The collapse of FTX, one of the world’s top crypto exchanges, has been causing much concern and talk in the crypto world in recent hours.
Indeed, the price of FTT, FTX’s native token, has plummeted 85% to below $3.
This has consequently caused a crisis in the entire crypto market, leading to impressive declines for other prestigious coins as well, such as Bitcoin and Ethereum.
In this disastrous situation, many are wondering or seeking explanations for what happened to FTX, regarding the security of the token and the platform.
Most of all, the question arises, why shouldn’t what is happening to the FTX exchange happen on other platforms?
Why did FTX collapse? Here’s what happened
Let’s go back to 6 November, when the first difficulties were seen in the market for FTT, the FTX exchange token managed by Sam Bankman Fried.
Shortly before, Changpeng Zhao, CEO of Binance, had in fact publicly admitted his intention to close his $500 million position in the FTT token. This was because an article from previous days, published in Coindesk, had raised doubts about the solvency of Alameda research’s balance sheet.
Alameda is a company that in the past has been administered by SBF itself. The company was called into question when faced with debts of 8 billion secured not by dollars but mostly by tokens, predominantly FTT but also Solana.
At that point, the CEO of Alameda research, Caroline Ellison, had responded by judging the balance sheet published in the article as partial, pointing to various other guarantees to cover it, such as opening hedge positions.
Meanwhile, speculation has taken hold of the major cryptocurrencies, as has the rush to withdraw the many investors who have accounts with FTX, with associated crypto assets deposited.
By this point, partly as a result of agreements between the CEO of FTX and the CEO of Binance, the situation seemed under control: The price of FTT had returned to $20, after a relative low at $14, while BNB, Binance’s coin, was flying 10%.
However, in the evening the situation degenerated: The price of FTT collapsed 85% to below $3. As a result, the price of BNB also went back down, losing as much as 10%. Also dragged by the avalanche were Bitcoin and Ethereum, which touched declines in the range of 10% and 15%, with Bitcoin updating its lows for the year at $17,000.
Bitget on the collapse of the crypto exchange FTX
Regarding the FTX disaster, in which Bitget, as well as other platforms, felt called out by also being a crypto exchange, Bitget was quick to state that it is important for platforms to safeguard themselves.
Inasmuch as, in Web3 the market and technology are advancing unchecked. Thus, it is necessary to improve to meet the changing needs of users. Specifically, Bitget stated:
“At Bitget, we focus on providing the best social trading experience to our users and regularly launch new features to achieve this. We are all builders of the Web3 world and will thrive within it together. As an exchange, providing innovative products and safe services, we unlock potential markets during difficult conditions. Meanwhile, we launched the $ 200 million Bitget Protection Fund and partnered with soccer star Lionel Messi to help rebuild market confidence and strengthen investor confidence.”
So, Bitget does not compromise on security when it comes to tokens. In fact, it is very unlikely that what happened to FTX will happen on this platform. In that, the exchange has a stable trading system, which means no overload in extreme market fluctuations. Users can trade without intolerable variations even in extremely volatile markets.
In addition, cold wallets and hot wallets are protected with multi-signature, most of the user’s funds are stored in cold wallets, and it also has a self-developed future system that provides protection to the company’s information and resources.
Specifically, with the Bitget Protection Fund, the platform transfers some of the risk from the user directly to the exchange. Therefore, if something happens to a user’s funds that is not a consequence of their own actions or behavior on the exchange, Bitget is committed to protecting their funds with the Bitget Protection Fund.
Bitget’s attitude serves as an example of what happened to FTX, as in this way other exchanges can also address security and liability issues in cryptocurrencies in the long run.
Furthermore, it is important to add that Bitget’s move of partnering with Messi is also strategic. In that, having an influential and recognized figure like Messi as a partner gives a general confidence in the market and consequently in investors as well.
How is Binance involved in the collapse of FTX?
Not so much the Binance platform directly as its CEO, Changpeng Zhao, who, by closing the $500 million position in the FTT token, triggered FTX’s liquidity crisis.
However, Zhao later said he wanted to buy FTX to save it from the crisis it had stumbled into. But the market collapsed anyway.
In fact, after FTT’s liquidity crisis and Binance’s intervention, it triggered a series of sales that led to the loss of $2 billion within 24 hours.
Specifically, Bitcoin plummets nearly 11.50% to $18,443 (at its lowest since November 2020), Ethereum loses over 16% to $1,342, and Litecoin sinks 16.7% to $57.61.
It appears that Binance had reached an agreement to take over FTX in a deal that, however, does not entirely reassure the industry. Zhao tweeted:
“FTX has asked for our help. There is a significant liquidity crisis.”
In addition, the CEO of Binance announced the signing of a letter of intent to buy the rival. The manager expects FTT to be very volatile in the coming days as things develop.
In 2019, Binance had announced a strategic investment in FTX, specifying that as part of the deal it had taken a long-term position with respect to FTT to enable sustainable growth of the FTX ecosystem.
Binance has thus exerted a special influence on FTX over the years, and it is not surprising that investor confidence in the platform was shaken over the weekend when Zhao tweeted that Binance would sell its holdings in FTT.
In any case, Binance, as an exchange giant in the crypto landscape, has very advanced levels of security around tokens, which make it difficult even for this platform to fall into a liquidity crisis like what happened to FTX.
Indeed, while they have not released information on how the funds are held, we know that Binance holds 98% of crypto in inaccessible offline wallets whose backup copies are protected in secure locations.
In addition, back in June 2018, Binance created the SAFU (Secure Asset Fund for Users) fund, an emergency security fund into which Binance deposits 10% of all fees generated by the exchange, to cover any customer losses in emergencies. These funds are kept in a separate cold wallet.
Binance has proven its reliability not only in words, but also in deeds. Since its inception, Binance has suffered several hacking attempts. In particular, in May 2019, about 7,000 BTC were stolen from the exchange’s hot wallet.
The SAFU fund covered the losses, thus limiting the damage. Therefore, customers did not suffer any losses. This precedent demonstrated the practicality of the Chinese giant, which has been able to distinguish itself from competitors who have suffered thefts and never managed to reimburse customers.