What Is a Crypto Exchange Token and How Did It Help Blow up FTX?
What Is a #Crypto Exchange #Token and How Did It Help Blow up FTX? The FTT exchange token played a major role in the fall of the FTX exchange and it's firm Alameda Research. It was the use of FTT to inflate both entities’ balance sheets that raised the doubts for the collapse. FTT may have been core to another aspect of the FTX fraud, serving as notional (but actually worthless) “collateral” for loans of customer funds made by FTX to bail out Alameda. Exchange tokens goal is the opposite of decentralization. They are an incentive to keep using the same centralized exchange. Holders can use them to get discounts on trading fees, rewards. Despite chatter on Twitter, the FTT token did not distribute a share of FTX platform revenue or give holders any governance rights. FTT was tracked as an ERC-20 token on Ethereum. BNB, Binance’s exchange token, is tracked on its branded BNB Chain, a blockchain that began life as an Ethereum fork but has merged with a separate permissioned blockchain. Also Read - Centralized VS Decentralized Crypto Exchanges The value of exchange tokens, by contrast, is implied to rest on a regulatory or legal regime that in many cases doesn’t actually exist. Most if not all exchange tokens are issued by so-called “offshore” exchanges, like FTX and Binance, that are registered in light-touch regulatory havens such as, in FTX’s case. Exchange tokens represent a way for offshore exchanges to raise money without that access. But the handling of the FTT tokens on FTX and Alameda’s balance sheets didn’t track either to standard equity accounting practices. When accounting for its own equity, or handling stock it has bought back from public markets, companies do not add them to their valuation estimate or liquid assets, instead usually tallying them separately as “treasury stock. This basic accounting deception became a time bomb when Bankman-Fried seemingly began using FTT as collateral for loans between FTX and Alameda, as well as other related entities. The centrality of FTT to the worst crypto blowup of all time has pushed crypto leaders to clarify their stance on accounting for exchange tokens and similar in-house assets. Changpeng Zhao, CEO of Binance, took pains last week to clarify that Binance has “never used BNB as collateral.” Read the full article