When FTX, the bankrupt crypto exchange, filed for bankruptcy, it presented savvy crypto traders with a lucrative opportunity to buy its vast crypto assets at steep discounts. One of the traders who took advantage of this opportunity was Mike Novogratz’s firm, Galaxy Digital, whose trading unit bought a hoard of Solana tokens from FTX. These tokens could result in windfall profits for Galaxy Digital.
The bankruptcy estate of FTX tapped Galaxy Asset Management to help manage its crypto assets, including selling, hedging, and staking digital tokens like SOL, the native token of the Solana blockchain. Despite the potential for high returns, most of the tokens owned by Sam Bankman-Fried, the founder of FTX, are locked and can only be sold in batches on a monthly basis between 2025 and 2028. This necessitates selling them at steep discounts to compensate for the risk involved.
Galaxy Trading, a unit of Galaxy Digital, positioned itself on the buying end of the auction for FTX’s locked SOL tokens. Galaxy’s special-purpose fund raised about $620 million to participate in the auctions, potentially resulting in significant profits. Despite concerns about the optics of Galaxy participating in both buying and selling the tokens, the Official Committee of Unsecured Creditors of FTX approved the token sales and supported Galaxy’s dual role in the bankruptcy reorganization.
Despite the approvals from the Official Committee of Unsecured Creditors, some FTX creditors and customers have raised complaints about the handling of the bankruptcy and the potential profits being made by Galaxy Digital. Sunil Kavuri, a former FTX customer and member of an unofficial “Customer Ad-Hoc Committee,” has claimed that the mismanagement of the bankruptcy has cost customers more than $10 billion, primarily in relation to Solana.
As details of the auctions and Galaxy’s involvement in buying the tokens have surfaced, there are concerns about unfair access to information and disincentivization of robust price discovery. Galaxy declined to comment on the specifics of the token sales and its potential profits from FTX’s bankruptcy reorganization. While it is unclear how much Galaxy stands to profit from these transactions, the company’s stock has gained 161% in the last year, and it holds a significant investment in the Galaxy Digital Crypto Vol Fund that acquired Solana from the FTX estate.
The story of Galaxy Digital’s involvement in buying FTX’s SOL tokens at a discount highlights the complexities and potential conflicts of interest that can arise in the cryptocurrency industry, particularly in the context of bankruptcies and asset sales. While some see the transactions as an opportunity for profit, others raise concerns about transparency and fairness in such deals. The outcome of this situation and the reactions from FTX creditors and customers could have implications for how similar transactions are handled in the future.
