What Is FTT? FTT is a token used on FTX, a global centralized exchange for crypto derivatives.
What Is FTT? Why Did FTX Collapse?
Its own token, FTT, is at the center of the FTX collapse. After launching in 2019, FTX offered FTT, similar to many other centralized cryptocurrency exchanges.
FTT was a significant driver of growth and income for FTX for a while. Investors supported FTT because FTX offered benefits like trading discounts and VIP status on its website in exchange for token ownership. Sam Bankman-Fried, the discredited founder of FTX, like promised Investors "assured liquidity," implying that the danger of investing was virtually nonexistent. However, it turned out that the risk was actually very high—a reality that is now painfully obvious.
According to reports, Bankman-Fried utilized FTT to support his cryptocurrency exchange and its subsidiary trading company, Alameda Research, which ultimately led to the collapse of the scheme.
So, how exactly did this happen?
The collapse
Even though Bankman-Fried and Caroline Ellison, CEO of Alameda Research, insisted their businesses were completely independent, they were actually tightly connected.
This was initially confirmed by a report, which showed that Alameda truly possessed a sizable amount of FTT and declared $2.16 billion in "FTT collateral" and $3.66 billion in "unlocked FTT" as assets on its balance sheet as of June 30.
This is unfortunate in many ways, not the least of which is the fact that Alameda used FTT as collateral for loans it obtained.
“If the exchange issues a huge number of tokens and holds them on their balance sheet, only offers a small number of those tokens for trading—restricting the 'free float,' which can create an artificially high valuation—and uses the locked tokens on its balance sheet as collateral for loans, this creates a systemic risk because the collateral's paper value isn't real," Matt Hougan, CIO at Bitwise Asset Management, told Fortune via email. "If the loans get called, the exchange may be insolvency .”
It's essentially “using printed money to access hard money,” said Michael Safai, a founding partner at Dexterity Capital. “The fates of the token price, loans, and the financial health of the company become intertwined, which, in a downturn, will accelerate their decline. Even then, it's just not a good idea, which is why investors were quick to turn on FTT once they realized the extent of it."
Changpeng "CZ" Zhao, CEO of Binance, stated he will "liquidate any remaining holdings of FTT on our books" in response to the report, citing "recent revelations that have come to light."
Investors ran to FTX in a panic to get their money back, starting a $6 billion bank run. Withdrawals were stopped by FTX since they were unable to survive. A few days later, FTX declared bankruptcy. It appears that Alameda was unable to pay back When the price of FTT plummeted, thus FTX used user funds to make up the difference.
FTT is currently selling for about $1, down 98% from its 2021 all-time high, despite the fact that its founder is no longer employed.
What Is FTT? Why Did FTX Collapse? I hope this article can provide you with a better understanding of what happened to FTX and its native token FTT.
