FTX

Publication Date :

13 Jun, 2023

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Table Of Contents

What Is FTX?

FTX is a cryptocurrency exchange and trading platform that allows users to buy, sell, and trade various digital assets. It is known for its advanced trading features and innovative products, including tokenized stocks and prediction markets. Hence, this platform aims to make trading more accessible and user-friendly, from retail traders to institutional investors

It offers a range of trading products and features, including spot trading, futures, options, and leveraged tokens. The platform also provides advanced trading tools and features such as charting and analytics, market data, and order types to help traders make informed decisions. It has gained significant popularity in the cryptocurrency community since its launch.

What Is FTX?

FTX is a cryptocurrency exchange platform where people can buy, sell, and trade various digital currencies, such as Bitcoin, Ethereum, and other cryptocurrencies.
Moreover, FTX Token (FTT) is the native cryptocurrency of these exchange platforms. It was created to provide a range of benefits to FTX users, including discounts on trading fees, lower withdrawal fees, and access to certain trading products.
They generally have lower fees than Binance for trading futures and options contracts. However, Binance has a lower cost for spot trading.

FTX Explained

FTX refers to a cryptocurrency trading platform that allows users to buy, sell, and trade a wide range of digital assets. In 2017, American entrepreneur Sam Bankman-Fried became interested in cryptocurrencies and founded the quantitative trading firm Alameda Research, which uses advanced trading algorithms and strategies to trade cryptocurrencies and other digital assets. This led to the launch of FTX in 2018 by Bankman-Fried and entrepreneur Gary Wang.

Hence, since its launch, this platform has multiplied, becoming one of the world's most popular cryptocurrency exchanges and trading platforms. The platform was the first to introduce leveraged tokens, FTX tokens that track the price of an underlying asset with leverage built-in. This cryptocurrency has also developed a range of futures contracts with unique features, such as quarterly futures contracts that settle to the average price over the quarter.

Moreover, FTX has gained a reputation for its advanced trading features, user-friendly interface, and innovative products. Thus, It has attracted retail and institutional investors. And thus, has become one of the leading cryptocurrency exchanges in terms of trading volume and user base.

Furthermore, FTX has its native utility token called FTT (FTX Tokens). Moreover, FTT is an ERC-20 token built on the Ethereum blockchain. Additionally, FTX offers a variety of futures trading options for cryptocurrencies and other digital assets. Here are some critical aspects of futures trading on FTX:

Range of future contracts
Leveraged trading
Perpetual contracts
Funding rates
Liquidation and margin requirements

Overall, it has also ventured into the world of prediction markets, allowing users to bet on various outcomes, such as the price of Bitcoin or the winner of a sports event.

FTX Collapse

In November 2022, FTX reportedly experienced a decline over ten days, allegedly triggered by a news report from CoinDesk on November 2. The report revealed that Alameda Research, a quantitative trading firm also led by FTX's co-founder Sam Bankman-Fried, had a significant position valued at $5 billion in FTT, the native token of FTX.

Hence, FTX and FTX US crashed due to a lack of liquidity and poor financial management, the U.S. dropped, and investors' jitters led to significant withdrawals. FTT's value fell, along with the value of other coins like Ethereum and Bitcoin, which as of November 9, had reached a two-year low. The demise of this platform also impacted BlockFi, which declared bankruptcy on November 28.

Thus, it reportedly faced a liquidity crisis following the CoinDesk report, prompting its co-founder Bankman-Fried to reassure investors about the stability of the company's assets. However, customers still requested withdrawals totaling $6 billion in the following days. To secure additional funding, Bankman-Fried first sought investment from venture capitalists, then turned to rival Binance. Within two days, the value of FTT dropped by over 80%.

Therefore, on November 11, Sam Bankman-Fried resigned as CEO of FTX and was replaced by John Ray, appointed by the court to lead FTX as CEO. Ray was previously known for his role in leading energy trading firm Enron through bankruptcy proceedings several years before joining FTX.

Examples

Let us look at FTX examples to understand the concept better:

Example #1

Let's say that a U.S. trader believes that the price of Ethereum will increase in the next few days. The trader could go to FTX and buy a leveraged token, such as the ETHBULL token, designed to move three times the percentage change of Ethereum's price daily.

Therefore, if the price of Ethereum does indeed increase over the next few days, the value of the ETHBULL token will also increase threefold. As a result, the trader could sell the ETHBULL token for a profit.

However, if the price of Ethereum goes down instead of up, the value of the ETHBULL token will also decrease threefold, leading to a loss for the trader. That's why it's essential to consider the risks associated with leveraged trading carefully and to have a solid understanding of the underlying assets before trading on this platform or any other platform.

Example #2

In response to the downfall of FTX, a cryptocurrency exchange based in The Bahamas, the Securities Commission of the country has announced its intentions to strengthen its regulations concerning digital currencies. The proposed bill contains provisions that cover stablecoins, proof-of-work mining, and staking. The executive director of the Bahamas' regulator, Christina Rolle, stated in a release that this new legislation could be one of the most progressive global digital asset laws.

As per the Securities Commission of the Bahamas, the new bill mandates that digital-asset exchange operators guarantee the effectiveness and suitability of their systems and controls according to the size and type of their operations. The proposed legislation will also introduce an all-encompassing regulatory structure for stablecoins linked to stable assets like the U.S. dollar, following the failure of Terra's terraced stablecoin in the previous year. Additionally, the bill encompasses various cryptocurrency services like advising, derivatives, and staking and comprises supervision of non-fungible tokens.

FTX vs Binance vs Coinbase

The differences between FTX, Binance, and Coinbase are as follows:

Basis	FTX	Binance	Coinbase
Meaning	FTX is a relatively new exchange, founded in 2019, that offers a wide range of trading products, including derivatives, leveraged tokens, and options	Binance, on the other hand, is one of the largest cryptocurrency exchanges in the world, founded in 2017. It offers a broad range of trading products and has a significant user base due to its early entry into the market	Coinbase is a cryptocurrency exchange founded in 2012 that is focused on providing a user-friendly experience for retail investors
Popularity	It gained popularity among professional traders due to its advanced features and low fees.	Binance is known for its wide selection of altcoins and low trading fees.	Coinbase is known for its user-friendly interface and substantial regulatory compliance

FTX vs FTX Pro

The differences between FTX and FTX Pro are as follows:

Basis	FTX	FTX pro
Meaning	FTX is the primary platform that offers a wide range of trading products, such as futures, options, leveraged tokens, and spot trading, catering to both retail and professional traders	It is a more streamlined FTX platform aimed at experienced traders. It is designed to offer a simplified trading experience with lower fees, a simple user interface, and faster execution.
Trading options	FTX is a more comprehensive trading platform that offers a wider range of trading products and tools	FTX Pro is a more streamlined platform that provides faster execution and lower fees, catering to experienced traders who require advanced trading tools.
Margin Trading	Available	Not Available

Frequently Asked Questions (FAQs)

1. Are FTX regulated?

In the United States, these are operated through its subsidiary FTX.US and were registered with the Financial Crimes Enforcement Network (FinCEN) as a money services business. They have also obtained a license from the New York State Department of Financial Services (NYDFS) to operate as a cryptocurrency exchange in New York. Hence, this platform is less regulated and has faced criticism for its lack of transparency.

2. Is FTX a Ponzi scheme?

FTX, the now-defunct cryptocurrency exchange co-founded by Sam Bankman-Fried, has been accused of being a Ponzi scheme by some former customers, academics, and crypto community members. Therefore, this has led to numerous civil lawsuits against Bankman-Fried and FTX, but there have been no legal rulings on the cases. Despite the allegations and Bankman-Fried's admission of mistakes, legal experts have cautioned that it is premature to label FTX as a genuine Ponzi scheme.

3. How do FTX futures work?

In FTX futures trading, the contract buyer agrees to purchase the underlying asset at a specific price and date in the future. Hence, the seller, in turn, agrees to sell the asset at the same price and date. The cost of the futures contract is based on the expected price of the underlying asset at the time of delivery.