SEC Warns FTX Regarding Repayment Plan With Stablecoins, Sparking Industry Outcry

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The United States Securities and Exchange Commission (SEC) has issued a warning regarding FTX plan to repay its creditors using stablecoins. In an August 30 filing to the United States Bankruptcy Court in Delaware, the regulator stated that while such repayments may not be outright illegal, the commission reserves the right to challenge any payments made with US dollar-pegged crypto assets.

FTX Repayments: Background

This warning has raised eyebrows, as FTX, the now-defunct crypto exchange, has been exploring various avenues to make its creditors whole following its dramatic collapse in November 2022. Among the proposed methods was an attempt to reboot the exchange, though that plan has since been discarded.

FTX’s most recent liquidation plan outlines a strategy to settle creditor claims worth $12.7 billion based on the US dollar value of assets at the time of its bankruptcy, with repayments possibly made in either cash or stablecoins.

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Crypto Community Criticizes

The SEC’s filing does not explicitly state that payments in stablecoins would violate federal securities laws, but the commission’s decision to retain the option to challenge such payments has drawn criticism.

Notably, the SEC also pointed out that FTX has yet to identify a “distribution agent,” the entity responsible for disbursing these funds, whether in cash or stablecoins, adding another layer of uncertainty to the process.

The crypto industry has not taken kindly to the SEC’s stance. Alex Thorn, the head of research at Galaxy Digital, and Paul Grewal, Coinbase’s chief legal officer, have both expressed strong disapproval. Thorn accused the SEC of “jurisdictional overreach” and implied that the regulator’s actions are more about maintaining control than providing clarity. 

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Thorn criticized the SEC for continuing to reserve the right to treat dollar-backed stablecoins as securities, despite having dropped its case against Paxos, the issuer of Binance USD (BUSD), earlier this year.

Grewal echoed Thorn’s sentiments, calling the SEC’s approach one of threats and uncertainty rather than clear guidance. “Why provide clarity to the market when threats and aspersions will do? Investors, consumers, and markets deserve better. Way better,” Grewal remarked in a September 1 X post.

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