Weekly Top Stories - 2/21
This week in the newsletter, we write about FTX beginning refund distributions to creditors, a Hong Kong regulator releasing their crypto roadmap, and Figure Markets launching a regulated yield-bearing public security.
FTX Begins Refunding Creditors
FTX begins distributing funds to creditors. On February 18, FTX began repayments to creditors as part of the bankruptcy reorganization plan, which will distribute nearly $17bn across several dates in USD. FTX customers should expect to receive ~120% of their account value based on when FTX filed for bankruptcy in November 2022 (when BTC = $16,871).
The initial round of distributions includes $1.2bn that will be paid to the small claims creditor group (i.e., the 'Convenience Class' with claims <$50k). Payments were sent to eligible claimants through BitGo and Kraken for distribution. To be eligible for repayment, creditors needed to complete KYC and tax verification for each individual account. Only 162k out of 457k total accounts were included in the initial distribution round as many had not completed KYC or held Disputed Claims, which could be due to certain jurisdictions still under review (including the Bahamas).
The next distribution date is scheduled for May 30, which will go to creditors with large claims (>$50k) as well as Convenience Class members with resolved disputed claims.
OUR TAKE:
After nearly two and a half tumultuous years since its collapse, FTX customers finally see their funds returned. For some who thought they would never see their funds again, these repayments come as a reprieve. However, the dollarization of their claims at the point of bankruptcy means these customers still missed significant gains from crypto appreciation. The dollarization date effectively marked a bottom in the crypto market — compared to the November 2022 record date, BTC is trading ~6x higher, SOL is up ~11x while ETH…up 'only' 2x. Heading into this event, many have been wondering how the refunds would impact the market and they would be redeployed to buy crypto. The timing of these distributions coincided with a nice recovery since Tuesday's lows, though we think that these initial repayments may have had a mild impact. Of the $1.2bn headline figure, only ~$800m was sent to eligible creditors, according to FTX Creditor Sunil, who then estimates that half of that amount was sold to claim buyers (not expected to reinvest). This suggests that the initial distribution round was essentially a $400m liquidity event to individual crypto investors. In any event, the next distribution date will see up to $7bn repaid to creditors who are probably ready to move on from this bankruptcy chapter in their lives. – Charles Yu
Hong Kong Regulator Releases Crypto Roadmap
Hong Kong’s Securities and Futures Commission (SFC) released its long-awaited roadmap for crypto regulation. As part of an effort to promote Hong Kong as a crypto hub and also create safeguards and protections for consumers, Hong Kong’s primary financial regulator released a plan highlighting 12 major initiatives across five pillars – “ASPIRe” for access, safeguards, product, infrastructure, and relationships.
Broadly, the Hong Kong SFC will:
Introduce a new custody regime with capital requirements and licensing similar to how tradfi custodians are regulated.
Support the Hong Kong government's desire to regulate OTC trading like the regulation of Virtual Asset Trading Platforms (VATP), though doesn’t commit to being the regulator that would oversee them.
Consider changes to margin requirements and explore the introduction of a regulatory framework for derivatives trading.
Consider allowing staking, lending, and borrowing services to be offered in a new framework.
Throughout the roadmap, the SFC makes clear that it seeks to increase liquidity in the city-state, reflecting a desire to attract order flow, business, and capital from around the world. According to the SFC’s release, “The initiatives will streamline access for global liquidity, enable adaptive compliance and product frameworks focusing on security, and drive infrastructure upgrades for traditional finance to tap into blockchain efficiency.”
In Europe this week, 10 stablecoin issuers received approval to issue Euro-backed stablecoins under the continent’s Markets in Crypto Assets (MiCA) regulatory framework. Tether was not one of the approved issuers.
OUR TAKE:
The global arms race to formalize and legalize crypto-related business activity is in full swing. While the U.S. neglected to bring formal regulatory and legal clarity to the thriving cryptocurrency market over the last few years, many global jurisdictions have begun initiating their own regulatory reform or construction processes. These include Singapore, Abu Dhabi, Bahrain, Europe, Hong Kong, and more. But President Trump’s focus on protecting and promoting the crypto industry in the U.S. may be adding a sense of urgency around the world. Where some jurisdictions may have viewed prior U.S. inaction as creating an opening, the rapidly and materially shifting U.S. approach means the window to be one of the few major jurisdictions with regulatory clarity is closing.
Still, the world is big, and there is room for lots of players. Asia is an enormous market in crypto, and Hong Kong and Singapore both are key financial hubs. The suggestions themselves but also the tone of Hong Kong SFC’s roadmap suggest a reasonable, progressive, industry-supportive approach that should help an already vibrant market continue to flourish. – Alex Thorn
Figure Markets Launches Regulated Yield-Bearing Public Security YLDS
On Thursday, February 20th, Figure Markets announced the launch of an SEC-registered yield-bearing public security YLDS. In its press release, Figure Markets promotes YLDS as the “industry first yield-bearing stablecoin.”
YLDS is backed by prime money market funds and earns an interest of SOFR minus 50 bps (3.85% as of 2/19). The interest accrues daily and is paid monthly in USD or YLDS. YLDS runs on the Provenance Blockchain and is expected to be integrated with other Layer 1s. It is custodied by Figure Markets’ self-custody wallets, meaning that users, not third parties, have control of their funds. YLDS can be transferred peer-to-peer on the Provenance blockchain and can be off-ramped to fiat during US banking hours. YLDS is available to users of the Figure Markets platform, including US retail and institutional users.
Figure Certificate Co., the subsidiary of Figure Markets, filed for the approval of YLDS back in October 24, 2023. It is worth noting that Figure Certificate Co. is a “face-amount certificate” company that issues “certificates,” which are defined to be “fixed-income securities” in their SEC filings.
OUR TAKE:
The launch of YLDS comes against the backdrop of a rapidly growing stablecoin market, with total supply surpassing $215 billion – an all-time high. While Figure Markets promotes YLDS as a “stablecoin,” it is more accurately classified as a “public security.” The S-1 filing under which YLDS was approved by the SEC explicitly described YLDS as a “face-amount certificate” which are “fixed-income securities.” In addition, although YLDS allows peer-to-peer transfer, the S-1 filing indicates that “there may be a limited number of counterparties for peer-to-peer transactions… [these transactions] do not constitute a public trading market.” A true stablecoin, in contrast, ideally functions like cash – freely transferable and widely accepted across financial and crypto markets.
While the market has generally celebrated this launch, the ambiguity on perceiving it as a stablecoin rather than a security highlights the ongoing confusion surrounding stablecoin regulation – with oversight spread across multiple agencies depending on how the stablecoin is structured, including the SEC, OCC, CFTC, state regulators among others. An unclear regulatory landscape emphasizes the importance of developing a clear stablecoin regulatory framework, which was a key focus at the press conference hosted by the crypto czar David Sacks earlier this month. The recent stablecoin bills – the GENIUS Act and the discussion draft of the STABLE Act – further address this confusion and clarify that payment stablecoins are not classified as securities, thereby excluding them from SEC oversight.
Despite the still tangled regulatory situation, the approval of YLDS signals the SEC’s accelerated approach to crypto regulation. This aligns with Commissioner Hester Peirce’s statement last week, where she emphasized the need for a more adaptive and transparent approach to crypto regulation. (Read this Galaxy Research Brief for insights on Pierce’s most recent statement on the SEC’s approach to crypto and watch this week’s episode of Galaxy Brains featuring Commissioner Peirce.) The SEC's approval of YLDS can be seen as another signal of the broader shift toward more proactive and expedited oversight of digital assets in America. – Jianing Wu
Charts of the Week
Jito’s Tip Router Node Consensus Network (NCN) went live on January 30, 2025, after restaking deposits began in October 2024. The Tip Router enables the redistribution of a portion of Jito tips to JTO and SOL liquid staking token (LST) depositors, enabling additional rewards for SOL stakers and offering a value accrual mechanism to the JTO governance token. These tips represent fees paid by users on Solana routing their transactions through Jito’s block engine and do not stem from the inflation of other ecosystem tokens.
The governance vote to pass the Tip Router NCN, which was decided by a futarchic market, occurred on January 18 and prompted a large inflow of restaking deposits. As of February 20, there were $178.5 million of restaked SOL LST and JTO deposits securing the Tip Router.
The first restaking rewards to vaults securing the Tip Router were distributed on February 4, and have since climbed to a total of $237,000 (equating to about $5.4 million on an annualized basis). The additional yield offered and quality of rewards distributed through restaking broadly has been brought into question as the sector gained popularity over the last year. The only precedent the industry had in this regard came from Cosmos replicated security, which produced virtually no rewards for restaked ATOM. Restaking via Jito’s Tip Router NCN is unique in this sense in that the mechanism producing the restaking rewards has generated more than $1.07 billion in revenue all time. This presents a distinct opportunity for Tip Router restakers in that the underlying product already generates revenue and rewards are paid in jitoSOL, a widely adopted and used asset on Solana and CeFi platforms.
Sonic EVM, the new and improved version of Fantom, has seen a surge in total value locked (TVL) in its DeFi ecosystem over the last week. Reaching $679.4 million on February 20, the chain’s TVL has increased 71% since February 13 and 135% since the beginning of February. The sharp increase that occurred over the last week coincides with turbulence in Solana DeFi, with memecoins and dex activity breaking down off the recent record-setting highs.
As TVL has scaled so has the amount of stablecoins on the network. As of February 20, there were $143 million of stablecoins on the chain, representing 102% growth over the trailing seven-day period.
Other News
Coinbase and SEC reach “agreement in principle” to dismiss case against the exchange
Kanye “Ye” West reportedly planning to launch YZY token
Hong Kong regulator in active talks about ETF staking as part of new roadmap
SEC acknowledges Bitwise’s spot XRP ETF filing adding to a crowded list
Binance.US restores ‘full USD services’ after 19 months and no banks
Bitcoin rewards app Fold goes public, begins trading on Nasdaq
Nigeria sues crypto exchange Binance for $81.5 billion following hostage crisis
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