FTX's downfall poses a significant risk to the crypto industry. Key players in the industry are putting together a rescue fund to contain the risk of contagion.
The collapse of FTX sent shockwaves throughout the crypto industry. Confidence in centralized exchanges is waning especially, as FTX was considered a solid competitor.
«Not your keys, not your cryptocurrency,» is a mantra preached in Bitcoin circles. It is currently being taken particularly to heart by concerned investors who are increasingly shifting their crypto holdings held at other exchanges to self-custodial solutions such as hardware wallets.
Differentiation
In response to the collapse, digital asset companies around the world are rushing to reassure their users and distance themselves from FTX as much as possible. Swiss crypto companies, including Bitcoin Suisse, Sygnum Bank, and Swissborg have all reassured their customers over the past few days their assets are stored safely and their business model is different from FTX.
Industry giants such as Binance, Crypto.com, and OKX promised to provide evidence they have sufficient reserves to cover liabilities to customers, with some already having made the disclosure. Meanwhile, crypto trading platform Kraken has frozen a small number of FTX Group accounts, its sister company Alameda Research, and executives of those companies after talks with law enforcement. Kraken is also among the crypto exchanges having committed to greater transparency.
Déjà Vu?
Similar to the Terra Luna ecosystem that collapsed earlier this year, many investors are now expecting a domino effect from the FTX crash. The Terra Luna crash brought down crypto lender Celsius and hedge fund Three Arrows Capital, but there could be significantly more repercussions from the latest crypto crash.
Tether, the issuer of the eponymous stablecoin, suffered about $3 billion in redemptions in the last four days, according to data provider Coinmarketcap, as the «Financial Times» (behind paywall) reported. This underscores to which extent traders are draining funds from the cryptocurrency market.
Giants To The Rescue
Against this backdrop, crypto giants are teaming up to contain the risk of contagion. Binance said it would set up a «recovery fund,» its CEO Changpeng Zhao, aka CZ , tweeting on Monday that more details will be announced in the coming days.
He said the fund is open to co-investors from the industry. Tron founder Justin Sun immediately replied that Tron, Huobi Global, and Poloniex would support Binance's initiative.
CZ warned last week of a possible «cascading» crisis in the crypto sector, which could resemble the 2008 global financial crisis. His announcement today comes a month after Binance reported it would provide $500 million in a credit facility to bitcoin miners.
Tangled Web
The extent to which FTX and sister company Alameda are intertwined with the crypto universe is clear from the documents FTX filed with regulators as part of its bankruptcy filing.
It turns out that former CEO of now insolvent FTX Sam Bankman-Fried's crypto empire is a tangled web of companies and holdings. FTX Group companies that have filed for voluntary Chapter 11 proceedings in the US include FTX.com, FTX US, Alameda Research, and about 130 other related companies, FTX.com communicated in a press release issued Friday (Nov. 11) via its Twitter account.
The destruction affected not only stars from the sports world, showbiz, and renowned financial institutions that invested heavily in FTX, but numerous crypto projects as well. Venture capital arm FTX Ventures, for example, helped fund Solana's ecosystem. SOL token's suffered a price plunge of more than 50 percent within a week, making it one of the biggest losers in the wake of the FTX debacle.
Hard Hit Solana
SOL is Alameda Research's second-largest holding and was heavily promoted by Bankman-Fried. According to an earlier report by «Coindesk,» Alameda held about $292 million in «unlocked SOL,» $863 million in «locked SOL» and $41 million in «SOL collateral» as of June 30, 2022.
