FTX Owes Money To Every Major Tech Company, Including Google, Meta, Amazon And Apple

Former FTX chief executive Sam Bankman-Fried leaves Manhattan federal court, New York, January 3, 2023. (Photo by Ed JONES / AFP)...FP via Getty Images

Add Google, Meta, TikTok, Twitter and Apple to the list of companies owed money by the ill-starred crypto exchange FTX in the aftermath of its catastrophic collapse. A new “creditor matrix,” published by FTX’s lawyers on Wednesday to the United States Bankruptcy Court of Delaware, runs 115 pages-long and contains thousands of names.

The extensive list shows just how many people, companies, media outlets, governments and other entities are owed money by FTX — an attempt to map the millions of customers that engaged with the exchange before its founder Sam Bankman-Fried and executives were accused of fraud and deceiving investors.

It’s unclear how much money is allegedly owed to the tech companies; that information is not provided in the matrix. Other names included Netflix, LinkedIn, Amazon and Microsoft. (Lawyers for FTX previously objected to the inclusion of creditor identities, and nearly 10 million names were withheld from the new document.)

FTX heavily promoted itself through advertising campaigns, sponsorships and paid partnerships, however. It’s possible that some or all of these companies are owed ad fees, as the exchange had accounts on Facebook, TikTok and Twitter, or cloud hosting fees in the case of Amazon.

Netflix spokesperson Emily Feingold told Forbes that the company was “not aware of ever having any business relationship with FTX and do not understand why they would have listed us as a creditor.” Edgar Mosley, a managing director at restructuring consultancy Alvarez & Marsal who filed the creditor list, did not immediately respond to questions about potential discrepancies.

Meta did not immediately respond to a request for comment. FTX does not appear to have run Facebook ads, according to the platform’s ad library.

Microsoft declined to comment. FTX, Apple, Google, Meta, TikTok, Netflix, Twitter, LinkedIn and Amazon had not responded to a request for comment at the time of publication.

Developing …

Correction: This story has been updated to reflect that the creditor matrix contained thousands, not millions, of names.

I’m an Oakland-based technology reporter and Senior Writer at Forbes. Contact me at semerson@forbes.com or securely on Signal at 510-473-8820.

Source: FTX Owes Money To Every Major Tech Company, Including Google, Meta, Amazon And Apple

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Critics by , CNN

Newly unsealed bankruptcy documents revealed thousands of creditors to whom FTX owes money after the once-mighty crypto exchange collapsed in November. Wall Street heavyweights including Goldman Sachs and JPMorgan were named in the creditor list, which includes businesses, charities, individuals and other entities in a 116-page document filed late Wednesday. FTX is now at the center of a massive fraud investigation.

Also included in the creditors list are media companies, such as the New York Times and Wall Street Journal, commercial airliners, including American, United, Southwest and Spirit, as well as several Big Tech players, including Netflix, Apple and Meta. On Thursday, lawyers for FTX filed an additional document advising the court that the list — known as a creditor matrix — is “intended to be very broad” and “includes parties who may appear in the Debtors books and records for any number of reasons.”

Being on the list does not “necessarily indicate that the party is a creditor” of FTX or its affiliates, they wrote. Goldman Sachs, for one, is named in the creditor matrix but doesn’t appear to be a creditor. In a statement to CNN on Wednesday, the bank said it had not filed a claim against FTX. “This type of creditor matrix is prepared by the debtors for the purpose of providing notice to interested parties in a bankruptcy proceeding and is not necessarily evidence of a creditor relationship,” a spokesperson said.

Collapsed FTX owes nearly $3.1 billion to top 50 creditors. The document doesn’t disclose the amount or nature of the debt, and names of individual creditors — mostly customers who deposited funds on FTX — remain redacted at FTX’s request. Inclusion on the creditor list doesn’t necessarily mean the parties had an FTX account. FTX is believed to have more than a million creditors, the top 50 of whom are collectively owed more than $3 billion.

The crypto platform was once of the most popular crypto exchanges on the planet, fueled by celebrity endorsements and high-profile partnerships with sports teams. It marketed itself as a beginner-friendly crypto platform, allowing customers to deposit fiat currency and trade it for digital assets. But FTX came unraveled in November as speculation about its balance sheet sparked investor panic. In the midst of a liquidity crisis, the company filed for bankruptcy, leaving customers in limbo.

Federal prosecutors investigating FTX say that its founder and former CEO, Sam Bankman-Fried, orchestrated a massive fraud by stealing customer funds to cover losses at his hedge fund, Alameda Research. They also accuse him of using stolen money to buy luxury real estate and contribute to US poltical campaigns.

Bankman-Fried, who was indicted in December and remains under house arrest at his parents’ California home, pleaded not guilty to eight criminal counts earlier this month. He has repeatedly denied committing fraud, and is scheduled to go to trial in October. Two of his former business partners have pleaded guilty to fraud and conspiracy charges and are cooperating with prosecutors from the Southern District of New York. Both associates have implicated Bankman-Fried in the alleged crimes.

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Is Crypto About To Go Extinct?

[Nataliia Shulga/Al Jazeera]

It will likely survive, but only after more firms and currencies crash and burn. Here’s why.

As the Los Angeles Rams beat the Cincinnati Bengals in the championship game of the National Football League last February, an unlikely set of players made a splash off the field, in living rooms across the United States.

On one of American television’s biggest nights, with 99 million viewers, the Super Bowl broadcast was punctuated by a series of cryptocurrency advertisements. Social media buzzed with talk of how digital tokens had come of age as they grabbed primetime slots previously dominated by mainstream giants like Coca-Cola and General Motors.

One of the advertisements that night had comedian Larry David playing a Luddite dismissing humankind’s biggest inventions – from the wheel to Edison’s lightbulb to, the commercial suggests, the FTX cryptocurrency exchange. Told that the platform is a “safe and easy way to get into crypto”, David’s character says: “Ehhh, I don’t think so – and I’m never wrong about this stuff.”

With multiple big crypto firms collapsing in recent months, the sector that promised an alternative to the traditional global financial model now faces existential questions. In May last year, the TerraUSD and Luna coins crashed, losing almost all of their value overnight and wiping out $45bn from the crypto market in a day. Singapore-based crypto hedge fund Three Arrows Capital abruptly shut down. Crypto lenders Voyager Digital and Celsius Network – which had both loaned money to Three Arrows Capital – soon filed for bankruptcy.

And in November, FTX – the popular crypto trading platform in the Super Bowl advertisement – imploded. Its founder Sam Bankman-Fried was arrested in the Bahamas in December and has been charged with fraud. Bitcoin, the world’s best-known cryptocurrency, is today worth only a third of what it was at its peak in October 2021.

The FTX commercial with David ends with the tagline, “Don’t be like Larry.” Today, many of the 420 million people estimated to have invested in crypto might well be wishing they had been more like Larry.

So is crypto about to go extinct?

The short answer: As a concept, cryptocurrencies will probably survive, experts told Al Jazeera. But the sector will likely face increased regulation and an extended period of uncertainty. Many firms and currencies will perish. To stay alive, companies will face one challenge above all else: winning back customer trust.

Crypto ‘ice age’

Cryptocurrency trading platforms have traditionally drawn in customers with the promise of quick returns on investment. The offer: Park money in so-called crypto wallets – which are meant to function in a manner similar to savings bank accounts – and earn high interest rates, sometimes in double digits. For those who are distrustful of traditional finance, the opportunity to carry out transactions without worrying about a regulator as an intermediary is an added attraction.

But this allure dimmed once the US Federal Reserve and other major central banks around the world sharply raised interest rates through 2022, making more traditional investment options more lucrative than before. The US rate, for instance, shot up by more than 4 percentage points over the course of 2022.

Once TerraUSD and Luna went into freefall, a combination of safer alternatives and reduced trust in crypto led to a crisis that, according to experts, is far from over.

“I think we’ll see a lot more bad news before things start looking better for the sector,” Tim Leung, director of the computational finance and risk management programme at the University of Washington in Seattle told Al Jazeera.

With many potential customers now sceptical, crypto platforms will likely witness low trading volumes for a while, Leung said. The crypto sector likes to pride itself on its independence, but it depends on financing from traditional markets. How much of that funding will continue in the current climate is unclear, Leung suggested. With reduced trading and less funding, many smaller firms might go belly up, he warned.

Crypto mining companies, which generate virtual money – or coins – using energy-guzzling supercomputers, will suffer too, Leung said. Reduced demand for coins because of low trading volumes and high energy prices will squeeze the viability of their business model. “I see this phase lasting through 2023,” he said. “It’s more likely to be a crypto ice age rather than a crypto winter.”

The downturn isn’t surprising, suggested experts.

“This is a start-up industry with hundreds of firms and lots of innovation,” said David Yermack, professor of finance at New York University’s Stern School of Business. He told Al Jazeera he expects a chaotic period for cryptocurrencies in the foreseeable future but thinks that “ultimately best practices will emerge through competition”.

Governments around the world have signalled plans to step in to shield customers from that chaos. But regulators and analysts appear divided on how best to intervene.

Old laws for new tech?

Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), argued in September that existing laws are adequate for the crypto sector. In his view, he said, most cryptocurrencies are similar to traditional securities – tradable financial assets like stocks or bonds.

Hilary Allen, professor of law at American University in Washington, DC, agrees with that approach. Cryptocurrencies and trading platforms, she said, must meet the standards of governance that the SEC demands from old-school securities – including registering with the regulator and demonstrating transparency over assets – or be shut down.

Creating new rules for the crypto industry would be wrong, she said. “That would legitimise the idea that crypto, somehow, is unique, and can’t be expected to meet the same standards as mainstream financial assets,” Allen told Al Jazeera. “That’s a dangerous message to send.”

But many other experts disagree.

“There’s a fundamental difference between securities and currencies,” said Bruno Biais, a professor of finance at the HEC Paris business school. People invest in stocks or bonds based on the cash flow or assets of the company offering them, he said. They buy currency – whether a dollar, a euro or a crypto token – trusting that the coin or note will be accepted by others at a later date.

Trying to fit an existing regulatory framework on cryptocurrencies without adapting it to new technology won’t work, said Christian Catalini, founder of the Massachusetts Institute of Technology (MIT) Cryptoeconomics Lab.

It won’t guarantee consumer protection, Catalini told Al Jazeera. “Worse, it may kill the innovation potential of the space without any meaningful benefit to the public,” he said.

Where most analysts do agree is that regulations for the sector must focus on one kind of cryptocurrency in particular: so-called stablecoins.

Making ‘stablecoins’ stable

Unlike tokens like Bitcoin, whose price can fluctuate wildly, the value of stablecoins is pegged to a regular currency, like the US dollar or other traditional assets like gold. For instance, each Tether coin, the world’s most popular stablecoin – which often trades even more than Bitcoin – is worth $1. That value stability positions stablecoins as tokens that, while still earning well through crypto wallets, are supposedly safer than other cryptocurrencies.

“The very term, ‘stablecoin’, conjures the image of a reliable currency that gives customers a false sense of security,” Biais told Al Jazeera. “The problem? Unlike regular currencies and banks, stablecoins are basically completely unregulated.”

So while in theory, those who own $100 worth of stablecoins should be able to redeem that amount whenever they want – as would be the case with a banknote – there’s no guarantee they’ll actually get that money back, said Biais.

The Financial Stability Board (FSB), a global advisory body set up by the G20 after the 2008 financial crisis, has been urging major economies to adopt regulations to ensure that stablecoins demonstrate their ability to pay customers back. In its October 2022 report, the FSB warned that many existing stablecoins “are issued by unregistered and unlicensed entities and do not have credible mechanisms to support their promise of price stability”.

While US regulators appear undecided on the need for new rules, many other nations and regions are moving towards laws specifically designed to govern the crypto sector and, in particular, stablecoins. These rules could help ensure that “good actors thrive, and bad actors disappear from the crypto ecosystem”, said Catalini.

The European Union’s new regulation, known as Markets in Crypto-Assets (MiCA), will require all crypto firms to register with authorities. Stablecoins will need to guarantee assets to pay customers back at any time. MiCA comes into force in 2024.

Japan passed a law last June under which only banks and other strictly regulated financial institutions can offer stablecoins. And the British government has proposed that the Financial Conduct Authority, the country’s top financial services regulator, would have oversight over crypto firms.

Meanwhile, India’s finance minister has said that crypto regulations would be a priority of the country’s G20 presidency in 2023. A global framework to regulate crypto is indeed essential, said Leung of the University of Washington, since many firms in the sector have a footprint across geographies.

ut for any of this to help revive the industry, crypto firms will first need to regain the confidence of customers, said experts.

Matter of trust

Many crypto enthusiasts will likely watch to see how big cases of fraud, such as the one involving FTX, play out, said Biais of HEC Paris. If they see justice, and if those who have lost money because of such scams get it back, that would help rebuild trust, he said.

Some experts, like Allen at American University, believe that crypto has little to meaningfully offer to the financial world in the future. “When you peel away the rhetoric, there really isn’t anything there that you can’t do using traditional finance instruments,” she said.

Others remain convinced that crypto, with its potential to enable peer-to-peer, decentralised financial exchanges, represents a transformational technology. “The technology is here to stay, even if a number of the initial projects in the crypto space are falling,” MIT’s Catalini said.

He described the moment as similar to the dot-com bubble that burst in the late 1990s when many early online firms went bust. Those – like Amazon – that survived or came up later are among “the internet giants of today”, he said.

Still, until the dust settles and reliable regulations come in, Leung at the University of Washington said it’s best to be cautious. “You don’t want to make decisions based on Super Bowl commercials,” he said. “This isn’t a game.”

By 

Source: Is crypto about to go extinct? | Business and Economy | Al Jazeera

.

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The FTX Problem Lurking In Your Business

Sam Bankman-Fried, former CEO of FTX... Photo: Getty Images

The financial collapse of FTX may seem like a distant concern since the mostly unregulated industry is different from software, e-commerce, manufacturing, or services. But the heart of FTX’s strategic error – using customer funds to pay for risky business bets – exists throughout the small business community.

Many entrepreneurs do not even realize they are doing it. The strategy lurks in the working capital section of balance sheets and cash flow statements, where many managers do not know to look. As a fractional CFO, I see it all the time, usually when a new client comes to me in a state of financial distress. FTX is now accused of ethical violations. Are you at risk of committing the same ethical errors?

Customer financing in business

FTX used their customer’s deposits to place risky bets for profit. That strategy works when everything goes according to plan, but it’s a house of cards when something unexpected happens.

Using customer deposits and prepayments to fuel business bets exists in nearly every industry. Here are some scenarios:

  • SaaS deferred revenue

A SaaS company offers a 20% discount to pay for the year up-front. The SaaS company uses these deferred revenues to invest in advertising and sales but fails to generate a healthy return. Seven months later, the company goes bankrupt and can not refund its customers.

  • E-commerce backorders

A celebrity releases a limited-edition gym shoe. One reputable online store offers pre-orders for $1,500 each and sells out quickly. Several months pass, and the customers have yet to receive their shoes. Some apply for refunds only to discover the company’s cancelation policy is punitive and unreasonable. Eventually the company declares bankruptcy without giving any customers their money back. (Inspired by this true story.)

  • General construction mis-bid

A general contractor (GC) bids on a big construction job that pays 50% upfront for materials. Supply chain constraints and a tight labor market crush the GC’s budget, creating delays and cost overruns. Faced with a financial impossibility, the GC walks off the job, leaving the customer with a half-completed project.

All three small businesses used customer deposits (a liability) to fund some risky bet – a construction job, a rare new sneaker, or growing the core business. To be clear, these are not bad business strategies. In fact, the GC, crushed by macroeconomic forces, was mainly just unlucky. Nonetheless, each was a betrayal to the customers who did not explicitly consent to the risks taken with their money.

The Ethics of Customer Deposits

If you are taking deposits or prepayments from customers, you have an ethical responsibility to soundly manage your business’ financials. Here are my top 3 tips to make sure you are behaving ethically.

Know your working capital structure: You must know your working capital risk by knowing your balance sheet. Consult a financial advisor if you have doubts about your working capital knowledge.

Know your regulations: Real estate, title, finance, and attorneys must maintain separate accounts for customer deposits. Take time to know which regulations apply to you and invest in accounting resources to maintain accurate records.

Forecast monthly: Use an operating forecast to project cash flow, test scenarios, and avoid crashing the business. I recommend running through “disaster planning” once a year so you are familiar with the signs and symptoms of a downturn and can respond accordingly.

Do not kill the golden goose: Successful entrepreneurs often chase new ideas with zeal at the expense of existing and profitable businesses. Never bet the house on a new product, service, or market. For a bootstrapping company, avoid investing more than 20% of your revenue into R&D or growing a new market.

Prepare backup capital: Be prepared for emergency funding if needed. You cannot secure new financing during distress, so you should prepare capital sources during the good times. Options for small businesses include:

  • Business lines of credit
  • Owner personal funds and contributions
  • Assets that can be sold quickly

Know when to pull the plug: Sometimes the most responsible thing you can do is fold the business before the damage becomes too great. Set clear limits with your management team about when the game is lost. Examples include:

  • We will not incur more than $x in debt
  • We will close the division if volume drops below X units per month
  • We will quit that project if we cannot hit the deadline by xx/xx/xxxx

Keep your stakeholders in mind: Remember that your business has more stakeholders than shareholders. Financial management is an ethical responsibility for all entrepreneurs. If your business is running out of cash or you are unsure how to manage working capital responsibly, ask for help now. It is your ethical duty.

By LJ Suzuki, Fractional CFO

Source: The FTX Problem Lurking in Your Business | Inc.com

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After FTX, Which Crypto Company Could Be Next To Topple?

(Photo by Jakub Porzycki/NurPhoto via Getty Images)...NurPhoto via Getty Images

The FTX fiasco took bitcoin a big chunk of the way towards my target of $13,000. So was that the bottom or is there more to come? More to come.

Remember my red flags:

  1. Billionaires from nowhere.
  2. Heavy PR of the “messiah type.”
  3. Deals that look like cash grabs.
  4. Flashy behavior in general.
  5. Asshat behavior in particular.
  6. Opaque capital generation.
  7. No good reason for success or its scale.
  8. Wash trading, market manipulation circumstantial evidence.
  9. Centralization.
  10. Philanthropy (sorry to say it but it’s often the hallmark of fraudsters trying to buy legitimacy).

Does that sound like anyone in the market right now? Someone that hasn’t gone bust yet?

Timing is of course everything in a bubble bust. It can be a matter of hours between going bust and living to become tomorrow’s giant company. Back in the day it was said Fox only survived because of the arrival of the check for the hit movie Home Alone and if it hadn’t shown up on that day it was curtains for Murdoch’s whole outfit.

Murdoch’s old rival, meanwhile, met his end in the ocean having come adrift from the back of his yacht. So FTX could be the end of this crash but from reports all the big centralized players are joined at the hip in a web of interconnected businesses. None of this is anything but shady and caused by the fact that the high profile outfits took ridiculously huge risks from the start to get where they are.

They are not the sort of people to get out before a bubble turns into the bust, they’ve hung tough before and it paid big. It is Digital Currency Group that is the biggest cloud on the horizon, but the next domino could be any one of a couple of dozen companies. DCG owns Genesis, which is basically toast. DCG owes Genesis a huge pile of cash. DCG owns Greyscale, which probably owns 600,000 bitcoin BTC -2.6%.

If that intermeshed pile of assets and liabilities comes unglued it would seem likely that a mountain of bitcoin could get dumped into the market. This is my “most troublesome” meltdown scenario… it’s not fate, but it is possible. Without that there is enough to take bitcoin to $10,000 anyway.

The thing to recall is the whole point of crypto is decentralization but the robbers can’t conquer the market for themselves without centralizing it, so the human crab sidles about centralizing crypto in an attempt to steal big lumps for itself to scuttle off with.

Centralization is what humans do and when you think progress is mainly getting humans out of the productive process, where they are either too costly, too slow, too stupid or too awkward, you can see the overwhelming tension between general progress and groups grabbing resources for themselves and their kin, by getting between progress and the rest of us.

However, the process of centralization is implosive, because the centralizers wreck the very thing they want to purloin. Haters gonna hate, predators gonna predate. This is why CeFi is imploding, because greedy sociopathic predators have no limit and end up killing the golden goose. These bubble market heroes aren’t smart, they are just unbounded, so they are genius on the way up but idiots on the way down. And here we are—but we ain’t there yet. But we will be—and then it will be time to buy.

I am the founder and former CEO of stocks and investment website ADVFN and General Partner of Ylem Capital (clem@ylem.capital). I am a prolific financial writer;

Source: After FTX, Which Crypto Company Could Be Next To Topple?

.

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The Looming $62 Billion Crypto Contagion

Illustration by Gracelynn Wan for Forbes

In 2017, cryptocurrency exchange Binance created the first of a new kind of blockchain-minted digital asset: BNB coin, designed to reward customer behavior such as trading or referring friends to its own platform. “A model for building a scalable, and impactful cryptocurrency business,” heralded CoinDesk editor Pete Rizzo in 2019, after Binance moved the coin to its own proprietary blockchain. “Unbelievable brilliance.”

Today, the only unbelievable thing about the whole cloth of crypto inventions known as exchange tokens, like BNB, is that they have inflated to tens of billions of dollars in value and in large part have become the foundation upon which the fast-growing digital-assets markets rest.

The weakest link in former billionaire Sam Bankman-Fried’s crypto empire was FTX’s own exchange token, which traded under the symbol FTT. According to Reuters, Bankman-Fried had lent his trading company, Alameda, billions of dollars in FTX customer funds, collateralized by these FTT tokens, which were essentially invented as a way to offer trading discounts and other perks.

“The way that FTT works,” said Bankman-Fried in an August 2022 interview with Forbes, “It is not that you get free FTT for doing things. The way to think about it is that you get free shit for having FTT. So, there’s a bunch of doo-hickeys.”

At the peak in 2021 FTT had a market value of $9.6 billion, but unlike a common stock, which represents legal ownership in the assets of a corporation, FTT does not represent any equity ownership in the FTX company. If FTT had any intrinsic value, it was in the form of discounts that FTX customers using these tokens could get trading on the exchange–as much as 60% for active traders.

You can think of these exchange tokens as being akin to loyalty or reward points you might get as a frequent customer of Starbucks or the UnitedMiles by flying on that airline. They have value, but it’s unlikely that a bank would allow you to use them as collateral if you wanted to purchase a home.

However, in the highly speculative and often bizarre world of digital assets, these loyalty tokens trade on numerous crypto exchanges just as stocks do on the New York Stock Exchange, and FTX founder Sam Bankman-Fried reportedly used them as collateral for the loans his company made. Up until a week ago FTT traded at $26 and had a market capitalization of $3.5 billion.

But after Bankman-Fried’s rival Changpeng Zhao, Binance’s billionaire founder, went on Twitter to say he was planning to sell over $500 million of FTT, it sparked the crypto equivalent of a bank run. Today FTT sells for $2.70, and given FTX’s recent bankruptcy filing, it is likely headed to zero.

But the story of exchange tokens in cryptoland is far from over. Forbes counts more than 16 global crypto and DeFi (decentralized finance) exchanges currently using these tokens for a combined market value of no less than $62 billion.

In fact, so-called exchange tokens are an important underpinning to the crypto exchange ecosystem because they are effective in creating customer loyalty–especially when token prices are rising. Virtually all such tokens offer holders exchange-specific perks such as trading fee discounts, preferential margin loan terms, enhanced rewards for staking (lending) and exchange-branded cashback Visa cards.

Exchange tokens are also awarded to customers that refer new traders to a platform, in a system similar to multi-level marketing organizations like Amway. Exchange tokens function as the fuel for crypto’s self-fulfilling bubbles.

Binance–the largest crypto exchange in the world–has its own token, BNB, which by itself has a market capitalization of $45.9 billion, though it does not represent any equity in Changpeng Zhao’s company nor has it been registered as a security with the U.S. SEC.

Anyone who opens an account on Binance and starts trading can buy or earn these BNB tokens, which offer 25% discounts on spot and margin transaction fees and 10% on futures. If you refer friends, you can get up to 40% commission every time they make a trade on Binance. Also, because Binance has created its own blockchain that mints BNB coins, you can use BNB to pay for goods and services, book airfare and hotels on sites like Travala for instance, participate in exclusive token sales and even earn free tokens by completing surveys and tasks.

You can also put BNB to use by staking, earn a flexible percentage yield by depositing it on BNB Chain-based projects and apply for crypto loans. Notably, these digital assets are also essential for anyone who want to use Binance’s decentralized exchange (DEX), which theoretically can’t be shut down by U.S. regulators.

Unlike bitcoin, which is mined every ten minutes, all of the 350 million FTT tokens that would ever exist were created in what is known as a pre-mine. “There will never be any more minted,” said Bankman-Fried recently. In fact, over a period of about three months starting around June of 2019 almost all of FTT’s premined tokens were sold prior to getting listed on crypto exchanges. “Effectively, all of the FTT tokens were owned by a collection of people and entities,” said Bankman-Fried.

In order to create scarcity and essentially bolster the value of its exchange tokens, FTX and Binance conduct what are known as token burns. Periodically both exchanges send tokens to irretrievable addresses reducing the float, similarly to a share buyback, and thus increasing the value of the exchange tokens outstanding. Since 2019 FTX has burned 21 million FTT tokens.

In total, Binance has burned more than 42 million BNB, which would be worth $11.6 billion at today’s prices. CZ has said Binance doesn’t borrow money and has never used BNB as collateral on loans. He recently began advocating that exchanges undergo a “proof” of funds.

In terms of governance, exchange tokens, like loyalty reward programs, are completely under the control of the entity that issues or redeems them, even if they profess to stick to pre-arranged schedules for issuance or burning. DeFi tokens, by contrast, claim to offer holders the ability to propose and vote on platform changes. But in reality, many large DeFi platforms concentrate governance in the hands of big investors and founding teams.

Additionally, just as FTT did not give holders stakes in FTX, purchasing a DeFi token does not necessarily convey ownership rights into the underlying platform. The table below offers details on some 16 different cryptocurrency and DeFi-platform exchange tokens representing more than $60 billion in market value.

Conspicuously absent are Coinbase and Kraken, which are U.S.-based and have avoided issuing exchange tokens, presumably because they would likely be deemed securities by the SEC. All of the tokens listed trade on exchanges daily like stocks–most of them have plummeted in value in the last year—but not a single one offers any ownership in the companies that they are affiliated with. Buyer beware.

TOKEN VALUES

The 16 crypto and DeFi exchanges below created exchange tokens to attract and retain customers. Though they trade like stocks and have a value of over $60 billion, none represent ownership in their affiliated platforms.

I report on all things crypto and oversee the Forbes Crypto Confidential newsletter and the annual Forbes Blockchain 50 list which features billion-dollar leaders in distributed ledger

I write about digital assets trends and am a leading creator of the Forbes Digital Assets tools and functionality our viewers require. I support the generation of relevant, curated investor

Source: The Looming $62 Billion Crypto Contagion

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