The popular cryptocurrency derivatives exchange FTX is having an outstanding few months. The price of its utility token, FTT, has risen over 130% in just six weeks according to CoinMarketCap data, following a flurry of announcements.
- What it does: FTT is the utility token on the FTX cryptocurrency exchange. It can be used to reduce trading fees on the exchange or serve as collateral against futures positions. It can also be staked to earn interest and get the chance to win NFTs.
- Management team: CEO Sam Bankman-Fried is an MIT graduate who worked at Jane Street Capital before co-founding both Alameda Research and FTX with Gary Wang. CTO Wang is a former Google software engineer.
- Market cap: $6.46 billion (CoinMarketCap, Sept. 2, 2021).
- Availability: FTT is not available from any major U.S. cryptocurrency exchanges.
FTX, Alameda Research, and Sam Bankman-Fried
Sam Bankman-Fried is something of a crypto superstar. The 29-year-old billionaire co-founded quantitative trading firm Alameda Research with Gary Wang in 2017. The pair went on to launch FTX two years later. Bankman-Fried believes in effective altruism, living life to maximize the good you can do in the world.
FTX offers crypto derivatives trading, including futures and options. Instead of more traditional margin trading, which traders can use to multiply their gains or losses, FTX uses leveraged tokens. These let customers take a leveraged position without dealing with the complexities of full margin trading. Its U.S. site, FTX.US, has a limited selection of services because of the restrictions on retail derivatives trading.
Derivatives are advanced trading products that involve trading contracts to buy or sell a product without necessarily owning the underlying product itself. They allow traders to speculate on whether a market will rise or fall.
FTX set out to solve a number of problems faced by other derivatives exchanges, such as tedious trading processes, poor liquidity, and so-called "clawbacks." Clawbacks are when money is taken from various investors to cover another person's bankruptcy.
Alameda Research is a quantitative trading firm that manages over $1 billion in digital assets.
One big reason for FTT's recent price surge is the series of big news items we've seen, culminating in its recent acquisition of U.S. derivatives firm LedgerX.
Here's a quick rundown of FTX's recent announcements.
- July 20: FTX closes a $900 million fundraising round, valuing the company at $18 billion. With several big names among the 60 investors who participated, FTX said this was one of the largest raises for a crypto company.
- July 27: Launch of FTX Climate Program, which will fund climate research and help FTX reach its goal of becoming carbon neutral.
- August 5: Sponsorship deal with gaming startup Yield Guild Games. It gives FTX naming rights on a scholarship to help get 137 players from developing countries started in Axie Infinity (AXS), a popular crypto game.
- August 10: Entrepreneur and Shark Tank's Mr. Wonderful, Kevin O'Leary, agrees to become a spokesperson for FTX as part of a long-term relationship. O'Leary praised FTX's rigorous approach to compliance.
- August 13: FTX makes a three-year funding commitment to Brink Technology, a non-profit that gives grants and support to Bitcoin (BTC) developers.
- August 31: FTX acquires LedgerX, a U.S.-licensed derivatives company that serves both retail and institutional investors. The acquisition will help FTX bring crypto derivatives to its U.S. customers.
Should you buy?
With so many cryptocurrencies to choose from, if you invest for the long term, it's important to buy coins that have solid fundamentals and are likely to do well over time. Even then, only invest money you can afford to lose, as the cryptocurrency market can be incredibly volatile and risky.
As an exchange, FTX seems positioned to perform well in the long run, which bodes well for FTT. It has a great team and a clear business plan that sets out both the problems it wants to solve and how it proposes to address them. And, unlike many cryptocurrencies, it has a straightforward use case.
Plus, the recent LedgerX deal could help grow FTX.US's product offerings and differentiate it from the more established crypto exchanges in America. Right now, FTX is strong internationally, but its customer base in the U.S. is limited because of the restrictions on its product offering.
However, as U.S. authorities consider how best to strengthen crypto exchange regulations, there's a good chance all forms of derivatives trading will come under the microscope. Bankman-Fried believes that regulatory compliance is important and thinks crypto exchanges need to work with regulators, not against them.
Another issue is that FTT is not easy to buy in the U.S. Indeed, according to FTX's website, U.S. residents are "not permitted to transact in FTT." While it may be possible to buy FTT from a decentralized exchange, trading in tokens that are not authorized does carry additional risks.
If you are an international FTX customer, there are several benefits to owning FTT, from reduced fees to the chance to earn interest on your holdings. If you're not an FTX customer and are looking at FTT as an investment, regulatory changes are the token's biggest threat.
Even stronger controls on crypto derivatives in the U.S. and across the world could hamper FTX's plans to get a bigger foothold in the U.S. market and impact its business internationally. However, if FTX manages to work with regulators -- as the company says it wants to -- the price could grow even further.
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Emma Newbery owns Bitcoin.
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