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In 2017 cryptocurrency exchange Binance created the first of a new kind of blockchain-minted digital asset: BNB coin designed to reward customers for their activity on their platform. For example, trading and referring friends. It was a perfect model for building a successful and effective cryptocurrency business.
“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 amazing thing about exchange tokens, like BNB, is that they inflated to $10 billion in value and have become the foundation upon of which the fast-growing digital-assets markets rest.
The big failure in the crypto business of the former billionaire Sam Bankman-Fried’s was his FTX’s own exchange token, which traded under the symbol FT. According to Reuters Bankman-Fried had lent his trading company, Alameda, billions of dollars in FTX customer funds, collateralized by these FTT tokens. Despite the fact that this tokens were essentially invented as a way to offer trading discounts and other perks.
Reuters:
Bankman-Fried showed several spreadsheets to the heads of the company’s regulatory and legal teams that revealed FTX had moved around $10 billion in client funds from FTX to Alameda, the two people said. The spreadsheets displayed how much money FTX loaned to Alameda and what it was used for, they said.
At the peak in 2021 FTT had a market value of $9.6 billion, but FTT does not represent any equity ownership in the FTX company. You can think of these exchange tokens as reward points you might get as a frequent customer of McDonald’s. They have a value, but it doesn’t mean that you can buy a car using this tokens.
However, this tokens trades in different crypto exchanges just as stocks do on the New York Stock Exchange. About a week ago FTT traded for $26 and had a market capitalization of $3.5 billion. Nevertheless, after Bankman-Fried’s rival Changpeng Zhao, Binance’s billionaire founder, post a twit to say that he was planning to sell over $500 million of FTT , it sparked the crypto equivalent of a bank run. Based on this, today FTT sells for near $2.7, , and given FTX’s recent bankruptcy filing, it is likely headed to zero.
Unlike Bitcoin ,FTT’s were created with pre-mining and destroys the whole idea of cruptocurrency!
“Effectively, all of the FTT tokens were owned by a collection of people and entities,” said Bankman-Fried.
Moreover, 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.
Here’s the 16 crypto and DeFi exchanges below created exchange tokens to attract and retain customers.
It’s a huge system thanks to which exchange earn big money every day. I hate this system and don’t think that it is normal that they trade like stocks and have a value of over $60 billion, none represent ownership in their affiliated platforms.
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