Cointelegraph sat down with activist and cybersecurity expert Chelsea Manning to discuss how blockchain technology can combat challenges associated with artificial intelligence.
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A handful of government-backed financial institutions have been exploring tokenization use cases to revolutionize traditional financial systems. For instance, El Salvador’s Bitcoin Volcanic bond project has been in the works for over a year and aims to raise $1 billion from investors with tokenized bonds to build a Bitcoin city. The Central Bank of Russia has also expressed interest in tokenized off-chain assets. In addition, the Israeli Ministry of Finance, together with the Tel Aviv Stock Exchange (TASE), recently announced the testing of a blockchain-backed platform for digital bond trading. Cointelegraph Research’s 2021 Security Token Report found that most securities will be tokenized by 2030. While notable, the potential behind tokenized government bonds appears to be massive, as these assets can speed up settlement time while freeing up liquidity within traditional financial systems. Brian Estes, CEO of Off the Chain Capital and a member of the Chamber of Digital Commerce, told Cointelegraph that tokenizing a bond allows for faster settlement, which leads to reduced costs. “The time of ‘capital at risk’ becomes reduced. This capital can then be freed up and used for higher productive use,” he said. Factors such as these have become especially important as inflation levels rise, impacting liquidity levels within traditional financial systems across the globe. Touching on this point, Yael Tamar, CEO and co-founder of SolidBlock — a platform enabling asset-backed tokenization — told Cointelegraph that tokenization increases liquidity by transferring the economic value of a real-world asset to tokens that can be exchanged for cash when liquidity is needed. “Because tokens communicate with financial platforms via a blockchain infrastructure, it becomes easier and cheaper to aggregate them into structured products. As a result, the whole system becomes more efficient,” she said. To put this in perspective, Orly Grinfeld, executive vice president and head of clearing at TASE, told Cointelegraph that TASE is conducting a proof-of-concept with Israel’s Ministry of Finance to demonstrate atomic settlement, or the instant exchange of assets. In order to demonstrate this, Grinfeld explained that TASE is using the VMware Blockchain for the Ethereum network as the foundation for its beta digital exchange platform. She added that TASE will use a payment token backed by the Israeli shekel at a one-to-one ratio to conduct transactions across the blockchain network. Recent: TON Telegram integration highlights synergy of blockchain communityIn addition, she noted that Israel’s Ministry of Finance will issue a real series of Israeli government bonds as tokenized assets. A live test will then be performed during the first quarter of 2023 to demonstrate atomic settlements of tokenized bonds. Grinfeld said:“Everything will look real during TASE’s test with the Israel’s Ministry of Finance. The auction will be performed through Bloomberg’s Bond Auction system and the payment token will be used to settle transactions on the VMware Blockchain for Ethereum network.”If the test goes as planned, Grinfeld expects settlement time for digital bond trading to occur the same day trades are executed. “Transactions made on day T (trade day) will settle on day T instead of T+2 (trade date plus two days), saving the need for collateral,” she said. Such a concept would therefore demonstrate the real-world value add that blockchain technology could bring to traditional financial systems. Tamar further explained that the process of listing bonds and making them available to institutions or the public is very complex and involves many intermediaries. “First the loan instruments need to be created by a financial institution working with the borrower (in this case, the government), which will be processing the loans, receiving the funds, channeling them to the borrower and paying the interest to the lender. The bond processing company is also in charge of accounting and reporting as well as risk management,” she said. Echoing Grinfeld, Tamar noted that settlement time can take days, stating that bonds are structured into large portfolios and then transferred between various banks and institutions as a part of a settlement between them.Given these complexities, Tamar believes that it’s logical to issue tokenized government bonds across a blockchain platform. In fact, findings from a study conducted by the crypto asset management platform Finoa and Cashlink show that tokenized assets, such as government bonds, could result in 35%–65% cost-savings across the entire financial system value chain. From a broader perspective, Perianne Boring, founder and CEO of the Chamber of Digital Commerce, told Cointelegraph that tokenized bonds also highlight how technology-driven innovations in financial instruments can provide investors with alternative financial products. “Generally, such bonds would come with reduced costs and more efficient issuance, and come with a level of transparency and monitoring capabilities that should appeal to investors who want greater control over their assets,” she said. Features such as these were recently demonstrated on Nov. 23, when Singapore’s DBS Bank announced it had used JPMorgan’s blockchain-based trading network Onyx to execute its first tokenized intraday repurchase transaction. Banks use repurchase agreements — also known as repos — for short-term funding by selling securities and agreeing to repurchase them later. Settlement usually takes two days, but tokenizing these assets speeds this process up. A DBS spokesperson told Cointelegraph that the immediate benefits of tokenized bonds or securities result in an improvement in operational efficiency, enabling true delivery vs. payment and streamlined processes with golden copies of records.Challenges may hamper adoption While tokenized bonds have the potential to revolutionize traditional financial systems, a number of challenges may slow adoption. For example, Grinfeld noted that while Israel’s Ministry of Finance has expressed enthusiasm in regards to tokenization, regulations remain a concern. She said: “To create new ways of trading, clearing and settlement using digital assets, a regulatory framework is needed. But regulations are behind market developments, so this must be accelerated.”A lack of regulatory clarity may indeed be the reason why there are still very few regions exploring tokenized government bonds. Varun Paul, director of central bank digital currencies (CBDCs) and financial market infrastructure at Fireblocks, told Cointelegraph that while many market infrastructure providers are exploring tokenization projects behind the scenes, they are waiting on clear regulations before publicizing their efforts and launching products into the market. Fireblocks is currently working with TASE and Israel’s Ministry of Finance to provide secure e-wallets for the proof of concept, which will enable the participating banks to receive tokenized government bonds. In addition to regulatory challenges, large financial institutions may find it difficult to grasp the technical implications of incorporating a blockchain network. Joshua Lory, senior director of Blockchain To Go Market at VMWare, told Cointelegraph that market education across all ecosystem participants will accelerate the adoption of the technology. Yet, Lory remains optimistic, noting that VMware Blockchain for Ethereum’s beta was announced in August of this year and already has over 140 customers requesting trials. While notable, Estes pointed out that blockchain service providers must also take into account other potential challenges such as back-end programming for brokerage firms to make sure they are equipped to report bonds accurately on their statements. Recent: After FTX: Defi can go mainstream if it overcomes its flawsAll things considered though, Estes believes that the tokenization of multiple assets is the future. “Not only bonds, but stocks, real estate, fine art and other stores of value,” he said. This may very well be the case, as Grinfeld shared that following the proof-of-concept, TASE plans to expand its range of tokenized asset offerings to include things such as CBDCs and stablecoins. “This POC will lead us toward a complete future digital exchange based on blockchain technology, tokenized assets, e-wallets and smart contracts,” she said. Adoption will likely take time, but Paul mentioned that Fireblocks is aware that financial market participants are interested in taking part in replicating TASE’s model in other jurisdictions: “We anticipate that we will see more of these pilots launching in 2023.”
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Although Bitcoin (BTC) mining remains a controversial topic, it’s becoming more common to hear how Bitcoin mining can help balance grid demand. This is being demonstrated in the state of Texas, as Bitcoin miners are able to participate in demand response programs, which incentivize miners to turn off their operations during peak demand. A spokesperson from the Electric Reliability Council of Texas (ERCOT) — the organization that operates Texas’s electrical grid — told Cointelegraph that crypto loads can have impacts on the grid just like any large load. Yet, they noted that crypto miners can help stabilize the grid by shutting down their demand for electricity in real time:“Crypto mining is extraordinarily responsive and can turn off in a fraction of a second and remain off as long as needed. We are working closely with the crypto mining industry and have established a large flexible load task force to make sure we move forward with the grid reliability and Texas load growth in mind.”On March 25, ERCOT established an interim process to ensure that new large loads, such as Bitcoin miners, can be connected to the ERCOT grid. While evaluations for large load interconnections is not a new process, ERCOT explained that the timeline that most crypto miners operate under requires a new process to make sure existing standards for interconnecting new large loads are being met. ERCOT’s Technical Advisory Committee approved the creation of a “Large Flexible Load Task Force” on March 30 to aid in the development of a long-term process that will replace the current interim process.Software providers want to help miners balance the gridWhile it’s notable that ERCOT is helping Bitcoin miners connect to the Texas grid faster, software providers have also begun working with miners to ensure they have the tools needed to properly enable grid balancing. Recent: Election tally: Does blockchain beat the ballot box?Michael McNamara, co-founder and CEO of Lancium — a Texas-based energy and infrastructure company — told Cointelegraph during the Texas Blockchain Summit that in 2020 Lancium demonstrated how a Bitcoin mine could act as a controllable load:“For loads to qualify as a controllable load resource in ERCOT, customers have to be able to do two things. First, they have to achieve a target power consumption level — either more or less — as directed by ERCOT in less than 15 seconds. Secondly, they should provide ‘primary frequency response.’ This means miners must be able to react to a loss of generation event — for example, the unexpected trip of a thermal generating station — within 15 seconds.”Given these requirements, McNamara shared that Lancium has licensed software to certain Bitcoin miners to act as controllable loads within ERCOT to provide grid stability services. Known as Lancium Smart Response, McNamara explained that this software works by automatically responding to power grid conditions and signals in seconds. “As far as meeting ERCOT’s requirements, software such as Lancium Smart Response is essential to meeting the time required by ERCOT. Controllable load resources provide more surgical and exact grid stabilization benefits than other demand response programs — and customers are compensated at a higher level for providing these more valuable services to the grid,” he explained.For example, McNamara pointed out that miners using Lancium’s software can become certified by ERCOT to participate in its various grid stabilization programs, which could help operators earn higher revenue while reducing power costs by 50%. Specifically speaking, ERCOT’s spokesperson told Cointelegraph that ERCOT has a program for any load to participate in providing ancillary services. According to ERCOT, these programs require loads to qualify in order to supply these services. “Some crypto miners have qualified to offer these services similar to other loads who participate in these existing programs. Those programs are commonly referred to as demand response programs’ and operations voluntarily opt to participate ‘curtail,’” stated ERCOT. While McNamara was unable to comment on which miners will apply Lancium Smart Response, Dan Lawrence, CEO of Foreman Mining, told Cointelegraph that the Bitcoin miner CleanSpark is using his firm’s software to manage its operations. Taylor Monnig, vice president of mining technology at CleanSpark, told Cointelegraph that Foreman allows miners to curtail operations effectively instead of flipping breakers. “Loads can then be directed where needed, essentially working as a battery,” he said.Indeed, automation is important for Bitcoin miners participating in load response programs. To put this in perspective, Sam Cohen, head of business development at Foreman, told Cointelegraph that software enables a miner to be on target at scale. “As an example, if a Curtailment Service Provider asks a miner to reduce their consumption by 10 MW, Foreman can curtail their load in less than a minute with no operator intervention,” he explained. Monnig added that Foreman has allowed CleanSpark to program its machines to stop hashing when necessary. “For example, an S19 mining machine will go from 3,000 watts down to 90 watts in ‘sleep mode.’ Then when the grid doesn’t need the power, the machines turn back on. This is all automated.”Unlike Lancium, however, Foreman currently does not work directly with ERCOT. “We would love to work closer with ERCOT and I believe we are set up to do so. However, there is a lot of red tape that comes with working in ERCOT,” he said. Given this, Foreman is concerned that the growing Texas mining industry may become controlled by a handful of players rather than a number of software providers. “Foreman is promoting decentralization of Bitcoin mining. If things continue down the route they’re heading, it’s possible that all of the large-scale controllable mining loads in Texas could be controlled by a handful of providers, which demonstrates a source of centralization,” he remarked.Bitcoin mining as a controllable load resource Centralization aside, Gideon Powell, CEO and chairman of Cholla Petroleum Inc. — a Texas-based exploration company focused on the energy sector — told Cointelegraph that he believes Bitcoin mining is the apex load for demand response programs, such as the ones pioneered and developed by ERCOT. “When we are running out of power on the grid, we have two options: spin up more generators or just turn down our power use. As individuals this is hard to do. But Bitcoin miners and software companies are enabling ERCOT to view and control these loads to provide demand response that much more closely matches the operation of a traditional generator (in reverse),” he said.Powell added that Bitcoin mining can help power the Texas grid as wind and solar energy become more common. For instance, he noted that historically grids have been thought about from the thermal generation point of view since thermal generation allows for spinning mass to match generation and load at all times. Yet, he noted that wind and solar resources are intermittent, which makes load balancing difficult since these renewable resources are constantly up and down.“Many companies have developed the technology to enable Bitcoin miners and other data centers that house latency agnostic computing to respond to instructions from ERCOT or respond to real time pricing in the grid. When power is scarce prices go up and Bitcoin miners and many others can curtail,” he explained. Recent: House on a hill: Top countries to buy real estate with cryptoPowell further claimed that ERCOT is the most free-market grid in the world, with a regulatory framework needed to encourage bottom-up solutions. “This is why Texas will continue to attract energy entrepreneurs needed for increasingly complex energy markets.”While notable, it’s important to point out that Bitcoin continues to see an increase in energy consumption year-on-year, which may result in stricter regulations. McNamara remains optimistic though, noting that Bitcoin mining continues to be a friendly resource for the Texas grid, which also demonstrates the potential this technology could have within other regions.
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The cryptocurrency sector is the Wild Wild West in comparison to traditional finance, yet a number of banks are showing interest in digital assets and decentralized finance (DeFi). This year in particular has been notable for banks exploring digital assets. Most recently, JPMorgan demonstrated how DeFi can be used to improve cross-border transactions. This came shortly after BNY Mellon — America’s oldest bank — announced the launch of its Digital Asset Custody Platform, which allows select institutional clients to hold and transfer Bitcoin (BTC) and Ether (ETH). The Clearing House, a United States banking association and payments company, stated on Nov. 3 that banks “should be no less able to engage in digital-asset-related activities than nonbanks.”Banks aware of potentialWhile banks continue to show interest in digital assets, BNY Mellon’s 2022 Survey of Global Institutional Clients highlights increasing demand from institutions seeking access to digital assets through reputable custodians. According to the survey, almost all of the 271 institutional investors (91%) are interested in investing in tokenized assets. The survey also found that most of these investors are using more than one custodian, with 35% conducting business with traditional incumbent players.The heightened demand from institutions seeking access to digital assets is one of the reasons why banks are showing interest in cryptocurrency and DeFi offerings. Bobby Zagotta, CEO of Bitstamp USA — a cryptocurrency exchange founded in 2011 — told Cointelegraph that Bitstamp has received many inbound requests recently for their Bitstamp-as-a-Service offering, which allows fintechs and traditional financial institutions to give clients access to cryptocurrency.“Last year, fintechs were asking Bitstamp about services to support cryptocurrency. This year, fintechs have been discussing the downsides of not offering clients access to digital assets. Banks are waking up to the fact that there is client demand to buy and sell crypto, and if people can’t do this with their banks they will go somewhere else,” he said. Zagotta added that banks currently not looking to implement digital asset offerings will lose market share: “Banks are realizing that they could be creating a customer retention problem if they don’t come to market with crypto offerings.” To Zagotta’s point, BNY Mellon’s survey found that 65% of institutions are currently engaging with digital-native platforms rather than traditional financial players. However, BNY Mellon’s findings also indicate that 63% of surveyors would accept longer settlement times in order to transact with a highly rated traditional institution. Recent: Breaking down FTX’s bankruptcy: How it differs from other Chapter 11 casesMoreover, some industry experts believe that large banks can advance their operations by implementing crypto and DeFi solutions. Colin Butler, global head of institutional capital at Ethereum layer-2 network Polygon, told Cointelegraph that while the pilot trade conducted by JPMorgan and the Monetary Authority of Singapore was a milestone toward the adoption of decentralized solutions, it also demonstrates that these entities are testing to see if DeFi frameworks are beneficial. “If the answer is ‘yes,’ then it would allow them to significantly increase the efficiency of their operations,” he said. Butler elaborated that Polygon’s proof-of-stake blockchain ensured that the cross-border transaction conducted between JPMorgan, the Monetary Authority of Singapore, and other banking entities was fast, secure, and as cost-efficient as possible. He said:“All of these elements are extremely important when it comes to DeFi adoption. The inherent efficiency of blockchain-based solutions is what gives DeFi an advantage over traditional financial systems that have been built over the past decades. While they’re still ‘working,’ these frameworks are very rigid. The latest advancements in DeFi can help make the whole process of transacting significantly more efficient and convenient.”Echoing Butler, Seamus Donoghue, chief growth officer at METACO — a digital asset custody provider for major financial institutions — told Cointelegraph that he believes all financial assets will eventually be represented on distributed ledgers. As such, Donoghue mentioned that there is an imperative to redesign the financial market infrastructure. “This is the reason why virtually all tier-1 banks are now investing in building new infrastructure: not for the currently bearish crypto market, but for the much larger vision of how every asset will be represented and how value will be created and exchanged, globally,” he said. Donoghue added that banks will eventually become the bridge for institutions seeking exposure to digital assets and DeFi. He explained that this is due to the fact that traditional financial institutions have consumer trust, large balance sheets and a network of market participants creating liquidity, along with a customer base with unmet needs. However, traditional financial institutions remain concerned about regulations. Mathias Schütz, head of client and tech solutions at SEBA Bank — a Swiss-based digital asset bank — told Cointelegraph that traditional banks are hesitant to engage with digital assets due to regulatory uncertainty. In order to solve this, Schütz noted that SEBA Bank, which is licensed by Swiss regulators, acts as a trusted counterparty for institutions to engage with digital assets. “This is why SEBA Bank has been able to partner with a number of major banks in 2022, including LGT Bank, the world’s largest family-owned private bank,” he said. This is also important from a consumer’s perspective, as findings from BNY Mellon’s survey notes that investors are primarily concerned with digital custodians’ legal and regulatory frameworks. Source: BNY Mellon 2022 Survey of Global Institutional ClientsWill market chaos impact interest in digital assets and DeFi?Regulations aside, the recent turn of events with FTX US and Binance may impact how traditional financial institutions view digital assets. While it’s too soon to understand the consequences of this debacle, Donoghue mentioned that the FTX US and Binance shakeup could have a short-term impact. “It could shift banks’ strategies to skip cryptocurrency services, and focus exclusively on digital securities more broadly, at least temporarily,” he said. Eric Berman, a regulatory expert at Thomson Reuters, told Cointelegraph that he doesn’t believe this event will hasten bank involvement in digital assets. “Banking institutions have taken it slow with crypto as it is. The FTX US and Binance situation probably underscores to the banking sector that it has done the right thing in taking a pragmatic approach.” In any case, both Donoghue and Berman are aware that this event demonstrates the need for further regulatory clarity before traditional financial institutions can innovate with digital assets. “The recent negative industry events have emphasized the critical need for safe and compliant infrastructure, business practices and regulatory oversight. So if anything, the demand for asset servicing from trusted institutions such as regulated global banks, has only increased,” Donoghue said. It’s also interesting to point out that BNY Mellon’s survey examined how the Terra ecosystem collapse has impacted institutional investors. According to the report, 9% of institutional asset managers noted that the Terra collapse has not impacted their digital asset plans, while 50% reported taking a short-term pause to reassess, noting they will likely continue soon. Recent: Could Hong Kong really become China’s proxy in crypto?Regarding whether the bear market will impact banks’ interest in digital assets, Butler explained that the crypto market is not much of a factor affecting banks, particularly when it comes to DeFi. For instance, he pointed out that JPMorgan used Polygon to conduct a live cross-currency transaction that involved tokenized Singapore dollar and Japanese yen deposits, along with a simulation of tokenized government bonds. According to Butler, those assets have no correlation with crypto prices. He added:“Essentially, financial institutions are looking for ways to tokenize traditional assets — and this could be anything, from bonds and fiat currencies to real estate deeds — and transact them digitally. As such, these tokens retain the value of their ‘original’ assets, so this is more about the technology itself rather than crypto prices and bear/bull markets.”
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Collapsed crypto exchange FTX and 130 affiliates filed for bankruptcy in Delaware on Nov 11. Chaos followed as a number of FTX creditors, investors and industry experts began to question what would happen next. Laura Shin, crypto journalist, author and host of the Unchained Podcast, sent a tweet on Nov. 15 questioning whether the alleged inter-loan agreement between FTX and Alameda — the company’s venture capital arm — will affect creditors’ and customers’ ability to get back funds.Could one big venture success out of FTX Ventures be a viable path to recovery for FTX creditors & customers? @wassielawyer and @ThomasBraziel think so, although that could take up to…10 years. full episode: https://t.co/xyHyTC59sw pic.twitter.com/DpDXg1oORK— Laura Shin (@laurashin) November 15, 2022Caitlin Long, founder of Custodia Bank — a Wyoming-based bank specializing in digital assets — tweeted that this would be the most complex bankruptcy in U.S. history.I DON’T THINK IT’S AN UNDERSTATEMENT to predict that @FTX_Official Chapter 11 will be most complex bankruptcy in US history. No clear commercial law roadmap re:#crypto for the judge to follow. US bankruptcy law has “presumption against extraterritoriality.” Every creditor doxxed pic.twitter.com/RFipf062RS— Caitlin Long ⚡️ (@CaitlinLong_) November 11, 2022
According to Long, the international corporate structure of FTX will create complexities. This already appears to be the case, as Bahamian liquidators recently mentioned that their actions may impact the Chapter 11 case, according to Reuters. Moreover, on Nov. 14, FTX filed a document revealing that the exchange may have more than one million creditors involved in the bankruptcy case.How the FTX bankruptcy differsGiven the complexities involved with the FTX bankruptcy, it’s become clear that this case will likely differ from other United States bankruptcy proceedings. Joseph Moldovan, chair of business solutions, restructuring and governance practices at Morrison Cohen — a New York-based law firm — told Cointelegraph that while there have been complex bankruptcy proceedings in the United States, the FTX Chapter 11 case is unique due to the unknowns. “What’s most unusual about the FTX bankruptcy is that the debtors are complex entities with significant amounts of debt. Normally, there are months and months of preparation. Corporate bankruptcies are usually very granular, choreographed and developed processes before they are filed,” he said, adding, “This is simply not the case with the FTX bankruptcy. We (creditors and other interested parties) are still waiting for the most basic information related to the 130 various entities that have filed.” Moldovan added that while bankruptcies like Lehman Brothers and Enron have involved multiple billions of dollars in assets, debt and numerous affiliated entities, the amount of debt, assets and creditors associated with FTX remain unclear. “What you normally have in a U.S. bankruptcy case that you don’t have here are first day hearings, in which the lead counsel for debtors walks the court and the public through why the case was filed. This gives a sense of what the long-term goal is and how it may be achieved. We have not yet had a first day hearing in the FTX case,” Moldova further remarked. As a result, Moldovan noted that FTX creditors and interested parties are still questioning outcomes: “We simply don’t have adequate information to obtain answers yet.” One of the biggest questions that remains to be answered is whether FTX creditors get their money back and if so, when? Margaret Rosenfeld, a corporate securities lawyer, specializing in digital assets, told Cointelegraph that she believes it will take years before any FTX creditors receive a penny back. “This includes FTX customers and other parties FTX may have owed money to,” she said. Moldovan explained that it is not unusual for creditor recovery to take significant time. In the United States, bankruptcy cases claims of creditors have to be filed by a certain date set forth by the bankruptcy court. “Once this date is set, a claims agent will take these forms, scan them, and separate the claims by cases. Each of these claims will then be compared with the company’s books and records,” Moldovan said. Yet, due to the large number of creditors involved with FTX — potentially in excess of one million — along with no current visibility into the company’s bookkeeping practices, Moldovan believes that this process will take longer than normal: “You can’t make creditor distributions until these claims are analyzed. It’s also way too early to speculate on what kind of distribution creditors will get back. Though in mega cases, such as this, full recovery would be unusual.”In regard to creditors who took their money off FTX before the exchange collapsed, Rosenfeld explained that these funds can be clawed back, or voided, by a bankruptcy court. “U.S. bankruptcy rules state that money can be clawed back by the court, so don’t assume that money is yours. If a creditor was paid out 90 days before the bankruptcy, a trustee can ask for that money to be paid back,” she said.While it may take years for FTX creditors to get their investments back, Moldovan also pointed out that the case will be expensive, which will likely result in smaller payouts for creditors. He explained that this is because the funds used to pay for a bankruptcy case come from a bankruptcy “estate,” which consists of all debtors’ property. “The funds used to pay for all of the costs of the bankruptcy case and all of the professionals retained — lawyers, accountants, restructuring advisors, and others — come out of this estate, which therefore reduces the amount available for distribution,” he said. Given this, on Nov. 14, FTX filed what is called a “matrix” motion. Normally, Chapter 11 debtors are required to file a matrix providing a mailing list of names and addresses of creditors or parties of interest involved in a bankruptcy case. Notices and other pleadings filed in the bankruptcy proceeding are then mailed to all of the individuals listed on the matrix. Yet, Moldovan explained that in this case, the administrative costs of compliance “has to be modified in order to reduce estate costs.” Therefore, the debtors have asked the court to authorize email service and make some other accommodations. “The bankruptcy court has the flexibility and power to do this,” he added. What’s next: The restructuring of a distressed company Although a number of unknowns remain in regard to the FTX bankruptcy case, it’s important to point out that John Ray, the new CEO of FTX, will be responsible for the restructuring of the company. Moldovan explained, “Jon Ray is the new chief restructuring officer, meaning he will lead the restructuring of the distressed company and has been delegated with all corporate powers and authorities, including the ability to appoint independent directors to assist in the governance of various entities, which he has already done.” According to aforementioned court document filed on Nov. 14, Ray has identified some of these directors: former Federal district judge Joseph J. Farnan, Jr. will serve as the lead independent director, while FTX debtors have engaged Alvarez & Marsal as proposed financial advisers. The document further states, “The appointment of Mr. Ray and the independent directors ensures that the Debtors can navigate the chapter 11 process independent of any conflicts and involvement in FTX’s prepetition activities.”While details are yet to be revealed around the FTX Chapter 11 case, Moldovan further remarked that one of the benefits of the U.S. bankruptcy court system is the transparency it provides:“Unless there is a need for secrecy, everything will be said in open court in which anyone can listen. All pleadings and other documents in the case will be filed within a publicly accessible website for any member of the general public to visit.”How the U.S. Bankruptcy Court intends to handle a case involving digital assets also remains a concern, especially given the lack of regulatory clarity in the United States, along with regulators who may not be familiar with cryptocurrency. However, Moldovan has expressed optimism regarding the court’s ability to deal with the complexities of the crypto ecosystem.He said, “Everyday in the United States, bankruptcy courts analyze, value, and determine ownership of esoteric assets, crypto being one. At the heart of all this analysis is basic contract law. What do the documents that create the assets, state rights of ownership, and set forth the respective rights and relationships of the parties to the contract actually say? This analysis is fundamental to the bankruptcy process.That the courts have not made certain determinations yet, merely reflects the novelty, meaning the newness, of the particular issues raised in a crypto bankruptcy. However, this will all be sorted out.”
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