Wednesday, November 30, 2022
HomeCrypto NewsMarketFTX Coin (FTT): Another One Bites The Dust

FTX Coin (FTT): Another One Bites The Dust

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2022 has been the year of bank runs followed by market-wide contagion, and with FTT slumping 75%, it begs the question: is FTT becoming the next LUNA?


It’s been a tumultuous few days in the largely drama-filled cryptocurrency world, with mudslinging on Twitter, a surprise exchange takeover bid, and slumping token values. Still, it feels like we’ve seen this before, at least in some aspects, like over-leveraged loans, degenerate risks with customer funds, rumors of illiquidity, and ensuing bank runs that ultimately led to the LUNA/3AC/Celsius collapse.

It all began when rumors spread that FTX was overleveraged due to the money it printed to back loans (FTT) and exposure to a pseudo-internal hedge fund (Alameda) that makes huge bets on leveraged, illiquid tokens. As such, customer funds on the platform weren’t backed 1:1.

As reported by The Crypto Basic earlier, FTX witnessed nearly $1B in outflows in the week leading up to its acquisition by Binance, with a whale withdrawing over $247M within a day as insolvency concerns gained steam.

Recall that CZ had earlier disclosed that Binance would be market-dumping its FTT holdings as a “post-exit risk management” move, as he refers to the issues experienced with the Terra collapse as a lesson to be learned. The disclosure led to a mass withdrawal of funds from FTX as investors looked to hedge against insolvency following the Luna/Celsius debacle.

It bears mentioning that on-chain data suggest that FTX found itself in this position only because it bailed out Alameda in the aftermath of the LUNA collapse using FTT as collateral, and for a good reason; had FTX let Alameda implode in May, their collapse would have ensured the subsequent liquidation of all FTT tokens vested in September. It would have been terrible for FTX, so they had to find a way to avoid this scenario.

The bailout of its sister firm, Alameda, likely put a dent in FTX’s balance sheet to the point where it was no longer solvent. This would have been fine if the price of FTT hadn’t collapsed, resulting in a bank run.

It turns out that FTT isn’t like Luna, but it was a casualty of Luna, and its carcass has just reached the shore. FTT fell to $4, down more than 80% over the past 24 hours.

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Ammara
Ammarahttps://thecryptobasic.com/
Ammara Mubin is a cryptocurrency reporter and trader with vast experience in the industry. Mubin has written several news stories related to the crypto industry, including non-fungible tokens (NFTs), decentralized finance (DeFi), fundraising, mining, etc. Her major focus is covering regulatory events that are capable of shaping the entire crypto ecosystem.

Disclaimer: The content is for informational purposes only, may include the author's personal opinion, and does not necessarily reflect the opinion of TheCryptoBasic. All Financial investments, including crypto, carry significant risk, so always do your complete research before investing. Never invest money you cannot afford to lose; the author or the publication does not hold any responsibility for your financial loss or gains.

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