FTX has started to pay compensation, why are China, Russia and other countries not among them?

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 industry. Of course, everyone knows the fate of FTX in the future. The Sajie team has written several articles about the FTX exchange. With the FTX's crash, one of the best bankruptcy liquidation cases in cryptocurrency history has always attracted the attention of investors from all over the world.

After more than two years of bankruptcy and reorganization, the FTX 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 amounts less than US$50,000 will be given priority to obtain cash compensation of approximately 119% at the November 2022 currency price. This type of convenience users basically account for 98% of the total number of users. According to the latest reports, the first batch of US$800 million has been paid to 162,000 accounts, and the remaining funds will be allocated one after another.

01. Can mainland Chinese users not receive FTX compensation?

However, just as everything was developing well, Sunil, the FTX creditor's representative, issued a document clearly stating that users from five countries including China, Russia, Ukraine [cannot participate] bankruptcy distribution. Although users in these five countries cannot participate in bankruptcy distribution, given that the proportion of FTX users in Ukraine, Russia, Nigeria, Egypt and other countries is basically negligible, while the proportion of users in mainland China is as high as 8% of the total number of users on the platform, so it is basically It can be said that this [unable to 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, could not participate in bankruptcy distribution, it did not explain the reason for their inability to participate in the distribution. Statements such as political factors, international relations factors, jurisdictional factors, etc. are flying all over the sky, and there is no consensus.

02. Speculation on the reasons for compensation

In fact, the reasons why FTX refuses compensation from users in five countries such as China and Russia do not sound reliable. Today, Sa Jie’s team will briefly analyze possible factors from the perspective of legal and financial supervision. To put it simply,: First, users of China, Egypt and Nigeria cannot obtain compensation from FTX liquidation teams, which is likely to be related to jurisdiction and compliance risks; Second: Russia and Ukraine cannot obtain FTX compensation is likely to be related to SWIFT sanctions and war Financial controls are related. Below, Sister Sa’s team will give you a detailed analysis for all old friends.

Jurisdictional barriers and huge compliance risks

China, Egypt and Nigeria have one thing in common in the virtual asset supervision model - that is, they adopt a prohibited supervision model. Mainland China issued the "Tip on Preventing the Risks of So-called "Virtual Currencies" such as Bitcoin" as early as 2017. The notice can be seen as an "implicit ban" of virtual currency transactions from the official level; in 2021, the Chinese people The "Notice on Further Preventing and Disposing of Speculation Risks on Virtual Currency Exchanges" issued by the Bank and other ten ministries and commissions 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 establishes the attitude of my country's regulatory authorities towards virtual currencies - that is, adopting a prohibited supervision model. Virtual currency-related businesses are illegal financial activities and are not protected by law.

Egypt's supervision of virtual currencies is similar to that of our country. Article 4205 of the Egyptian Religious Act clearly states that any commercial transaction based on virtual currencies such as Bitcoin belongs to "Haram", which means that Haram violates Islamic law. Therefore, commercial transactions based on virtual currencies are illegal financial activities in Egypt.

The situation in Nigeria is even more complicated. As early as February 2021, the Central Bank of Nigeria announced that virtual currencies represented by Bitcoin "violate current laws". At the same time, commercial banks are prohibited from trading virtual currencies, and financial services related to virtual currencies are determined to be illegal financial activities. However, due to the fragility of Nigeria's financial regulation, 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 above virtual currency regulatory policies and virtual currency usage, it can be seen that if FTX pays users of the three countries, it is actually contrary to the current prohibited regulatory policies for virtual currencies in the three countries, and it is very likely to fall into huge compliance. The FTX liquidation team will naturally remain vigilant for risks. Especially for Nigeria, the FTX liquidation team cannot guarantee whether Nigerian users will launder money and terrorism financing for platform users. Therefore, in the view of Sa Jie's team, mainland Chinese users and Egyptian users are expected to pay compensation after waiting, and Nigerian users will definitely be in a long way.

SWIFT sanctions and wartime financial controls

What remains are the old enemies of Russia and Ukraine. Unlike the prohibited regulatory model in China, Nigeria and Egypt, Russia and Ukraine have adopted a hug attitude towards virtual currencies. But these two countries have their own problems. First, for some well-known reason, as early as February 26, 2022, the United States, the United Kingdom, the European Union and Canada jointly announced that they would withdraw major Russian banks from SWIFT (Society For Worldwide Interbank Financial Telecommunications) Excluded from the system.

The function of SWIFT is to connect 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 in a strict sense, Russia can still conduct cross-border fund payment and settlement through one-to-one and connecting other financial institutions into the SPFS system, the convenience and applicability will undoubtedly be greatly reduced. Moreover, because the SWIFT system was proposed, even if the FTX liquidation team compensates Russian users, the problem of payment of compensation funds will not be able to be solved in the short term. This may be the main reason why the FTX liquidation team is unable to pay Russian users.

For Ukrainian users, the inability to pay is likely to be related to Ukraine's wartime financial controls. Due to the wartime financial control policy, the approval cycle of large-scale cross-border remittances and large-scale cross-border capital flows has basically reached a stagnant state, which directly led to the FTX liquidation team being unable to compensate Ukrainian users.

03. Written at the end - What should Chinese users do?

Sister Sa’s team is still optimistic about this. In the future, the FTX liquidation team is likely to establish special clearing channels with countries that adopt a prohibited regulatory model (mainland China, Nigeria, Egypt), or may use stablecoins to make online compensation (although this plan is likely to bring compliance. risk). Overall, all Chinese users can do is wait. After all, even if we build a special clearing channel, it also requires cooperation and breakthroughs from various countries and international financial regulatory frameworks.