Crypto has been full of hurly-burly days this year. Big shocking news and updates pouring into the market have become the new normal. Amid such turbulent times, another token named FTT recently made headlines after its price nose-dived from around $25 to below $2 in less than two weeks.
Any crypto-curious mind would wonder what might be the reason behind this huge drop, to which this blog is the answer.
What is FTT?
FTT is the native token of the FTX crypto exchange platform. It gives its holders access to the services and special features on FTX. Like any other cryptocurrency, this token also holds some value and can be used for crypto trading and other financial transactions in the crypto market. FTT is an ERC-20 token, meaning it does not run on its blockchain technology, but uses the Ethereum network instead.
How does FTT work?
FTX token (FTT) is a deflationary token. It means that their supply keeps decreasing with time. It happens because the FTX repurchases these tokens with 33% of the weekly trading fee this platform generates and then burns as much as required to destroy half of their supply. Crypto burning is a popular technique used in different tokens to maintain their supply against demand. Through it, FTX has burned over 20 million FTT tokens so far. This way, FTT acts as the backbone of the FTX platform.
What were the benefits of FTT?
FTT has many advantages on the FTX platform. Here are the most important benefits
- FTX platform allows users to get discounts on trading fees if they own FTT tokens. This discount can go as high as 60% for active users.
- FTX also has a futures trading option where users can keep FTT holdings as collateral.
- FTT can be staked on FTX to earn various benefits like getting a higher fraction of the referral fee, better voting rights in the voting poll of FTX, some free ETH and ERC-20 withdrawals per day, free NFTs and increased airdrop rewards, etc. All these benefits keep growing with the number of FTT tokens users stake on FTX.
- In high price fluctuations in the crypto market, FTT holders can get help from the FTX backup liquidity fund.
The Shocking Fall of FTT token
The fall of FTT officially started on November 2 when the crypto news website Coindesk published a leaked balance sheet of Almeda Research (a Crypto trading firm directly associated with FTX). This report showed that Almeda Research depends on FTX’s native token, FTT. On November 6, a crypto firm liquidated all its FTT holdings due to some unspecified “revelations”. It was a wake-up call for the FTX users and investors that things have been going wrong with the platform. FTX founder and owner Bankman-Fried tweeted that FTX and its assets are fine to calm down the situation. After a few days, FTX suspended withdrawals and onboarding of new clients until further notice. On November 11, FTX filed for bankruptcy, leading an estimated 1 million customers and multiple investors to face huge losses. This news was so big that its shockwaves in the crypto world sent bitcoin and other major cryptocurrencies to fall significantly.
About FTX platform
FTX is a crypto derivatives exchange giving lots of crypto-centric services. It was launched on May 8, 2019, by Sam Bankman-Fried. With its headquarter in the Bahamas, FTX was first backed by a crypto trading company called Almeda Research. This company was a leading liquidity provider in the market.
FTX made its own identity in the market by introducing many trader-friendly infrastructures like futures trading, perpetual futures, options, and prediction markets. Through its native platform token, FTT, FTX was able to attract a user base of billions in a few years.
Why did FTX collapse?
The key reason behind the shocking collapse of FTX and the FTT token is its illegal transactions with Alameda Research. This crypto liquidity provider company borrowed $10 billion out of $16 billion of customer funds deposited in FTX to perform risky bets. This borrowed amount was so huge that it made FTX fall short of the amount required to meet high customer cash-out demands. Any trading platform needs to hold enough money to match their customer deposits so that when customers want to cash out their assets, the cash out can process smoothly.
Not only this, but also to make some leveraged trades, Alameda Research was using the native token of FTX (FTT) as collateral. It was a risky deal because if the price of FTT falls drastically, it could make the collateral amount insufficient anytime. And it is exactly what happened with the balance sheet of Almeda research that revealed that the firm had the majority of its value in FTT tokens. This news shook the confidence of FTT investors, causing an extreme sell-off of FTT tokens. As a result, the price of FTT dropped 92% in a week. It went from $24.83 to a weekly low of $1.99.
As a ripple effect, many FTX customers ran to FTX to withdraw their funds. However, FTX did not have enough funds because it already had lent them to Alameda Research. As a result, the crypto exchange could not cash out customer withdrawal requests and eventually halted the withdrawal and other services. On November 11 2022, FTX filed for bankruptcy protection. Several reports also stated that FTX got hacked hours after it filed for bankruptcy, causing it to lose more than $600 million and counting.
Is FTT token a good investment?
Since the platform from which all the utilities of FTT come is declared bankrupt, FTT is in no good position. It has paused its withdrawal and depositing, and various legal forces are investigating its finances. Moreover, just like the Terra LUNA crash, the fall of FTT shook the trust of its investors and community. Billions of user funds are still missing from FTX, which further lowers the chances of recovery soon. Considering all these conditions, we won’t recommend FTT as a good investment in the current market conditions.
FAQs
What is FTT?
FTT is the platform token of a Crypto Exchange platform FTX. Those who own FTT tokens enjoy various benefits and additional features while using FTX.
Who is the founder of FTX?
Sam Bankman-Fried is the founder of the FTX crypto exchange. He founded FTX in May 2019.
Is the FTX exchange centralized?
Yes, FTX was one of the biggest centralized Crypto exchanges before its collapse. It was based in the Bahamas and had over 1 million users by 2021.
What happened to the FTX exchange?
The FTX exchange collapsed in 10 days. Its founder Sam Bankman-Fried’s trading firm, Almeda Research, used customer funds deposited in FTX to perform risky trading activities. It caused a shortage of funds in FTX. As a result, when the majority of FTX customers tried to withdraw their funds, FTX ran out of funds and had to halt withdrawal operations. After a few days, it filed for bankruptcy and also reported a hack costing it to lose more than $600 million so far.
Is FTX safe?
FTX filed for bankruptcy on November 11 2022, because of some internal discrepancies and the funds of millions going missing. Hence, it can not be considered safe to use right now.
