FTX, one of the world’s largest cryptocurrency exchanges, came within inches of collapse.
FTX and its once-esteemed founder, Sam Bankman-Fried, were all but over… if it wasn’t for an unlikely savior, Binance. In a drama worthy of a Netflix special, Binance’s CEO was culpable for instigating the string of events that would eventually lead to FTX’s implosion.
WTF just happened?
The Binance Vs FTX saga has been covered at great length. Here’s an overly simplified version of how we got here:
- Binance is the world’s largest cryptocurrency exchange. FTX is (was?) the world’s third largest exchange and was increasingly causing headaches for Binance.
- FTX works closely with regulators, and started talking shit about Binance behind closed doors.
- Binance’s CEO, CZ, responded by saying Binance was going to dump its $2 billion worth of $FTT. The $FTT price crashed 35%.
- Context 1: $FTT is FTX’s native token.
- Context 2: Binance used to own part of FTX. When Binance sold its share back to FTX, it received A LOT of $FTT as payment.
- Context 3: $FTT is highly illiquid. Alameda Research (the market-making arm of FTX) owned considerable amounts of $FTT which it was even using as collateral for loans. Illiquid + huge dump = down bad.
- Concern about the financial health of FTX resulted in a bank run. People with holdings in FTX withdrew $6 billion in 72 hours. It was so bad that FTX actually paused withdrawals.
- From nowhere, a wild CZ appeared and announced Binance would “save” FTX by buying it. However, the Binance acquisition is non-binding and subject to due diligence. There are even reports Binance is backing out of the deal. That means the drama (and perhaps the damage) is far from over.
This has all spooked investors. The demise of one of the most reputable companies in crypto within just a few days underlines just how risky the industry is.
What does this all mean for NFTs?
This whole saga could affect our beloved monkey JPEGs in a number of ways:
- General loss of crypto confidence: Many investors lump crypto and NFTs in the same bucket. These events make the crypto industry seem riskier. That means people might be more reluctant to buy (or hold on to) NFTs.
- Solana exodus: Sam Bankman-Fried and FTX were staunch supporters of Solana. Alameda has $1 billion in locked and unlocked Solana (which it will have to sell if it goes insolvent). This has all rekt $SOL, which is down over 40% in the last 24 hours. A prolonged $SOL slump could make NFT traders, creators and developers leave the ecosystem altogether. DeGods and y00ts are already considering migrating to ETH.
- Increased NFT marketplace competition: The majority of Magic Eden’s revenues are in Solana. This Solana scare will undoubtedly make Magic Eden double down on its expansion into other blockchains. That will add heat to the already-boiling battle for marketplace domination.
This wouldn’t be WGMI Wednesday if we didn’t end with a dose of copium. Confidence is shaken, but this news does nothing to affect the core value proposition of Web3, NFTs and blockchain technology.
We are still enabling the transfer and storage of value without the need for intermediaries. We are still facilitating digital ownership. We’re still empowering artists and musicians.
It’s a dark day. We are down, but we’re far from out.