FTX created a cryptocurrency that helped destroy it: NPR


Sam Bankman-Fried, the current CEO of FTX, encouraged the cryptocurrency exchange’s customers to purchase their own cryptocurrency, called FTX Token.

Saul Loeb / AFP via Getty Images


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Sam Bankman-Fried, the current CEO of FTX, encouraged the cryptocurrency exchange’s customers to purchase their own cryptocurrency, called FTX Token.

Saul Loeb / AFP via Getty Images

Not long after starting the now-failed FTX, a cryptocurrency trading exchange, Sam Bankman-Fried and his co-founders decided to create their own virtual currency à la bitcoin.

“There is no reason, if you are in the cryptocurrency industry, not to create tokens,” says Hilary Allen, a professor at American University Washington College of Law. “You can create tokens out of thin air.”

The FTX token, or FTT as it is best known, debuted in 2019 and a couple of years later, the digital currency was valued at a high of nearly $ 80. Today, there are nearly 250 million FTX tokens in circulation.

Not bad for something that’s just data.

Although he was a major money maker for FTX and helped keep Bankman-Fried’s hedge fund afloat, the FTX token ultimately proved to be the company’s bane.

After an article on CoinDesk earlier this month raised questions about FTX’s financial data, Changing Zhao, the CEO of Binance, decided to offload his company’s sizable FTT holdings. This frightened investors, and as the rumor spread, the token’s value plummeted.

Like airline miles, tokens rewarded customers but did little outside the company

The FTX token was part of an elaborate rewards-based marketing scheme to attract buyers.

“I think air miles,” says Ariel Zetlin-Jones, who teaches economics at Carnegie Mellon University. “Like loyalty points for using the exchange.”

Customers who purchased FTTs were able to execute trades in the bag with a discount. They could also use tokens as collateral. The company considered token holders to be VIPs.

On its website, Bankman-Fried’s company called FTT “the backbone of the FTX ecosystem.”

But customers didn’t know that those tens of millions of tokens weren’t widely distributed, which is critical for a market to determine the price or value of any currency. In fact, much of FTT belonged to FTX and its affiliates and Bankman-Fried’s hedge fund, Alameda Research.

Funneling money to a hedge fund by making risky bets

FTX fell apart quickly and there is still a lot to learn about its incredible collapse. But it is clear that Alameda Research used FTT to make speculative bets on other cryptocurrencies and complex financial products.

In other words, those “VIPs” handed over real money to purchase a purely digital token from FTX, and all of this was the basis for making risky and speculative investments.

The token acted “as the channel through which money was channeled from the cryptocurrency exchange FTX to Alameda Research,” says Eswar Prasad, author of “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance”.

This inappropriate and unseemly practice has gotten out of control in the largely unregulated world of cryptocurrencies, which Securities and Exchange Commission Chairman Gary Gensler, Wall Street Police Chief, has likened to the “Wild West.”

“It was a very dark set of financial practices with no transparency, no investor protection, and no financial barriers of any kind,” says Prasad, who is also a professor of economics at Cornell University.

About a week ago, Binance’s Zhao announced on Twitter that his company was selling FTTs worth hundreds of millions of dollars. An old-fashioned bank run followed and soon the tokens were practically useless.

According to Prasad, this was to be expected.

“The moment there is the slightest smell of concern about the token, the value of that token can practically vanish in a flash,” Prasad said. “Which is what happened here.”

Today, FTT is still trading on some exchanges, even though FTX has initiated Chapter 11 bankruptcy proceedings and Bankman-Fried is under legal and regulatory scrutiny in the United States and around the world.

FTT is now priced at under $ 2, but surprisingly there is still a market for it.


With the collapse of FTX, its clients have had a hard time withdrawing their assets from the cryptocurrency exchange.

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With the collapse of FTX, its clients have had a hard time withdrawing their assets from the cryptocurrency exchange.

Leon Neal / Getty Images

“I think there is an expectation that once you sift through all the embers from this conflagration, there will be some value in the exchange,” Prasad says. “There will be some assets that still remain that will have marginal value and the token can be used to derive value from those assets.”

But, he added, he expects FTT’s value to drop even more in the coming days as we learn more about how a company that was valued over $ 30 billion imploded so spectacularly.

Zetlin-Jones says there may be investors hoping someone will buy FTX for bankruptcy and then their tokens will be worth something again.

But it suggests there may be another reason why there is still a market for FTT.

“People buy Zimbabwean trillion dollar bills because it’s an anecdote and they might like them as collectibles,” says Zeitland-Jones. “Perhaps FTT is the new collector’s item that we will admire in 100 years.”

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