The FTT token was also a major factor in the implosion of FTX.
New details about the investments of FTX Derivatives Exchange into BlockFolio, a crypto brokerage firm have been published by Bloomberg. According to the media firm, FTX financed over 94% of the $84 million it paid for the platform using FTT, a digital token it created.
With the funds paid, FTX took a 52% stake in BlockFolio in 2020 and the bankrupt exchange which at the time was only a year old had the option to buy up the rest of the smaller company. The insights shared by Bloomberg have shown some of the early financial impropriety Sam Bankman-Fried (SBF) committed that eventually set the stage for the implosion of his trading platform this November.
The interesting twist to the acquisition of BlockFolio was that media reports on it at the time never dug deep into the nature of equity paid down for the exchange. It was just reported that FTX paid in cash, crypto, and a combination of equity. Though the report from Bloomberg was backed by a document it reviewed, the claims have not been confirmed by any FTX representative.
The FTT token was also a major factor in the implosion of FTX as a report from Coindesk in early November showed that the digital currency occupies the bulk of the exchange’s balance sheet. That sent a signal that the valuation of the exchange and its ability to sustain the payment of liabilities is wholly dependent on the FTT tokens and this comes off as an unsettling push for investors.
The rush to the bankruptcy of the trading platform was catalyzed when Binance CEO, Changpeng “CZ” Zhao announced last month that he wants to sell the FTT coins he received as an equity contribution for investing in FTX.
Beyond Blockfolio: Chronicles of Failed FTX Acquisitions
At its very peak, the FTX trading platform was seen as a lender of last resort for most distressed crypto firms. Earlier this year, Terra (LUNA) plunged when its sister token, TerraUSD (UST) depegged from the USD, an event that lead to a liquidity crunch and the collapse of Three Arrows Capital (3AC).
Besides 3AC which had direct exposure to LUNA, other major Virtual Assets Service Providers (VASPs) like Celsius Network and Voyager Digital also went bankrupt following the collapse. At the time, FTX, through Alameda Research rose up to the occasion to bail out many of these firms and extend a line of credit worth $500 million to Voyager Digital.
The cash injection was unable to keep the crypto lending from going bankrupt, and the exchange’s investment went almost to naught. FTX’s investments into BlockFi and other new entities were also reversed when the company filed for bankruptcy last month.
As it stands, FTX has up to 1 million creditors with over $10 billion in liabilities. The exchange’s top executives including Sam Bankman-Fried are facing Federal Fraud charges in the United States at the moment.