Tell your Friend, Only as much as your Enemy needs to know…FTX Saga
Tell your Friend, Only as much as your Enemy needs to know…FTX Saga
AFTI This is a hashtagblackswan moment for hashtagcryptocurrencieswhen Binance (World’s largest crypto exchange) founder Changpeng Zhao(CZ) announced rescue plan for FTX (World’s second largest crypto exchange) co-founded by Sam Bankman Fried(SBF) and Alameda Research and trading arm using FTX platform in 2019. In 2021 SBF was considered richest crypto exchange founders with valuation of $32Bn for FTX. The business model of FTX was unique in terms of allowing derivatives trades, issuance of equivalent tokens to bluechip stocks (like Apple, Tesla), NFT and other similar alternative asset classes. There were multiple incentives up to 60% discounts on trades if the FTX token FTT(its own cryptocurrency) is used for payments. who’s who of VC circle Ontario Teacher Pension Fund, Tiger Global had funded the startup which should promising fee based revenue of $1.02Bn in 2021. There was an initial investment of undisclosed amount in 2019 by Binance with a rational to help crypto exchange market grow and to make FTX Token FTT accessible on Binance platform.Soon this bonhomie turned rivalry especially notice on social media handle of both SBF and CZ. There are multiple theories doing round where some say FTT grew too fast to become a prominent competitor to Binance other blame it on SBF support of Digital Currency Consumer Protection Act(DCCPA).
Be that as it may the real turn of events happened when article on Business by Ian Allison showed Alameda Balance sheet was leak on 3rd November’22 which showed most of its value was derived from holding FTT token a cryptocurrency of FTX platform. In other word the valuation of FTX from real business (fee based income) and virtual currency generated by FTX without any collateral was majorly held in FTT tokens.
Binance founder CZ publically announced on twitter he is going to liquidate his $2Bn FTT token and the first tranche of $584mn worth FTT tokens and transfers to Binance on 7th November 2022. The reason given by him was his disagreement with SBF lobbying with regulator for DCCPA challenging few market makers position through market restrictions. As a bold move on same day FTX founder SBF took to twitter and announced everything is fine..!!! But as in economics we say when supply is more than demand price falls especially of a virtual asset with not collateral.
This made the FTT fall from levels of around $25 to $3.5 as panic selling sets on 8th November’22. As the price eroded and valuations dropped Binance founder CZ announces letter of intent to buy FTX in the larger interest of investors after completing due diligence. The impact of this is seen across cryptocurrency market with Bitcoin touching lowest level in 2022. This raises lot of questions on the alternative assets like cryptocurrencies, NFT and similar digital tokens!
What are your learning from this FTX Saga ?
