Key learning points
- FTX allows its users to withdraw their funds, but only if they purchase selected tokens from the TRON network.
- These tokens – TRX, BTT, JST, SUN and HT – are trading at a high markup on FTX compared to other platforms.
- Some suspect that FTX is trying to close the $9.4 billion gap in its balance sheet through arbitrage.
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Some FTX users can now take their money off the exchange, but only by transferring 80% of their portfolio’s value to arbitrageurs.
A deal with the devil
FTX has a questionable rescue plan for some of its users.
The collapsing crypto exchange announced today that it had reached an agreement with the TRON blockchain to allow holders of TRX, BTT, JST, SUN and HT – the main coins of the TRON ecosystem – to withdraw their tokens from FTX at 18:30 UTC .
Rumors of TRON’s involvement started circulating late yesterday and the official announcement caused the tokens to surge in price on the exchange. At the time of writing, TRX is trading on FTX at $0.32, BTT at $0.00000382, JST at $0.17, SUN at $0.029, and HT at $29.8, though prices are moving fast. These are significantly different prices than those found off-exchange: on Binance, TRX trades for $0.05 and BTT for $0.00000073, and on Huobi Global JST exchanges for $0.023, SUN for $0.0057, and HT for $6.35.
This means that if they want to withdraw their funds, FTX users must accept to buy TRON coins from FTX at a significant markup compared to the price at which they can sell them on solvent exchanges. In other words, they can only withdraw their money from FTX if they voluntarily take a loss of 78% to 86%.
Even worse, it looks like TRON will only put $13 million of money into FTX’s books for now, meaning there are no guarantees that users will be able to withdraw their funds even if they buy the coins at exorbitant prices.
The scheme obviously offers huge arbitrage opportunities for market makers with access to FTX’s order books, as it allows them to buy “cheap” TRON tokens from solvent exchanges and sell them to FTX clients for much higher prices. Coincidentally, Alameda Research – the quantitative trading company founded by FTX CEO Sam Bankman-Fried – is known for specializing in arbitrage.
The bottom line is that FTX may be trying to partially close the $9.4 billion hole in its balance sheet by forcing its captive users to transfer about 80% of their portfolio to the arbitrageurs it set up (with no guarantee). that they will). withdraw their money). It is noteworthy that while FTX only announced the TRON scheme an hour ago, the five selected coins have been trading at elevated prices since 05:00 or 06:00 UTC – depending on the token – or about 11 or 12 hours before the announcement. .
It would therefore be natural to suspect that FTX is purposefully driving up the price of its tokens, that it gave insiders an edge, or both. The suspicion is reinforced by on chain data indicating that certain FTX users were allowed to withdraw funds through the Ethereum network. It took more than two hours for the official FTX account to be available clarify that these recordings may have been made for certain Bahamian customers in accordance with the regulations of that country. FTX is headquartered in the Bahamas.
Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other cryptocurrencies.