On September 13, 2023, FTX obtained permission at a hearing in the U.S. Bankruptcy Court and was allowed to liquidate Cryptoassets it holds. Proceeds from the liquidation will be used to repay FTX debtors.

According to court documents, the currently proposed liquidation plan involves approximately $3.4 billion in crypto assets (including SOL, BTC, ETH, etc.). The maximum limit for weekly liquidations is $100 million (which can be increased to $200 million with the approval of the creditors committee). The liquidation appointed Galaxy Digital Capital Management as investment adviser to oversee the sale of the assets. The primary purpose of the plan is to repay debtors with liquidation proceeds while minimizing the risk of market price fluctuations.

So, what is the asset composition of FTX liquidation? When will it be implemented? What impact will it have on the market? Let us answer them one by one.

TL;DR

• The largest asset in FTX liquidation is SOL, worth approximately US$1.16 billion, accounting for nearly 35% share. This is followed by BTC worth $560 million and ETH worth $190 million.
• Affected by the weekly sales limit of FTX Weekly’s liquidation plan and the circulation status of the assets, the market prices of various liquidated assets will hardly be affected by this liquidation.
• The official start time of FTX liquidation is the second quarter of 2024 at the earliest, which is still a long time away.

FTX liquidation asset composition

First of all, FTX’s debtor assets are mainly composed of 4 parts: government seized assets, venture capital assets, Crypto assets, and cash assets.

Among them, the largest assets are digital assets, accounting for nearly half of all FTX debtor assets. It is these assets that are being liquidated this time.

The total value of digital assets in this liquidation is US$3.4 billion. These assets all belong to Category A, which are mainstream digital assets with higher security. Among them, the largest asset is Solana’s native token SOL, which accounts for nearly 35% of all liquidated assets and is worth approximately US$1.16 billion. The second and third ranked assets are BTC and ETH, with asset values of $560 million and $190 million respectively. The detailed information of the remaining top ten assets is shown in the figure below:

Market price fluctuations

SOL

As the asset with the largest proportion of FTX liquidations, the sale of SOL undoubtedly attracted the most attention.

According to data from TokenInsight, after the news about FTX liquidation was released on September 10, the price of SOL quickly fell by 6 points. The possible selling pressure brought about by the large amount of SOL sales has had a considerable impact on the price of SOL. Most investors are also pessimistic about the imminent start of new liquidations, believing that SOL's price could fall sharply due to heavy selling.

In their opinion, the SOL liquidated this time accounts for approximately the entire circulation of SOL 16% of the amount. A sell-off of such a large amount of the asset would naturally cause a large market shock, causing the price of SOL to drop (in a one-time sell-off, the price of SOL would be expected to drop 13%, from $18.7 to $16.25). But is this really the case?

After analysis, we believe that the impact of FTX liquidation on SOL prices may not be as great as imagined. In other words, this FTX liquidation may not affect the price of SOL at all. There are two reasons for this:

• A liquidation plan that can reduce the risk of market price fluctuations

In order to reduce the risk of market price fluctuations, FTX lawyers proposed to the court Liquidation schedule frequency is weekly and capped. The value of assets released to the market at a time under the plan cannot exceed $100 million (and may be as high as $200 million). At the same time, there is a high probability that these assets being sold are not the same token. In other words, the assets liquidated each week may be composed of multiple tokens. For example, a single sale of assets might be 40% SOL, 30% BTC, 20% ETH, and 10% APT. Therefore, the SOL sold every week is actually within the tolerance of the market and will not have an excessive impact on the price.

• Most SOL remains locked

Although according to court documents, the value of SOL in FTX’s liquidated assets is approximately $1.16 billion. But in reality, there aren’t that many SOLs that can be liquidated. Currently, FTX’s SOL holdings in circulation are worth only $360 million, accounting for approximately 30% of SOL’s liquidated assets. Nearly 70% of SOL remains locked.

According to data from solanacompass.com, the number of locked SOL currently held by FTX is 42,248,610 SOL. Based on current SOL prices (2023-09-18, $18.7), the value is approximately $800 million. The specific quantity and locking time are shown in the figure below:

As can be seen from the figure above , more than 7.5 million SOL will be locked until 2025; most of the remaining SOL will be unlocked linearly every month until 2028. Therefore, the amount of SOL that can be liquidated is actually much less than one might think. Combined with SOL’s market value of more than 7 billion, the weekly sales of SOL are far from enough to cause shocks to its market price.

BTC

According to data from TokenInsight, the current average weekly trading volume of BTC is about 60-80 billion US dollars, and the average single-day trading volume is about 50-10 billion US dollars. The total liquidation value of BTC in FTX liquidations is only $560 million.

According to the liquidation plan of the FTX plan, if only BTC is liquidated as one asset every week, Then only BTC worth $200 million can be sold at most each time. Currently, BTC’s market cap is close to $522.5 billion. According to calculations, the impact of the sale of $200 million in BTC on its price is less than 0.01%, which is completely negligible.

ETH

According to data from TokenInsight, ETH’s current average weekly trading volume is approximately US$25-30 billion, and the average single-day trading volume is US$3-5 billion. The total liquidation value of ETH in FTX liquidations is $190 million.

Similarly, according to the liquidation plan of the FTX plan, if only one ETH is liquidated in a single week As an asset, all ETH can be sold in just one week at the earliest. Currently, ETH’s market cap is close to $197 billion. According to calculations, a one-time sale of $190 million in ETH would have a maximum impact on its price of about 0.05%.

Other assets

For assets with small market capitalization (such as APT, STG, etc.), FTX will most likely choose to diversify and sell them during liquidation to help reduce the potential price fluctuation risk caused by selling pressure. .

For example, APT has a total liquidation value of $137 million. If spread out over 34 weeks (total liquidated asset value: $3.4 billion, weekly cap of $100 million, total liquidation completed in 34 weeks), the impact on APT price would be reduced from close to -10% to approximately -0.3%.

When will liquidation begin

According to court documents, the earliest FTX liquidation could begin is the second quarter of 2024.

After the court approves the liquidation of FTX on September 13, FTX will enter the solicitation and formulation stage of the liquidation plan. The specific arrangements are as follows:

Among them, the most important time point to pay attention to is the time when the specific liquidation plan is determined. This could happen as early as the second quarter of 2024. Prior to this, FTX will collect liquidation plans from the debtors and discuss them until a unified opinion is reached to determine the final weekly liquidation plan.

Since it has been clarified that the frequency of asset sales during liquidation is once a week, the content that needs to be determined in the liquidation plan will include the specific asset types, sales amounts, proportions and other information to be sold every week.

According to previous information given by FTX, if the value of assets sold per week during liquidation is between US$100 million and US$200 million, the maximum liquidation time will be 34 weeks. It takes about 6-8 months to complete the full liquidation. Therefore, if FTX begins liquidation in 2024 Q2, the earliest end time will be at the end of next year, and the slowest will be extended to 2025.