Last week was crypto’s Lehman Brothers’ event when cryptocurrency exchange FTX.com filed for bankruptcy, paused all withdrawals, and slowly started showing us how broken their entire ecosystem was.
First, FTX International went under, and we were assured that FTX US would be fine. Only days passed before FTX US also went under as one of the 134 companies that were included in FTX’s bankruptcy filing.
FTX was valued at over $30 billion and had $9 billion of customer funds, and was trusted by some large entities. On top of this, other entities widely held their exchange token, FTT, as collateral. Let’s take a look to see who was affected by this and whether we can expect more exchanges to fail in a similarly tragic fashion.
Important note: none of this is financial advice, and we are not saying whether any of the following exchanges are insolvent or not. It is good to keep an eye on the state of things, though.
Binance held $2.1 billion of FTT and BUSD equivalent.
This tweet on November 6 from Binance’s Changpeng Zhen (CZ) was the beginning of the end for FTX:
“As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion equivalent in cash (BUSD and FTT). Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books.”
The announcement that Binance was about to sell its FTT triggered the collapse of the exchange token. At that point, CZ said that he would stop selling in order to prevent things from getting any worse and even offered to bail out FTX until he completed due diligence and saw the atrocious state of FTX’s books. What this means is that Binance has been left holding some undisclosed amount of FTT tokens, likely well less than the total $2.1 billion at the start, but very likely hundreds of millions of dollars worth.
CZ has stated multiple times that they do not invest in customer funds (like FTX did), and their SAFU fund is designed to be ringfenced and protect customers from any failure in Binance itself, such as a failed investment or a theft from hacking. As such, it sounds like Binance is fairly stable, although they will be taking a loss on their tokens and any other investments they had in FTX.
Crypto.com had $10 million exposure to FTX.
Crypto.com is another large exchange well known for its advertising during the 2022 NFL Superbowl and its sponsorship deals with celebrities such as Matt Damon (and his subsequent appearances in South Park). CEO Kris Marszalek has been very vocal in defending the exchange and held an Ask Me Anything (AMA) session on YouTube on Monday to dispel any fears customers had. At his AMA, he acknowledged a few interesting points:
- Yes, they did accidentally send $400 million in ETH to the wrong address, but they recovered it.
- Crypto.com holds 20% of its reserves in Shiba Inu tokens. This was because their customers were trading it a lot, and they needed to hold the tokens themselves on behalf of their customers.
- At one point, they transferred $1 billion to FTX, but this has since been reduced to $10 million. This is a lot of money, but for a company the size of Crypto.com, they should be able to weather this.
Marszalek also mentioned that they have never used their exchange token Cronos (CRO) as collateral to back any loans. This is very fortunate, as CRO has plummeted from a peak of $0.90 to $0.11 in the last year and then was cut in half to hit a low of $0.056 in the wake of the FTX bankruptcy.
From what we’ve seen, Crypto.com could survive this, but many experts in the crypto space are also using FTX’s failure as a reminder not to trust any exchange that has its own exchange and offers yield products.
BlockFi
At the time of writing, BlockFi is still recommending that customers do not deposit any funds on their exchange, and withdrawals are still paused. BlockFi was badly burnt in the wake of the Luna failure and was being propped up by a $400 million line of credit from FTX.
Naturally, FTX failing means that this line of credit is no longer useful, so they are now again asking around for a new big brother to bail them out so they can continue operating.
Voyager Digital
This is a very similar case to BlockFi, where Voyager was saved from bankruptcy by FTX, only to find themselves back at square one again. They, too, are now looking for a new big brother to bail them out of this mess.
How To Keep Yourself Safe
The gold standard for crypto is to self-custody your coins, and the last week has taught us that even entities that seem “too big to fail” are, in practice, not perfect and can still leave you high and dry. If your coins are on an exchange that is still letting you withdraw, great! Take the opportunity to become your own bank, as is the promise of the Bitcoin maxis.
You might be one of the unfortunate souls who still have their crypto stuck on FTX or any other exchange that has “temporarily paused” withdrawals. Now is the time to get in touch with your local authorities and get yourself in the queue as a creditor, or even take advantage of ways to claw back your funds before things go completely downhill. Our experts are experienced in recovering lost crypto and will be happy to answer any questions you may have.