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Frequently Asked Questions
Bankruptcy claims trading is when one person or company buys a claim, which is the right to collect money owed to a creditor in a bankruptcy case.
When a company files for bankruptcy, it often owes money to many different creditors. Some of those creditors may not want to wait for the bankruptcy process to be completed to get their money back. So, they can sell their right to receive the money to someone else. This person is called a claims trader.
For example, let's say you are owed $1,000 by a company that filed for bankruptcy. You may not want to wait months or even years to get your money back, so you decide to sell your right to collect the money to a claims trader. The claims trader pays you less than the full $1,000, say $600, but you get the money right away.
The claims trader now has the right to collect the full $1,000 from the company in bankruptcy, and if successful, will make a profit of $400. This is how claims trading works - the trader buys the right to collect the debt for less than the full amount, and then makes a profit if they are able to collect the full amount.
Claims trading can be helpful for both the creditor who wants to get money right away and the claims trader who is willing to take a risk on collecting the full amount in the future.
Blockchain technology unlocks bankruptcy claims trading to the public making it a modern asset class. For example, in the case of Mt. Gox, a high-profile crypto exchange that filed for bankruptcy in 2014, claims returned upwards of 1,700%. While FTX claims are capped at returning 100 cents-on-the-dollar, they still have tremendous upside potential.
Furthermore, democratizing access to claims trading through a peer-to-peer marketplace, increases liquidity in the market for bankruptcy claims, leading to better pricing for both buyers and sellers.
Found’s approach to bankruptcy claims provides equal access to an untapped global trading market.
Smart Claims are the world's first tokenized bankruptcy claims: no intermediaries, lower fees and costs, greater access to lending and marketplaces, 24/7 365 trading, rewards on secondary trades, farm airdrops on third-party platforms, faster and cheaper transactions, self-custody, transparent pricing data, on-chain transfer history, and liquidity creating products like fractionalization and other programmability opportunities of smart contracts.
Ultimately, the market determines pricing, but relevant factors include:
- Size of your claim
- Preference exposure
- Quality of supporting documentation
- Listing on multiple marketplaces at the same time
- Prompt and helpful responses to buyer requests for more information
If you transferred money out of an exchange 90 days before it filed for bankruptcy, you may have preference exposure. This is significant because under the U.S. Bankruptcy Code Section 547, creditors who have received preferential transfers face the risk of having to return the transferred assets or their value in the bankruptcy process.
Further, preference exposure affects the value of your bankruptcy claim since whoever buys it may be obligated to pay that money to the estate.
Tokenized real-world assets (RWAs) revolutionize the way we think about ownership and investment. By leveraging blockchain technology, these assets can be securely and transparently tracked and traded on a global scale, with the added benefit of instantaneous settlement.
As a universal database, the blockchain allows for the creation of digital representations of real-world assets that can be easily bought, sold, and transferred on a decentralized platform. This creates new opportunities for investment, as well as greater accessibility and liquidity for assets that were previously difficult or impossible to trade.
Additionally, tokenized assets can help to reduce fraud and increase transparency in industries such as intellectual property, traditional securities, real estate, and essentially anything transferred through a written legal agreement.
The blockchain's ability to provide a tamper-proof and transparent record of ownership and transaction history will make it the backbone of the tokenized asset industry of the future.