The Edge Series 22: Weekly Market ContextWritten by research analyst: @0xGeeGee✍️Two major developments occurred in the past week: the long-awaited FTX repayments began, and discussions intensified around Solana ($SOL) unlocks from locked token OTC sales.Both events are tied to the fallout from the FTX collapse in November 2022.Then, at the end of the week, we had @Bybit_Official.1. FTX Repayments Kick Off: A Bittersweet MilestoneAfter years of legal wrangling, the FTX bankruptcy estate finally started repaying its creditors. On Tuesday, February 18, the estate initiated its first wave of distributions, targeting the “Convenience Class” (i.e., creditors with claims under $50,000).This initial round disbursed approximately $1.2B (through @krakenfx and @BitGo) and is a significant step in understanding the sentiment around FTX payout recipients since it primarily targets retail.The main speculation around this event is that a portion of this liquidity re-injection could flow back into the market. Nearly 80% of recipients interviewed in a recent @NFTevening survey declared they plan to reinvest in the markets.However, the repayments come with a familiar catch. Payouts are pegged to November 2022 prices (i.e., $BTC at $16,871, $ETH at $1,258, and $SOL at $16)—far below today’s levels. Even with the 19% bonus and 20.5% interest, some recipients (ETH holders?) are only slightly closer to breaking even.The real winners are companies like Apollo Global and 507 Capital, which scooped up claims for pennies on the dollar during peak distress.Maybe this isn't the worst time to convince this group to reinvest in the market. A few high-profile TGEs have recently launched, including $KAITO last week, and CMC’s Fear and Greed Index now shows a modest 40 - Neutral, up from 38 - Fear the previous week.This period also aligns with what has historically been the best time for altcoins, although 2025 is lagging behind historical trends.Whether this liquidity event will have an impact on the market largely depends on how (and if) it is spent. All in all, the amount is not significant and is roughly equivalent to just one of MicroStrategy’s typical $BTC purchases, which we’ve become accustomed to. (FYI, the last two purchases were $1.1B each, putting to rest speculation about a blackout period.)That said, given that these are retail investors, it wouldn’t be surprising if some of the funds flow into more illiquid altcoins, potentially having an outsized impact.Time will tell.2. SOL Unlocks: A $2 Billion Shadow LoomsSolana, already in the spotlight due to FTX’s massive holdings and a series of questionable "Presidential Launches", is now facing another test: a significant token unlock scheduled for March 1, 2025.The FTX estate is set to release 11.2 million $SOL, valued at ~$2 billion at current prices into circulation, representing about 2.3% of $SOL’s total supply.These tokens originate from the FTX collapse and were sold OTC to funds and major investors through auctions. Firms like Pantera Capital (13.67M SOL at $95), and Figure (1.8M SOL at $102) secured locked tokens at steep discounts. Even after last week’s volatility, with $SOL trading ~$173, these buyers are sitting on hefty double and triple digit unrealized gains.Analysts are split. Some argue the unlock will be a non-event: 11.2M $SOL is negligible compared to $SOL’s $3.6 billion daily spot volume, plus most of these trades were likely already hedged. Others believe buyers might take profits, at least partially, given the sentiment following the $LIBRA memecoin.One indicator of this slowdown: https://t.co/w4XcSAjJXc revenues have dropped back to October 2024 levels, signaling a decline in economic activity.It’s difficult to predict exactly what happens, but we can try to analyze the situation using a mix of common sense and data.First, the OTC buyers acquired $SOL at a significant discount, so it’s possible that they simply accepted the risk of a potential price decline.A Partial Hedge?At the time of these purchases, $SOL was far more illiquid than it is now, and even today, offloading such large amounts without crashing the price remains questionable. In crypto, derivatives markets are always more liquid than spot markets, making hedging a more viable option. It’s therefore likely that some buyers hedged part of their risk, perhaps covering their cost basis or a portion of their holdings. However, verifying this is difficult, as any partial hedge may have been executed immediately or scaled over time.What we can say with certainty is that these positions were not fully hedged. The current Open Interest (OI) figures—just $2.9 billion—are incompatible with such large-scale hedging. Additionally, given the illiquidity of the $SOL markets at the time, taking such outsized hedge positions would have been nearly impossible.Just as a funny data point, if these positions had been fully hedged, buyers would currently be sitting on a 10-figure negative uPNL. However, given current Open Interest figures, such numbers would be completely unsustainable, meaning they would have already been liquidated.Given how Aggregated Open Interest was structured at the time of the auctions (2023), it seems far more likely that buyers initially took most of the risk themselves. Of course, we can’t rule out the possibility that some of them hedged portions of their holdings later on.So what?• Regardless of whether these purchases were hedged, spot selling will happen at some point—either to allow buyers to close their hedges or to realize the substantial uPNL they’re sitting on.• This unlock is just one of many. In total, over 40 million $SOL has been sold. If the price were to crash dramatically on the first unlock, it would be highly detrimental to sustained price action moving forward.• The past few weeks have been rough for Solana—between the memecoin backlash and unlock scaremongering, the token may have already priced in part of the event. That said, this market is notoriously inefficient (at least in the opinion of the writer). Looking ahead, discussions around a potential SOL ETF could serve as the real liquidity injection that allows large players to exit without wrecking the charts.3. Bybit’s $1.5B HackIt’s still too early to fully assess what will happen next, and we can leave the technical breakdown of the incident to the technical folks. However, it does appears to be similar incident to Radiant hack.Bybit managed to contain the bank run thanks to a quickly secured bridge loan and the fact that the exploit, while significant, wasn’t catastrophic: “only” $1.5 billion in ETH was stolen—an amount that, according to most estimates, represents 30–50% of Bybit’s 2024 (gross?) revenues.Despite the size of the exploit, nobody seems overly concerned about Bybit’s ability to recover. This assumption seems reasonable. Bybit has maintained 10%+ spot marketshare over the past year. It consistently processes 30–60% of Binance’s derivatives volume, making it the second-largest CEX for derivatives. It has a strong relationship with BitDAO/Mantle.While Bybit will need to replenish its ETH reserves to match customer deposits, which are currently secured by the bridge loan, the question remains: how will they do fill this hole that has been created?Bybit can likely cover the shortfall with its own reserves, but not entirely in ETH. During a recent Twitter Space, Bybit’s CEO stated that the exchange wouldn’t need to acquire ETH to make users whole.This leaves the case open, what is Bybit going to do in the meantime? It is unlikely that the ETH shortfall will be filled on a request basis, as that would leave them exposed to a $1.5B notional short. However, it is possible that they will find a way to hedge the risk, which would be less expensive than purchasing $1.5B in ETH quickly.At this point, the most likely scenario seems to be hedging the exposure and gradually filling the gap, leveraging the bridge loan to avoid the market impact of a large purchase (the bridge loan’s interest rate is likely lower than the price impact of such a bid).February 24 UpdateBybit’s Ben Zhou has announced that the exchange has acquired all the necessary ETH to fill the gap and will soon publish a Proof of Reserve.The most notable takeaway? The lack of decisive ETH outperformance, especially over a weekend, is even more surprising now that we know Bybit was buying.It is also possible that a partial recovery of stolen funds will occur. According to @zachxbt, in similar cases and even for smaller, easier-to-launder amounts, a 15–30% recovery rate is not unusual—though this would be considered a "good" outcome.
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