political factors, international relations factors, and judicial jurisdiction factors are flying all over the sky, and there is no consensus.
02. Eliminate speculation about the reasons for compensation
In fact, the reasons why FTX refused to pay users from China, Russia and other five countries do not sound reliable. Today, the SA team will briefly analyze the possible factors from the perspective of law and financial supervision. In short, first, the inability of users from China, Egypt and Nigeria to obtain compensation from the FTX clearing team is likely related to jurisdiction and compliance risks; second, the inability of Russia and Ukraine to obtain compensation from FTX is likely related to SWIFT sanctions and wartime financial controls. The SA team will analyze it in detail for you.
Jurisdictional barriers and huge compliance risks
China, Egypt and Nigeria have one thing in common in their virtual asset regulatory models - that is, they have adopted a prohibitive regulatory model. As early as 2017, mainland China issued the "Notice on Preventing Risks of So-called "Virtual Currencies" Such as Bitcoin", which can be regarded as an "implicit prohibition" on virtual currency transactions from the official level; in 2021, the People's Bank of China and ten other ministries and commissions issued the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Exchanges", which clearly stipulates that virtual currencies do not have the same legal status as legal currencies...Virtual currency-related business activities are illegal financial activities. This notice directly established the attitude of my country's regulatory authorities towards virtual currencies - that is, a prohibitive regulatory model is adopted, and virtual currency-related businesses are illegal financial activities and are not protected by law.
Egypt's regulation of virtual currencies is similar to that of my country. Article 4205 of Egypt's religious decree clearly states that any commercial transaction based on virtual currencies such as Bitcoin is "Haram", which is an act that violates Islamic law. Therefore, commercial transactions based on virtual currencies are illegal financial activities in Egypt.
The situation in Nigeria is more complicated. As early as February 2021, the Central Bank of Nigeria announced that virtual currencies represented by Bitcoin "violate current laws" and banned commercial banks from conducting virtual currency transactions, identifying virtual currency-related financial businesses as illegal financial activities. However, due to the fragility of Nigeria's financial supervision, the country has actually become the second largest user of Bitcoin and a hard-hit area for virtual currency money laundering and terrorist financing.
From the virtual currency regulatory policies and virtual currency usage of the above three countries, it can be seen that if FTX compensates users in these three countries, it is actually contrary to the current prohibitive regulatory policies of these three countries on virtual currencies, and it is very likely to fall into huge compliance risks. The FTX clearing team will naturally remain vigilant. Especially for Nigeria, the FTX clearing team cannot guarantee whether Nigerian users will launder money and finance terrorism. Therefore, in the view of the Sister Sa team, users in mainland China and Egypt may still be compensated if they wait a little longer, but Nigerian users will definitely be out of the question.
SWIFT sanctions and wartime financial controls
The only ones left are the old enemies, Russia and Ukraine. Unlike the prohibitive regulatory models of China, Nigeria, and Egypt, Russia and Ukraine have embraced virtual currencies. But the two countries have their own problems. First of all, due to some well-known reasons, as early as February 26, 2022, the United States, the United Kingdom, the European Union, and Canada jointly announced that major Russian banks would be removed from the SWIFT (Society For Worldwide Interbank Financial Telecommunications) system.
The function of SWIFT is to connect the payment and clearing systems of different economies, that is, SWIFT connects entities with financial transaction needs around the world through the financial information transmission network it has laid. Although strictly speaking, Russia can still conduct cross-border fund payment and clearing through one-to-one and connecting other financial institutions to the SPFS system, the convenience and applicability will undoubtedly be greatly reduced. Moreover, because it was proposed to the SWIFT system, even if the FTX clearing team compensates Russian users, it will not be able to solve the problem of compensation funds payment in the short term. This may be the main reason why the FTX clearing team cannot compensate Russian users.
For Ukrainian users, the inability to pay compensation is likely related to Ukraine’s wartime financial controls. Due to Ukraine’s wartime financial control policies, the approval cycle for large cross-border remittances and large cross-border capital flows has basically reached a state of stagnation, which directly led to the FTX clearing team being unable to pay compensation to Ukrainian users.
03. Last words: What about Chinese users?
The Sajie team is still optimistic about this. In the future, the FTX clearing team is likely to establish a special clearing channel with countries that adopt a prohibitive regulatory model (mainland China, Nigeria, Egypt), or may use stablecoins for online compensation (although this solution is likely to bring compliance risks). In general, all mainland Chinese users can do now is wait. After all, even if a special clearing channel is built, it requires the cooperation and breakthrough of national and international financial regulatory frameworks.
