Crypto News – SEC Raises Red Flags Over FTX’s Stablecoin Payment Plan

Crypto News – SEC’s Warning Could Complicate FTX’s Efforts to Repay Creditors

Crypto News – The United States Securities and Exchange Commission (SEC) has raised concerns over the repayment strategy proposed by the defunct crypto exchange FTX, specifically if it involves the use of stablecoins. In a filing submitted to the United States Bankruptcy Court in Delaware on August 30, the SEC signaled its intention to challenge repayments made with US-dollar pegged cryptocurrencies.

SEC Questions Legality of Stablecoin Payments

The SEC’s filing highlights that while stablecoin-based creditor repayments may not be outright illegal, the commission reserves the right to contest such transactions. The regulator’s cautious stance comes after FTX’s collapse in November 2022, which left numerous creditors seeking restitution.

FTX’s Plan for Creditor Repayments

FTX has explored various methods to settle creditor claims, including an abandoned plan to relaunch the exchange. The current liquidation plan proposes to settle claims either in cash or with stablecoins, based on the US dollar value of assets at the time of FTX’s bankruptcy. This approach, however, has not yet appointed a “distribution agent” responsible for managing these payments.

SEC’s Concerns and Industry Reactions

The SEC’s warning has sparked criticism from the crypto community. Alex Thorn, Head of Research at Galaxy Digital, and Paul Grewal, Chief Legal Officer at Coinbase, have both condemned the SEC’s stance. Thorn criticized the SEC for its “jurisdictional overreach,” pointing out that despite dropping its case against Binance USD (BUSD) issuer Paxos in July, the SEC is still attempting to classify dollar-backed stablecoins as “crypto asset securities.”

Industry Criticism and Call for Market Clarity

In a September 1 post on X (formerly Twitter), Thorn argued that the SEC’s actions reflect an unwillingness to move forward and an excessive regulatory reach. Grewal echoed these sentiments, expressing frustration with the SEC’s approach and calling for more clarity and fairness in regulatory practices.

Current Status and Future Implications

As it stands, the SEC’s intervention may affect the implementation of FTX’s repayment plan, potentially complicating the process of returning funds to creditors. The situation underscores the ongoing tension between regulatory authorities and the cryptocurrency industry, highlighting the need for clear and consistent guidelines for digital asset transactions.

The SEC’s actions and the broader implications for the crypto market will continue to unfold, requiring careful attention from investors and industry stakeholders alike.

FAQ: SEC’s Warning on FTX’s Stablecoin Repayments