The U.S. Securities and Exchange Commission (SEC) may soon object to bankrupt crypto exchange FTX’s right to repay its users in stablecoins. This new development adds another layer of uncertainty to the ongoing saga of FTX, which has been embroiled in legal battles since its collapse in November 2022.
Stablecoins, typically pegged one-to-one to stable assets like the U.S. dollar, have been a contentious issue for regulators. The SEC’s latest filing suggests that the agency maintains the right to challenge transactions involving crypto assets, including stablecoins. This could potentially block FTX’s efforts to return funds to its users in this manner.
FTX, once the third-largest crypto exchange globally, filed for bankruptcy after its dramatic implosion. Founder Sam Bankman-Fried was convicted in November 2023 on multiple charges, including money laundering, wire fraud, and conspiracy, following the discovery that he had misappropriated $8 billion of customer funds. He was sentenced to 25 years in prison and ordered to return $11 billion in assets.
Amid this turmoil, FTX committed to repaying up to $16.3 billion to its users as part of a new restructuring plan. The plan included a promise to return up to 118% in cash to those owed less than $50,000. However, the SEC’s recent court filing indicates that the regulator has reservations about this repayment plan, particularly the use of stablecoins.
The SEC’s hesitation largely stems from ongoing debates about the legality of stablecoin transactions under current securities laws. The agency has consistently sought to classify certain cryptocurrencies, including stablecoins, as securities, making them subject to stricter regulations.
SEC Chair Gary Gensler has repeatedly voiced concerns over the risks associated with stablecoins. At a capital markets conference in April 2022, Gensler highlighted the potential dangers stablecoins pose to financial stability and monetary policy. He has also warned that stablecoins could harm the American public, comparing them to poker chips at a casino.
The SEC’s opposition to FTX’s repayment plan adds another hurdle for the troubled exchange as it seeks to make amends with its creditors. The outcome of this legal challenge could set a precedent for how other bankrupt crypto firms handle their obligations to users.
