Yield App and the impact of losses related to FTX: analysis of the bankruptcy of the crypto platform

The recent decision by Yield App to cease its operations and declare bankruptcy seems to be connected to significant losses stemming from its exposure to FTX, contrary to initial expectations of minimal impacts.

This event raises important questions about the reliability of promises in decentralized finance and the broader implications for investors and market operators. Let’s see all the details below. 

The reasons behind the sudden bankruptcy of Yield App: what does FTX have to do with it?

As anticipated, Yield App, a cryptocurrency investment platform registered in the Seychelles, announced on June 28 the immediate cessation of all operations. 

In an official statement, the company explained that this decision was made to ensure fair and equal treatment for all users and stakeholders.

According to the statement, the portfolio losses were caused by third-party hedge fund managers who held Yield App’s assets on the FTX platform, now in bankruptcy and involved in various legal disputes.

These funds are currently subject to ongoing legal disputes, further aggravating the financial situation of Yield App.

Yield App has suspended the community communication channels, keeping only a support channel active through the official site to assist users. 

Attempts to obtain further details from the representatives of Yield App were unsuccessful, leaving many questions unanswered.

In any case, the transparency of the company has been called into question, especially in light of previous reassurances. In a Discord message on November 10, 2022, Tim Frost of Yield App had stated that the company did not have significant exposure to FTX. 

This statement is now contested, creating confusion among users. An anonymous source has expressed perplexity about the situation, highlighting the strangeness of being hit by FTX after two years from the collapse.

FTX and the sale of assets

In 2024, FTX continued to liquidate its assets as part of the bankruptcy procedure. In February alone, FTX sold 8% of its stake in the artificial intelligence company Anthropic. 

Furthermore, it sold the European branch for 33 million dollars and planned the sale of Digital Custody for 500,000 dollars. These actions were part of efforts to resolve legal disputes and repay creditors.

The closure of Yield App highlights the uncertainty and risks of the criptovalute market, raising important questions about investment management and investor protection.

FTX obtains approval to survey creditors on the Chapter 11 repayment plan

A U.S. judge has recently given the green light to FTX’s proposal to consult its creditors regarding the repayment plan provided by Chapter 11. 

FTX users will soon have the opportunity to cast their vote on the multibillion-dollar plan designed to reimburse the funds that have been locked on the platform since its collapse. 

The judge John Dorsey of the District of Delaware has allowed FTX’s advisors to proceed with the request for a vote by the clients on their restructuring plan. 

If approved, this plan will not only reimburse customers, but also address government penalties related to the collapse of the crypto platform led by Sam Bankman-Fried.

The creditors, through the vote of Chapter 11, have the power to influence the restructuring of the company. 

Although the plan of FTX is supported by key committees representing the interests of customers, there is strong opposition from a vocal group that requires significant changes. 

According to Bloomberg, the majority of FTX clients could recover 119% of their holdings at the time of the Chapter 11 filing in November 2022. 

Court documents indicate that other creditors could recover up to 143% of the amounts owed.

The legal team of FTX has stated that bankruptcy law allows them to reimburse funds only based on the value of the assets starting from 2022. This despite the increase in cryptocurrency prices since then.

The company intends to use the cryptocurrency prices in November 2022, the date of the bankruptcy declaration, as the basis for the refunds. 

FTX has declared that it has recovered 16 billion dollars in assets, of which 12 billion in liquidity. Sufficient therefore to fully repay all customer claims according to the 2022 values.

In addition to refunds to customers, FTX will pay 200 million dollars to the Internal Revenue Service for priority claims.