AN OVERVIEW OF FTX (FTT)

FTX is a centralized crypto exchange based in the Bahamas that offers a variety of trading options that appeal to both novice and professional traders. Its native token FTT is a multi-utility token that offers holders up to 60% discount on trading fees in addition to other benefits. In this article, we'll discuss FTX and the turn of events that led to its liquidity crunch.

TL; DR

• FTX is a centralized cryptocurrency derivative exchange that offers advanced trading options like margin and futures trading, in addition to granting users access to markets like stocks, leveraged tokens, volatility, and forex.

• FTX is supported by significant trading firms such as Almeda Research,  Temasek, BlackRock, Coinbase Ventures, and Sequoia Capital.

• On November 8, 2022, Binance CEO Changpeng Zhao announced that FTX had consented to be sold to Binance and that both corporations had signed a non-binding letter of intent (LOI) after FTX suffered a massive liquidity crisis. However, Binance backed out of the deal after a few hours.

WHAT IS FTX?

FTX is a centralized cryptocurrency derivatives exchange based in the Bahamas that offers a wide range of sophisticated trading instruments such as Leverage, derivatives, options, volatility products, and leveraged tokens.

Backed by one of the top organizations in the crypto trading industry – Almeda Research – the team behind FTX is made up of some of the biggest cryptocurrency traders in recent years who built FTX to fix the challenges suffered by the majority of popular crypto exchanges.

Therefore, FTX was created to combat clawbacks by utilizing a three-tiered liquidation strategy that closes holdings with rate-limited orders in addition to incorporating an insurance fund to protect users from losses.

OVERVIEW AND HISTORY OF FTX.

FTX was founded in May 2019 by two MIT grads; Sam Bankman-Fried and Gary Wang.

Sam is the son of two Stanford law professors and a graduate of physics from the Massachusetts Institute of Technology (MIT). Before his graduation in 2014, Sam started trading ETFs as an intern at Jane Street Capital. After graduating, he went back there full-time before leaving in September 2017 to take up a new role as the director of development at the Centre for Effective Altruism.

Sam established Alameda Research – a leading principal trading corporation –  in November 2017. Sam controlled about 90% of Alameda Research before promoting his traders to co-CEOs in August 2021 to enable him to focus on FTX.

After establishing Alameda Research in 2017, Sam capitalized on the price difference of bitcoin in exchanges in Japan and America and planned an arbitrage transaction in January 2018 that moved up to $25M each day. In April 2019, he created FTX, which launched in May of the same year. In December 2019, Binance purchased shares in the company and established a long-term investment in the platform's FTX Token.

In January 13, 2020, FTX debuted options, providing bitcoin puts and calls with expiration range from one day to around five and a half months later. Up to 15 million FT tokens, each representing an ownership stake in the firm, were offered for sale by FTX in March 2020. Each token cost $2.00 to purchase. The tokens don't come with voting powers.

Oil futures with monthly expiration dates and ties to the West Texas Intermediate (WTI) benchmark were introduced in April 2020. Binary options were introduced via a tweet made by Sam Bankman-Fried on May 15, 2021, stating that FTX was providing binary options that would pay out if Brazilian President Jair Bolsonaro was to be re-elected in 2022.

In May 2020, FTX introduced FTX.US – a cryptocurrency trading platform situated in the United States – and announced the launch of Serum, a DeFi-driven derivatives trading platform, in late July 2020. Blockfolio, a bitcoin portfolio management tool, was purchased by FTX in August 2020 for $150 million, and in October of the same year, FTX announced the launch of tokenized asset trading on its platform.

In July 2021, FTX secured $900 million from more than 60 investors, including Softbank, Sequoia Capital, and other companies, at a valuation of $18 billion. Consequently, its competitor Binance sold its shares in the enterprise in the same month. Two months later, FTX relocated from Hong Kong to The Bahamas and raised another $400 million in Series C funding at a $32 billion valuation after announcing the launch of its $2 billion venture fund – FTX Ventures – in January of 2022.

It was revealed in February 2022 that FTX was developing a gaming branch that would assist game producers in incorporating cryptocurrencies, NFTs, and other blockchain-based functionalities into video games.

In response to a now-deleted tweet made by FTX president Brett Harrison which implied that "direct deposits from employers to FTX US are stored in individually FDIC-insured bank accounts in the users’ names". The Federal Deposit Insurance Corporation (FDIC) released a cease-and-desist letter accusing FTX of making "false and misleading claims" regarding FDIC insurance in August 2022.  Sam Bankman-Fried later revealed via a tweet that indeed FTX lacks FDIC protection. The following month Harrison announced that he will be retiring from his active position at the exchange but will continue to serve as an advisor.

Harrison's announcement came a month ahead of Sam Trabucco's – the co-CEO of Alameda Research – who resigned from his position but chose to stay as an advisor.

RECENT EVENTS

Recently, FTX has been leading massive fundraising rounds for new projects such as Aptos and Sui.

Following the crash of LUNA, FTX purchased Voyager's assets and made a move to bail out Celsius.

Sam Bankman-Fried has recently received backlash from the public and several key industry figures for his support for the DCCPA bill which according to industry experts could spell doom for DeFi and peer-to-peer transactions.

Things got worse for Sam after his bankless interview with Erik Voorhees who pressed him on his stance on crypto regulation. Sam's response was not well received by the crypto community as they believed his intentions were not pure thereby leading to fear, uncertainty, and doubt amongst many.

LIQUIDITY CRISIS

The story of FTX's liquidity crisis in November 2021 began after CoinDesk revealed that Alameda’s balance sheet was full of FTT tokens.

Changpeng Zhao, CEO of Binance, was alarmed by this information and announced via a Tweet that his company will liquidate its ownership of FTX's FTT token.

Caroline Ellison the CEO of Alameda Research suggested via a tweet that Alameda would buy FTT from Zhao at $22 if he was willing to minimize that market impact.

This was perceived as a desperate move as it was followed by a now-deleted tweet from Sam Bankman-Fried claiming that FTX is fine and Its assets are fine

Subsequently, Zhao confirmed that Binance transferred about $584 million worth of FTT to its exchange.

Zhao went further to explain on Twitter that Binance's decision to liquidate FTT was post-exit risk management, learning from LUNA.

Things became hazy at this point and users began withdrawing large amounts of FTT from FTX, due to concerns about the exchange's viability, leading to a massive liquidity crunch.

Sam then made a few announcements on Twitter, centered on an agreement on a strategic transaction with Binance for FTX.

In November 8, 2022, Zhao announced that FTX had consented to be sold to Binance and that both corporations had signed a non-binding letter of intent (LOI).

A few hours later, Zhao released a note he shared with the Binance team globally stating that he did not master plan these events and team members should not trade FTT tokens while the due diligence deal was still on going.

Zhao also added that team members should not consider these events as a win for Binance, stressing that users' confidence is severely shaken and this may lead to further scrutiny from Regulators. However, Binance backed out of the deal after a few hours due to the results of its corporate due diligence in addition to the news about mishandled customer funds and alleged investigations from US agencies.

ABOUT THE FTT TOKEN

FTT is FTX'S native utility token that offers holders access to features and services on the FTX trading platform. As at the time of writing, FTT had a market capitalization of over 357.392 million US dollars and was trading at $2.69, representing a drop of roughly 96.33% from it's all-time high in September 2021 when it traded for $79.60.

FTT pays out a portion of the earnings on the insurance fund that underpins futures trading and may be used as collateral for trades on the platform.

FINAL THOUGHTS

2022 has been a hazy year for cryptocurrencies. However, Next-gen layer one blockchains like Aptos bring a glimmer of hope to the scene as it delivers never before seen capabilities that surpass most modern layer-one blockchains.

Pontem is developing the infrastructure and decentralized tools necessary for the adoption of the Aptos blockchain.  The Pontem wallet is the outlet to the Aptos ecosystem as it enables its users to connect to decentralized applications and explore the Aptos ecosystem in addition to sending and receiving tokens.

ABOUT PONTEM

Pontem is a product development platform that enables global financial inclusion through blockchain technology. As a result of its partnership with Aptos, Pontem can create the foundational dApps, EVMs (such as the Move Playground), AMMs (such as Liquidswap), and other infrastructure (such as ByteBabel) needed to adopt its layer one blockchain.