What is the FTX Token (FTT)?

Introduction

FTX Token, FTT is the native utility token of the FTX ecosystem that grants access to the features and services of the trading platform and generates utility by incentivizing users to hold and use the token.

This article looks into the broad scope of the FTX token, FTT, and the recent buzz surrounding the token and the exchange, FTX. But before we explore the token, we need to first learn about the FTX — the defunct leading crypto exchange.

History of the FTX Exchange

FTX was incubated in Hong Kong in March 2019 by Alameda Research, a cryptocurrency trading firm founded by former wall street trader Sam Bankman-Fried (SBF). Sam was the creator and CEO of the FTX exchange, and he is also known for being very active in the cryptocurrency community, offering vital suggestions, and famous for his stance on crypto regulation.

FTX is registered in the Caribbean, specifically Antigua and Barbuda. A year after its establishment, they acquired a cryptocurrency portfolio tracking app known as Blockfolio for $150 million. In July 2021, over 60 investors from major private equity and venture capital firms such as Sequoia Capital, Ribbit Capital, and Softbank invested a sum of $900 million in FTX at an $18 billion valuation.

That same year, FTX’s valuation increased to $25 billion by the end of October due to the influence of SBF which had gained popularity for its involvement in crypto-friendly regulation advocacy in the U.S. A series of lucrative sponsorship agreements, including the naming rights to the Miami Heat’s home arena, were also signed by FTX in 2022. The same year, FTX’s US division was valued at close to $8 billion.

Due to Hong Kong’s conservative regulatory approach to cryptocurrency, the headquarters of FTX was moved from Hong Kong to the Bahamas in September 2021. The Securities and Exchange Commission of the Bahamas is the regulatory agency in charge of the Digital Markets Ltd arm of the exchange.

However, the well-known and widely used cryptocurrency exchange allowed users to trade coins and tokens as well as enter derivative contracts. The company enabled traders all over the world to exchange hundreds of digital currencies for relatively low fees until it went bankrupt in the last quarter of 2022, and the team is under intense investigation following FTX’s collapse.

The FTX Ecosystem

FTT is inextricably linked to the FTX ecosystem and may be impacted by what happens there. FTX is a cryptocurrency derivatives exchange that is built by traders for traders. Derivatives are instruments that get their value from other assets, and they include the likes of options, leverage tokens, futures, etc.

On the FTX platform, users can trade a variety of cryptocurrencies, NFTs, and other digital assets, as well as their token, FTT. One of the objectives of the FTX founders was the creation of a solid platform that functions effectively for both first-time and experienced traders. At its peak, the company was valued at $32 billion and was the third-largest cryptocurrency exchange by volume in the world.

Residents of the United States are not permitted to use the FTX global platform because of regulatory concerns. Instead, they can use the FTX US division. FTX International and FTX US shared management teams but have separate capital structures. The main difference between FTX International and FTX US is that FTX global users can only trade derivatives, not real crypto, but FTX US users can trade real crypto.

What is FTX Token (FTT)? The Native Token of the FTX Ecosystem

Future Trading Exchange (abbreviated as FTX) token is the native token of FTX exchange, designed to increase network effects around the platform. FTT is also known as Future Trading Token. It is a utility token that grants access to the features and services of the FTX trading platform and generates utility in the FTX ecosystem by incentivizing users to hold and use the token. FTT is one of the many cutting-edge products available on the FTX exchange, and could also be the most significant. However, it holds value like any other token and can be traded or used to perform various financial transactions.

FTT is an ERC-20 token, which means it is a digital coin that runs on the Ethereum blockchain and is interchangeable with another token within the same blockchain. ERC-20 is an abbreviation of “Ethereum Request for Comment 20” and it is set up as a standard for fungible tokens under the Ethereum blockchain.

It is imperative to note that being an FTT holder does not make you an investor or grant you ownership over the FTX exchange platform. FTT is simply a utility token and it’s meant to be used. It helps reward devoted users and reduce trade expenses.

FTT was initially created as a reward for exchange transactions, for instance, when trading on the exchange, those with more than $100 in FTT receive a 3 percent discount. In general, the more FTT a user has, the more discounts they are entitled to. However, FTT has expanded to serve other purposes.

How does FTX Token (FTT) Work?

FTX claims that FTT distinguishes itself from other exchange utility tokens by providing unique features. While FTX is a centralized crypto exchange, it also has a non-native decentralized finance (DeFi) ecosystem where the token holders are airdropped to motivate them to use the serum decentralized exchange (DEX) which is based on the Solana blockchain.

Many of FTX’s futures markets are unique and let you trade stocks before their Initial Public Offering (IPO) and profit when altcoins drop using FTX’s shitcoin index token. FTX tokens can be used as collateral when trading these futures contracts.

Furthermore, the FTT token is used to maintain platform inflation by repurchasing and burning tokens until half of the token supply is depleted. One-third of FTX’s trading revenue is spent on repurchasing and burning FTT supply, thus as trading revenue rises, intrinsic value is created and the market cap of the FTT token rises. Furthermore, FTT can be used to sell white-label versions of over-the-counter portals that institutions can use.

FTT as a Governance Token

Governance tokens are a type of cryptocurrency that allows token-holders to vote on the direction of a blockchain project. Governance tokens’ primary purpose is to decentralize decision-making and give holders a say in how the project is run.

FTT holders are eligible for platform voting rights. For instance, token owners can choose which coins should be listed next by casting a vote. The community has a voice in the direction the platform takes due to the FTX token holder voting system. This ensures close communication with the community while ensuring that the user base gets what they want from the exchange.

FTT Tokenomics

The current circulating supply of FTX Token is 133.62 million tokens, and the maximum circulation supply of FTX Token is 328.90 Million. In three rounds between $0.1 and $0.8, 59.3 million FTT tokens—or 16.95% of the total supply—were distributed to regular investors. 51.63% of the tokens were held by major individual and institutional investors.

Benefits of FTT

Under this section, we will be taking a close look at the benefits bestowed by the FTX Token on users.

The FTT Token is used in universal stablecoin settlements. Users can exchange any cryptocurrency for any other cryptocurrency eliminating the need to first convert their assets into a stablecoin. Thus, it helps save money and time.

FTT provides users with trading fee discounts of up to 60 percent as well as over-the-counter rebates on their FTT holdings in a tiered system. It even offers a cut of any excess capital in FTX’s insurance fund to FTT holders. This insurance fund exists to minimize clawbacks and prevent customer losses. A clawback is when traders who are in profit must give back some of those profits to ensure the exchange remains solvent during times of high market volatility.

Additional benefits are provided through staking. FTT Users must lock up their tokens for a specific amount of time when staking as opposed to holding. By using the FTX platform, individuals have access to greater prizes in exchange. For staking rewards, there are seven tiers. Staker rewards include better referral rate percentages, maker fee rebates, and increased chances of receiving airdrops.

Should I buy FTT?

The FTX token has experienced a decline over the past few months, following the collapse of FTX. Thus, the fate of the token is quite unpredictable mostly because there is no indication yet of acquisition.

Furthermore, buying FTT at this time is considered a game of chance as there is no certainty that the token will bounce back in value or not.

The Implosion of FTX and FTT

As a result of the trading discount, investors flocked to the crypto exchange, driving up the price of FTT. This allowed Alameda Research to borrow more money because they could offer higher-priced FTT tokens in exchange.

Their business strategy was on track until the overall crypto market plummeted from its 2021 highs. And, after CoinDesk revealed that Alameda owned the majority of FTT tokens, investors realized that the company could only repay its loans if the token price remained high.

Things went really bad when the CEO of Binance Changpeng Zhao, popularly referred to as “CZ” tweeted that Binance would be selling $2.1 billion in FTT tokens, received “as part of Binance’s exit from FTX equity.” This was a vicious sucker punch that caused the token’s price to plummet causing great fear, uncertainty, and doubt (FUD) among investors, leading to massive withdrawals of funds which forced former CEO, Sam Bankman-Fried to file for Bankruptcy after all efforts to save the exchange proved abortive.

To save customers, Binance — the world’s largest cryptocurrency exchange by trading volume — decided to step in and take over FTX but abruptly reversed her position after reviewing the company’s financials and messy records.

Further, Alameda relied on token prices remaining high to repay its loans, and the FTT price crash doomed Alameda Research. A leak of the company’s balance sheet revealed that it owed FTX $8 billion and lacked the liquidity to repay the loan. Most FTX investors were unable to withdraw their money as a result and consequently, many hedge funds are now in danger of closing.

On November 11, 2022, Sam Bankman-Fried, the CEO (at that time) and founder of FTX, resigned after he had filed for Chapter 11 bankruptcy protection in the U.S. He was succeeded by Enron turnaround veteran John J. Ray III.

To top it all off, FTX was reportedly hacked the same day it filed for bankruptcy. Over $600 million was moved out of the FTX exchange wallet. The CEO, John Ray, confirmed the news and claimed that precautionary measures were being taken to mitigate the damage.

Sam Bankman-Fried is currently facing numerous criminal charges in the Bahamas and the United States of America. A United States-based regulatory agency, Commodity Futures Trading Commission (CFTC), is also probing the activities of FTX International and its relationship with FTX-US.

SBF’s Criminal Trial

SBF was arrested in the Bahamas, where FTX was based, and extradited to the United States in December 2022. Damian Williams, the United States Attorney for the Southern District of New York, is charging him with multiple criminal fraud charges. According to Williams, SBF’s operation was one of the biggest financial frauds in American history. In a video posted on Twitter late on December 21, 2022, Williams said that Caroline Ellison, the former CEO of Alameda Research, and Gary Wang, FTX’s cofounder, had entered into a plea bargain agreement and pleaded guilty to defrauding investors, but SBF maintains that he did not knowingly commit any fraudulent activity.

The Commodity Futures Trading Commission (CFTC) has also brought charges against Bankman-Fried in addition to the federal prosecutor’s eight-point indictment, including front-running investors and manipulating the price of the FTT token on his exchange.

On December 22, he was released on a record $250 million bond. As part of the agreement reached between federal prosecutors and a federal judge in New York, the 30-year-old former crypto executive will reside with his Stanford law professor parents in Palo Alto, California; be constrained to the Northern California region; wear an electronic monitoring bracelet; and compulsorily go through mental health and substance abuse therapy. Basically, SBF is under house arrest and awaits a trial scheduled for October 2023.

Note: In criminal law, a Bond is a fixed amount a defendant pays for release while awaiting trial.

The Effects of the FTX Collapse on the Crypto Space

The FTX collapse sent shockwaves through the whole crypto ecosystem, sparking sell-offs in other digital assets. Following a 13% decline the day before, Bitcoin plunged as low as 15% on November 9, 2022, selling below US$16,000 for the first time since November 2020. Ethereum, on the other hand, experienced a two-day decline of more than 30% by November 9, 2022, and was on the verge of dropping below US$1,000. Financial experts are still trying to assess the extent of the damage done.

One of the major effects of the FTX collapse is that it has stirred regulators into action. Governments in the United States, the European Union, and the United Kingdom are working to clean up the industry. Another effect is that celebrity endorsements for cryptocurrency companies are likely to decline. Top venture capital, private equity, and hedge fund firms have suffered significant losses by investing in FTX. These losses, combined with a decline in the crypto market, have caused these companies to reduce their investments in new ventures.

Proof of Reserves (PoR) has become a popular topic following the FTX collapse, with investors demanding that exchanges provide proof of their holdings to avoid the FTX experience. FTX’s lack of transparency is a major drawback for investors in the crypto space.

PoR is a transparent auditing procedure used by crypto companies to provide a transparent assessment of the assets held in the company’s reserve. This assures investors that the cryptocurrency company is financially stable and that they can retrieve their funds at any time. This is a great innovation moving forward.

Conclusion

The collapse of FTX may have pushed the crypto industry backward in terms of acceptability and investor confidence. Proof of Reserves represents the first step toward regaining and retaining users’ trust. Moreover, it imposes additional requirements on exchanges, which should make user funds a priority and make the crypto industry safer and more transparent for everyone. Consequently, the FTX Token is not without hope with regulations and requirements like PoR in place.