The FTX Token (FTT) is one of the most interesting Exchange Tokens on the market. Since issuance last year, it has skyrocketed into the top 100 on CMC.
The FTX token has also picked up quite a bit of interest recently given its listing and subsequent delisting from the Binance exchange. Some people have said that leveraged tokens created by the FTX exchange are “too complicated” for most traders.
So, is this really the case and should you consider FTT?
In this FTX Token review I will attempt to answer that in my in-depth overview. I will also analyse the long term potential, utility and use cases of FTT.
What is the FTX Token?
The FTX token goes by the ticker FTT and is an exchange token issued by the FTX Exchange to power its ecosystem and provide utility within the operations of the exchange.
FTX & Alameda Research
The genesis block for the FTT token occurred in April 2019, but the token didn’t begin trading on exchanges until August of the same year. The exchange and token were launched with the assistance of Alameda Research, a full-service cryptocurrency trading firm.
This review will focus on the FTT token highlighting its uses and utility, its history, current events, and what might the future hold. That said, we will begin with some background regarding the FTX Exchange, its history, and what it is trying to accomplish within the cryptocurrency exchange ecosystem.
The FTX Exchange was launched in April 2019. Rather than being simply an exchange, it is a derivatives exchange, allowing traders to participate in the cryptocurrency markets through its futures tokens and leveraged tokens.
These tokens allow for leverage on popular cryptocurrencies without the need for a margin account. The exchange has grown to also offer a range of other derivative digital assets, such as its tokens on the outcome of the 2020 Presidential elections.
Graph For Trading Trump Election
The purpose for the creation of the exchange was an effort by its founders to avoid clawbacks in cryptocurrency exchanges. It does this through a three-tier liquidation model that uses rate-limited orders to close positions, and takes advantage of an insurance fund which prevents customer losses.
One way it does this is by sharing collateral across all the tokens in one universal stablecoin wallet. This model mimics the functioning of traditional futures markets. It also allows traders to open short positions or to leverage their capital without using margin or futures.
The leveraged tokens offered by FTX trade in the same way as any other token on the spot market, but they allow for 3x, -1x, or -3x leverage on a number of popular cryptocurrencies. The OTC order desk at FTX is powered by Alameda Research, the same company that helped to create the exchange.
Both Alameda Research and FTX Exchange were founded by two MIT graduates: Sam Bankman-Fried and Gary Wang.
Sam Bankman-Fried acts as the CEO for both companies, and before founding Alameda Research in 2017 he was a trader at Jane Street Capital on their International ETF desk. This gave him extensive experience trading equities, currencies, futures, and ETFs. While at Jane Street is also helped design their OTC trading system.
FTX Team in the Trading Room. Image via coinsconcise
Gary Wang acts as CTO for both Alameda Research and FTX Exchange. Prior to co-founding Alameda Research he worked as a software engineer at Google.
His responsibilities there included the creation of systems to aggregate airline prices across millions of flights. His system decreased memory usage and latency by more than 50%.
The FTX Exchange
The FTX Exchange is taking a different view of cryptocurrency trading and in the process is changing the way others view cryptocurrency trading. It is doing this by offering a range of innovative new products that highlight just what can be done with blockchain based assets.
FTX is bringing three important features to cryptocurrency markets: liquidity, innovation, and risk control.
Risk, Crypto Futures, and Clawbacks
There is a key difference in trading in crypto futures that doesn’t exist in traditional futures markets. This is the possibility for traders on a specific exchange being required to give back some of their gains to maintain the solvency of the exchange when another trader blows up their account spectacularly.
This sacrifice is known as “clawback” and it rarely occurs in traditional futures markets because the market makers there are able to pass their risk along to larger financial institutions such as a global money center bank. The cryptocurrency ecosystem can’t do this, and so clawbacks can and do occur.
Liquidation Process at FTX to prevent Clawbacks Image via coinsconcise
One of the largest examples of this occurred at the OKEx derivatives exchange in August 2018. At that time a single trader accumulated a Bitcoin futures position that was worth over $400 million. When the exchange noticed the position they asked the trader to lower his exposure and when he refused they forcibly liquidated the entire position, resulting in a loss of roughly $27 million.
OKEx was able to cover $18 million of the loss through an insurance fund they had previously set up, but the remainder of the loss, some $8.8 million, was taken back from any trader who was on the other side of the trade and made money when the position was liquidated. This amounted to roughly 18% of the gains.
Until the crypto markets grow much larger clawbacks will remain a part of the futures market, which makes the risk management solutions offered by FTX so key to the growth of the industry.
FTX Leveraged Tokens
Arguably the biggest innovation created by FTX is its leveraged cryptocurrency tokens. Thanks to these tokens the trouble of managing a futures position in cryptocurrencies is no longer a necessity. Instead investors can use the +3x, -1x, or -3x tokens created by FTX.
As of March 2020 there are leveraged tokens available for Bitcoin, Ethereum, EOS, Ripple, Tezos, Bitcoin Cash and over a dozen other altcoins. There are also leveraged tokens for Tether, PAX, and a number of other stablecoins.
Leveraged Bull & Bear Tokens at FTX
These leveraged tokens give investors a significant advantage in the markets by allowing them to avoid using the more complicated futures to accomplish the same task. With leveraged tokens there are no margin requirements, and it becomes far easier to assess the value at risk of an investment.
Because trading futures is so complex many investors have a hard time understanding the risks they expose themselves to, and the potential for blowing up an account and losing all their money. And of course futures trading exposes everyone on the exchange to the potential problem of clawbacks.
Clearly FTX has created a much better way to gain leverage and to hedge positions.
What is the FTX Token (FTT)?
The FTT token was created for use on the FTX Exchange. It is an ERC-20 token and it functions as the lynchpin to the ecosystem of the exchange, boasting a number of impressive uses within the operation of the exchange.
Those familiar with cryptocurrency exchanges will see that the FTT performs a similar role to the BNB token at Binance, or the HT token at Huobi. This has generated quite a bit of interest in FTT from investors since exchange tokens in general have performed well over the years.
FTT Token Utility
The underlying value of an exchange token particularly comes from that token’s utility, or what use cases it serves. A token must also have a limited supply to increase its value. With those things in mind let’s see what token utility FTT has, and how supply has been limited for FTT.
- Discounted Trading Fees – One expected utility for any exchange token is discounted trading fees for those holding the token. Of course FTT delivers on this expectations and traders are incentivized to purchase FTT tokens to reduced the trading fees they pay. Trading fees are discounted from 3% to 60% depending on the amount of FTT held.
- Socialized Gains – One of the ways an exchange avoids clawbacks is by funding an insurance account to protect traders in the event of excessive market volatility. FTX has gone even further by instituting a rule that if their insurance fund sees a large increase any FTT holders at the time will receive a bonus payment from the excess insurance funds. This could make FTT similar to a dividend bearing stock if we have another extended bull market run in cryptocurrencies.
- Token Burns – This is one way in which FTX controls supply to increase the price of FTT. FTX uses one-third of the fees generated by the exchange to buyback FTT tokens and burn, or destroy, them. FTX has said they will continue doing this until 50% of all the FTT created have been burned.
- White Label Solutions – This is a method for generating additional income by selling or leasing the framework of their product to others. In this case FTX has stated that they’ve seen quite a bit of interest from other businesses in a white label solution for the FTX futures and OTC Exchange. While it doesn’t seem this would affect the FTT token it could because FTX has said FTT would be one of the payment options if they offer a white label solution. And it’s pretty likely they will offer some sort of discount for white label purchases made with FTT. That could increase demand substantially for FTT if the white label solution becomes popular.
- OTC Rebates – With reported trading volumes in excess of $500 million FTX is one of the largest crypto exchanges in the world, but thanks to their partnership with Alameda Research they are also able to offer an Over-the-counter (OTC) trading platform too. This platform is typically used by high volume investors and traders who don’t want their trades to have an impact on market pricing. Based on information from the FTT Whitepaper these OTC traders receive a rebate if they are holding enough FTT.
- Position Collateral – FTT can be used as collateral on the trading platform, which could increase demand if FTX provides some incentive in the future for using FTT as collateral rather than some other asset such as Bitcoin or Tether.
- Future Plans – FTX has stated they plan on launching a spot tradingplatform in the future, although there is no projected date for that. They have also said that this spot trading platform could also lead to an IEO platform similar to the Binance Launchpad. Since FTT would almost certainly be used for purchases on such a platform we would expect to see demand for FTT to rise once this is implemented.
FTT Price Performance
The genesis block for the FTT token was mined in April 2019. Following that there were three rounds of token sales to private investors in July 2019, raining some $8 million in capital, and on July 31, 2019 the token began trading on exchanges.
FTT Token Performance. Image via CMC
At that time trading opened at $1.72 and closed the same day at $1.73. Within 10 days the price hit $2.25, but quickly retreated and was trading at $1.25 a week later. After hitting an all-time low of $0.83129 on September 7, 2019 the token remained in the range of $1.15 to $1.40 over the next several months.
In late November 2019 it began climbing once more, and hit an all-time high of $3.38 on February 16, 2020. As of March 31, 2020 the token trades at $2.42, having recovered from a drop after Binance announced on March 28, 2020 that they would be delisting all the FTX leveraged tokens.
Binance Delists FTX Leveraged Tokens
On Saturday march 28, 2020 Binance announced they would be delisting all the leveraged tokens offered by FTX effective March 31, 2020 at 10:00 UTC. Users would have until that time to move funds off the exchange. In the event the tokens are not moved by the cutoff, Binance said they would provide the equivalent value of each delisted leveraged token in BUSD.
The assets to be delisted include BULL, BEAR, ETHBULL, ETHBEAR, EOSBULL, EOSBEAR, BNBBULL, BNBBEAR, XRPBULL, and XRPBEAR as well as a number of other leveraged tokens.
The BULL and BEAR tokens are long and short leveraged tokens, with leverage of 3x. That means any move in the counter currency is tripled in the leveraged token.
Tweet Announcing Delisting. Image via Twitter.
As might be expected users were mass selling their tokens over the next few days. FTX Exchange also began offering LT USDT pairs if users don’t want their leveraged tokens turned to BUSD at Binance.
Many traders have complained of large losses created by the delisting, but Binance CEO Changpeng Zhao has answered each complaint in the same manner:
They are not designed for long term holding. They devalue over time when markets (underlying assets) fluctuate back and forth. The main reason for delisting is that too many users don’t understand them.
Sam Bankman-Fried, the CEO of FTX Exchange countered by saying Bianance should take the initiative to educate its users regarding the leveraged tokens rather than summarily delisting them.
It also seems somewhat odd for Binance to go against FTX after they entered into a strategic partnership with the exchange just this past December. As part of that partnership Binance was said to have invested a substantial amount into FTX, taking a double digit ownership position in the exchange.
I’m not going to claim FTT as a good or a bad investment, each person needs to do their due diligence and make that determination on their own.
I can say that FTX has quickly become one of the most popular cryptocurrency trading platforms in the world. I can also say that the FTT token has a wide variety of utility within the FTX ecosystem, and that this utility should keep demand for the token high.
The only real risk at this time in my mind is the risk inherent in the cryptocurrency market in general. While one could also claim there is some risk in the legitimacy of the exchange itself, the team behind FTX seems genuine, honest, and transparent. It does seem as if they simply want to offer traders a solid alternative to futures in the cryptocurrency market by building an innovative and efficient crypto exchange.
Another potential positive for the FTT token is the potential for it becoming a passive income source through its socialized gains model. That could create immense demand for FTT in the future if those socialized gains become a reality.
Featured Image via Shutterstock