Since the beginning of the fall of the FTX cryptocurrency platform, many questions have arisen within the crypto-community. To see more clearly on this case and understand all the issues, we answer all your questions on the subject.
Why did the FTX platform collapse?
The case surrounding the fall of FTX is complex and full of twists and turns. Here is a quick summary so that you can see it more clearly.
FTX has its own cryptocurrency, called FTT. Last year, Changpeng Zhao (the CEO of Binance) sold its stake in the FTX business to Sam Bankman-Fried (the ex-CEO of FTX), who partially paid her with FTT tokens. Since, Binance therefore had a large amount of FTT.
On November 2, the CoinDesk media reveals a private document concerning the FTX group. This document states that Alameda Research, an investment fund led by Sam Bankman-Fried and closely related to FTX, held an astronomical amount of FTT tokens. The crypto-community is alarmed by the situation, since FTX and Alameda Research were supposed to operate separatelybut the document claimed that the two companies were closely related.
On November 6, upon reading this confidential document, Binance decides to sell the FTT tokens in its possession. The price of FTT then begins a significant fall and many investors seek to withdraw their funds from FTX to protect themselves from possible problems that could affect the platform.
Unfortunately, FTX fails to cover massive withdrawal requests. A liquidity crisis then begins and FTX completely blocks withdrawals, therefore not having enough funds to meet the demand.
This action then marks the beginning of a panic movement and the FTT token loses more than 90% of its value in a few days. Since then, many other events have affected FTX and the platform has declared itself bankrupt.
👉 For a more detailed explanation, watch our video on the subject:
Can this happen to other platforms?
Yes, knowing that FTX was considered the 2nd most important platform in the industry, no one is safe from a similar scenario.
However, FTX did not fall by itself, its fall is also due to the bad decisions of its leaders, especially Sam Bankman-Friedaka SBF, its former CEO.
There is a process highly appreciated by investors that allows platforms to gain transparency: Proof of Reserves (or Proof of Reserves in English).
The Proof of Reserves consists for a platform to publicly reference its portfolio addresses, so anyone can view them and track incoming and outgoing transactions. In this way, anyone can check at any time that such and such a platform does indeed have its clients’ funds and that it does not touch them for its own interests, as may have been the case with FTX. .
Before the fall of FTX, few platforms implemented Proof of Reserves, but since then, day by day, giants like Binance, Crypto.com or KuCoin have revealed all the addresses of their wallets.
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When can you withdraw your funds from FTX?
A priori, not for several years, if ever. It is not yet possible at the time of writing these lines to determine whether or not users will one day be able to review their funds still blocked on FTX.
The platform does not have sufficient liquidity to execute withdrawal requests, user funds still on FTX now sits in nothingness. FTX will need to find external funding to be able to reopen withdrawals.
Will you ever be reimbursed?
It’s unlikely, FTX has no more or almost no funds available. However, in a scenario where a refund is indeed possible, the procedures may take several years.
To protect against the fall of a platform like FTX, you have to store your funds on a physical wallet like those made by the French company Ledger for example.
Indeed, with a Ledger wallet, you are the sole owner of your private keys, and therefore of your funds. No one can prevent you from interacting with your cryptocurrencies, unlike centralized platforms such as FTX which can cut withdrawals as it wishes, in addition to being the target of hacks.
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Is there an alternative to centralized platforms?
Yes, if you want to exchange your cryptocurrencies (with a Ledger wallet or not), you can turn to a decentralized exchange (DEX). Where a centralized exchange (CEX) is a closed ecosystem that allows you to trade your cryptos, a DEX works directly on the blockchain.
When trading cryptocurrency on a DEX, you don’t need an account, just connect your wallet. You therefore remain the sole and exclusive owner of your assets..
DEXs are not free from flaws (higher fees, hack risks, etc.), but are a good alternative to CEXs if the latter have lost your trust.
Is the cryptocurrency ecosystem under threat?
In the short term, the consequences of the fall of FTX are multiple : loss of funds, loss of investor confidence in centralized platforms, overall drop in the cryptocurrency market, financial difficulties for other platforms, etc.
However, in the longer term, the crypto community will remember this past event as a painful passage. The fundamentals of cryptocurrencies are in no way affected and the various regulations to come across jurisdictions should bring more security to investors.
The fall of a company in the cryptocurrency sector does not change the technological advances brought by these assets. So don’t worry, Bitcoin (BTC) for example, will never disappear with the fall of a centralized platformit is completely decentralized and only its course can be correlated to the events that the market is going through.
As soon as new information related to FTX, Alameda Research or Sam Bankman-Fried is made public, this article is updated in real time. In just a few minutes, you can keep up to date with the latest news about FTX.
Any other questions about the fall of FTX and its consequences?
If you have any other questions about FTX, you can comment on this article. We will respond as soon as possible if it is relevant.
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Editor-in-chief of Cryptoast, I discovered Bitcoin and blockchain technology in 2017. Since then, I have been striving to share quality content so that the sector becomes more democratic for everyone.
Clement Wardzala
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