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- FTX has filed a lawsuit against Grayscale Investors to free up $9 billion in assets.
- The move may fuel massive liquidations that can upset the market.
Bankrupt and embattled crypto brokerage firm, FTX Derivatives Exchange has filed a lawsuit against the largest Trusts provider in the crypto ecosystem, Grayscale Investments. According to the announcement, FTX and its sister firm, Alameda Research want an injunctive relief to unlock $9 billion or more in value for shareholders of the Grayscale Bitcoin and Ethereum Trusts.
Should the Judge in the Court of Chancery in the State of Delaware where the lawsuit was filed favor FTX, it will help unlock a quarter of a billion dollars which will bolster the firm’s reserve as it works its way to repay all its creditors. FTX, led by its Founder and former Chief Executive Officer, Sam Bankman-Fried filed for bankruptcy last November, locking up more than $8 billion in assets belonging to more than 100,000 creditors.
FTX claims against Grayscale
Since the bankruptcy filing, the firm has been looking for funds wherever it can find them. One of its approaches is to sell off some of its viable businesses. Approval was granted earlier for the firm to sell LedgerX, Embed Technologies, FTX Europe, and FTX Japan respectively. While no formal update has been given with respect to these proposed sales, the bidding process is reportedly ongoing.
The pursuit of Grayscale is its latest attempt and the firm has a lot of accusations against Grayscale. Per the announcement, Grayscale is known for charging exorbitant management fees which have accrued to more than $1.3 billion in the past 2 years.
Besides this, FTX said Grayscale is in the habit of tactically preventing investors from being able to redeem their Trust. These preventive actions have notably caused the shares to be trading at a 44% Discount to Net Asset Value (NAV).
According to FTX, should Grayscale reduce its management fees and start permitting users to access their Trusts, its expected payout can be up to $550 million.
“We will continue to use every tool we can to maximize recoveries for FTX customers and creditors,” said John J. Ray III, Chief Executive Officer, and Chief Restructuring Officer of the FTX Debtors,
Our goal is to unlock value that we believe is currently being suppressed by Grayscale’s self-dealing and improper redemption ban. FTX customers and creditors will benefit from additional recoveries, along with other Grayscale Trust investors that are being harmed by Grayscale’s actions.
Broader market implications
While the lawsuit filed will largely free up funds for FTX if the Judge grants its injunctive relief request, it will also largely free up cash that might eventually get liquidated.
There have always been fears about the potential instability in the Bitcoin and Ethereum Trusts being managed by Grayscale. At a time, the ecosystem feared there might be some selloffs in the firm’s Bitcoin and Ethereum assets in a bid to help cushion the financial crisis being faced by its parent firm, Digital Currency Group (DCG) and Genesis Global.
Without assurance that the $9 billion will be freed up, investors are largely expected to stay on the path of caution.
