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FTX, the crypto exchange that collapsed in November, is considering reopening, according to the latest sources: on hearing the news, the price of the platform’s native token, FTT, more than doubled.
Let’s see in detail what is happening.
FTT price on the rise as crypto exchange FTX could be relaunched
Despite being bankrupt, apparently the FTX crypto exchange may reopen in the future, seeing as the company’s FTT tokens are also on the rise. This is what lawyers from Sullivan & Cromwell said in a court hearing Wednesday.
A potential option discussed was to allow FTX’s creditors to convert a portion of their holdings into a stake in a reopened exchange. In any case, FTT’s price more than doubled in price following the news.
Andy Dietderich, FTX’s chief attorney, told the court that relaunching the crypto exchange was one of many potential options being considered for the company’s future.
According to Dietderich, if this path is taken, the plan would require raising significant capital. In addition, he said there was an internal debate about whether such capital should come from FTX ownership or from third-party capital.
Specifically, Dietderich stated the following:
“There are chances that customers may have an option to take some of their proceeds they would otherwise receive in cash from the property and receive some sort of interest in the exchange in the future.”
However, the lawyer stressed that the possibility of restarting FTX is one of many and any decision is far from final. Indeed, there are many opinions on how to proceed in the FTX case, just as many as the number of professionals involved in the case.
Finally, FTX’s lawyers also told the court that they have recovered $7.3 billion in liquid assets from the defunct crypto exchange, which is up from January’s tally of $1.9 billion. However, FTX is still far from an equity distribution.
Is it really worth relaunching FTX? Comments from experts
Before the collapse in November, FTX had been one of the biggest players in the cryptocurrency field, with a particularly important presence in derivatives trading. Hence, a resurrection was tempting, both for John J. Ray, the new CEO, whose job is to maximize the amount of money recovered from creditors, and for his former clients.
However, some interviews with people at major trading companies that once did business with FTX raise doubts about whether there is really anything worth bringing back.
While the financial problems that eventually destroyed FTX became clear in late 2022, these interviews make clear that the technical side of the exchange was weak from its inception.
Painfully high latency, bugs in the application programming interface (API) that traders use to interface with FTX, and coding mishaps plagued the exchange, according to the comments.
Max Boonen, the founder of B2C2, one of the most active FTX market makers, said the following:
“FTX was slow, incomplete, buggy, and coded by people who had never done it before.”
Abraham Chaibi, co-founder of Dexterity Capital, another former client, said instead:
“Round-trip latency on FTX—the time it took for a customer to know that their trade was successful in the exchange’s order book—was about 150 milliseconds typically, and 600 to 800 milliseconds during peak periods.”
In addition, Chaibi had stated that:
“Notification propagation of your fills was very slow on FTX. If you really wanted to know promptly that your order had been fulfilled, you had to repeatedly query the status of your order every millisecond.”
As we know, speed is very important to market makers like B2C2 and Dexterity, just like they are the companies a crypto exchange needs to thrive, providing liquidity and buying from essentially anyone who wants to sell and selling to those who want to buy.
John J. Ray on the relaunch of the FTX crypto exchange and the FTT token
In January, the new head of FTX, John J. Ray, was already exploring the possibility of restarting the bankrupt cryptocurrency exchange, according to an interview he gave to the Wall Street Journal, his first since taking over at FTX in November.
John J. Ray III, who previously handled the restructuring of Enron, said that despite allegations of criminal misconduct against former CEO Sam Bankman-Fried and other executives, customers praised FTX’s technology and said it might be worth relaunching the exchange:
“Everything is on the table. If there’s a path forward on this, then we’re not only going to explore it, we’re going to do it.”
The decision will depend on whether restarting FTX’s international exchange recovers more for customers than simply liquidating assets or selling the platform, Ray continued.
In the interview, Ray also labeled Bankman-Fried’s comments to the media and elsewhere as unhelpful. In fact, Bankman-Fried said that FTX did not need to file for Chapter 11 bankruptcy protection and was critical of Ray’s decisions, who commented:
“We don’t need to talk to him. He hasn’t told us anything that I don’t already know.”
In a text message to the Journal, Bankman-Fried responded:
“This is a shocking and damning comment from someone pretending to care about customers.”
Furthermore, in a tweet after the WSJ article was published, Bankman-Fried wrote that he was glad that Mr. Ray is finally paying lip service to reactivating the exchange after months of suppressing such efforts.