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Admittedly, the cryptocurrency market is slowly evolving. There are now more deep-pocketed players involved. As the space matures, cryptocurrency exchanges will play a more vital role. Over and above everything, cryptocurrency exchanges will act as facilitating platforms where traders and investors can securely buy and sell coins or fiat, and vice versa.
Primarily, a cryptocurrency exchange combines different functions like order matching, order fulfilling and asset custody, while concurrently remaining transparent, scalable and compliant with local laws. Over 10 years after the launch of Bitcoin, the sphere is now worth over $200 billion.
Contributing to this ballooning ecosystem, the largest cryptocurrency exchange by adjusted trading volume, Binance, moves over $1 billion worth of cryptocurrencies in any trading day. The safest, if hacking is anything to go by, is Coinbase with headquarters in San Francisco, US.
While Coinbase is now more aggressive because of increasing competition, FTX wants to leave a mark in the cryptocurrency derivatives trading. The market, according to a research finding by Alameda Research stood at $9.9 billion on July 28, 2019.
FTX Exchange and FTT
FTX is an institutional-grade crypto derivative exchange that was launched in July 2019. It is owned by FTX Trading LTD, a company that is incorporated in Antigua and Barbuda. The exchange claims to offer a special trading platform built by traders for traders.
It is differentiated since it is liquid and powerful enough for professional traders and institutional grade investors and intuitive for novice traders. Currently, the exchange offers futures, leveraged tokens, and OTC trading for clients across the globe.
Alameda Research, a top cryptocurrency liquidity provider, incubated FTX exchange. On top of that, they have an OTC portal where investors can receive quotes from over 20 supported coins and tokens. To this end, their order book is deep, listing different innovative products including Perpetual Futures and Futures derivative products.
Futures contracts are collateralized by a stablecoin and all futures contract are traded from one universal margin wallet. Their matching engine is designed from the ground up. It comprises of a liquidation engine and a backstop liquidity provider with a three-step solution to handle margin calls.
Their proprietary liquidation engine has an inbuilt clawback prevention mechanism that incrementally liquidate a trader’s position to avoid market crash. If in case the market is moving too quickly, the backstop liquidity provider steps in and takes over the position, preventing other traders from being hit.
A clawback happens when a crypto futures trader is rekted and margin called. To keep an exchange solvent, platform traders holding the futures product compensate for another trader’s poor trade decision, are forced to give up some of their gains in a claw back.
For efficiency, FTX has their native token, the FTT. Holders receive the following benefits:
- Low trading fees
- OTC rebates
- Collateral for futures trading
- Socialized gains from the exchange’s insurance fund
- Weekly buying and burning of fees
- Used as collateral in FTX
Meanwhile, the utility token will serve the following purposes:
- White Label solutions for institutions that have expressed interest in purchasing white label version of the exchange’s OTC portal or futures exchange. Settlement will be in FTT.
- Leveraged token listing fees
The main features of the FTX exchange include:
- Low trading fees
- Tight spreads
- Deep order books
- Up-to 101 leverage
- Deep liquidity
- Stablecoin settlement in TUSD and USDC allowing flexibility.
- Leverage trading and bidirectional trading of up-to 3X without margin on Bitcoin, ETH, XRP, EOS and USDT.
Some of their Index futures include:
- EXCH which is a future on an index of the major exchange tokens
- ALT: An index future on altcoins. It is the world’s most liquid altcoin index.
- MID: An index future on mid-cap coins like ADA and NEO
- SHIT: An index future on low cap coins
The exchange was co-founded by Sam Bankman-Fried and Gary Wang. Both are also the founders of Alameda Research, a quantitative trading firm with bases in Hong Kong. Although both are instrumental in Alameda Research and FTX, both entities are independent.
Sam started out as a professional quant trader at Jane Street before co-founding Alameda Research in 2017, extending his skills of quantitative trading in cryptocurrencies.
Alameda Research has over $100 million in assets, trading on average between $600 million and $1.2 billion across different cryptocurrency exchanges.
Other notable team members include: Andy Croghan, the COO, Constance Wang, the Head of Partnership, and Darren Wong, the head of Business Development.
The team is experienced with previous gigs at Google, Susquehanna International Group, Facebook, Optiver, and Jane Street.
FTX Exchange has partnered with several stablecoin providers as Circle, Paxos and TrueUSD.
These stablecoins can be deposited on the margin account and used as collateral. However, the exchange’s native currency can serve the same purpose.
Notable partners include Alameda Research, FBG Capital, BitMax, CoinGecko, CoinEX, Mars Finance, Consensus Lab, Fenwick and West, Lemniscap, and Galois Capital.
Together with Proof of Capital, Consensus lab, Galois Capital and FBG contributed $8 million in the seed round.
Tokenomics and FTT Distribution
FTT is an ERC-20 compliant utility token that is generated on the Ethereum platform. Aforementioned, it serves different functions in the FTX exchange ecosystem. For traders, holding the token means discount and upon launch in July 2019, the token has had its turbulence.
Reaching highs of $2.71 on Aug 8, 2019, the token is trading at 50 percent from its high. At spot rates, FTT is changing hands at $1.36, attracting 24-hour trading volumes of $1,850,854 generating a market cap of $39,558,992 placing the token at 90th in the value leaderboard. The token’s maximum supply is 349 million and the current circulating supply is 28.8 million.
The token is up 11.1 percent in the last month, and is listed at different exchanges including Bitfinex, BitMax, Huobi Global and CoinEx where it is paired against HT, BTC and USDT.
Against the USD, FTT ROI is 1.7. The ICO price was $0.8.
In total, three-fifth of the tokens are unlocked and are distributed as follows:
- Five percent are held in an insurance fund
- Five percent are held in a safety fund
- 20 percent in a Liquidity fund
- 20 percent for the team
- Five percent for Advisors
- 25 percent for the Company-and locked up for three years
- 10 percent for the Ecosystem fund
- 10 percent towards the Acquisition Fund
Apart from this, the exchange will purchase and burn tokens as follows:
- 33 percent of all fees generated from FTX exchange
- 10 percent from socialized gains
- Five percent of all fees earned from other uses within the exchange
Purchases will be from the FTT/USD spot market. They completed the first burn on July 29, 2019.
Short Term Value Catalysts
- The team behind FTX and FTT are veterans in quant trading and are now extending the same to cryptocurrency trading. Besides, the rest of the team have previous work experience at Google, Facebook, Jane Street, Optiver and Susquehanna. Sam and Wang, through Alameda Research, have what it takes to drive FTX to the next level. In their previous stints they used to manage over $100 million in Assets while generating over $1 billion in trading volumes across different exchanges.
- The FTX exchange interface is simple, easy to use and intuitive regardless of the trader’s experience. Placing orders is simple and straightforward. Coupled with deep order book liquidity thanks to the backing of Alameda Research, it won’t be hard to see the exchange dominate the cryptocurrency derivatives space.
- The FTX app is now available from the iPhone store and Google Play Store for Android users.
- The exchange has immediately attracted institutional grade investors and retail traders mostly from China. However, with Battle Royale, a trading competition, the exchange is attracting users from Europe and Australia. This is huge for FTT token.
- The tracking in the last couple of months following their soft launch in July 2019 has been impressive. 90 days after launching, FTX is abiding by its motto of being a reliable exchange built for traders by traders. 60 days into trading, and the total trading volumes had exceeded $300 million.
- Sam, the CEO of FTX, recently hinted that the exchange will list LINK, the native token of ChainLink. This is a big plus and listing would likely draw demand for FTT tokens.
Long Term Value Catalysts
- FTX is listing innovative products like Leveraged Tokens and generative cryptocurrency derivative futures products that are not available in other exchanges. The leverage ERC-20 tokens are a flexible, clean, and automated way for traders to use leverage without entangling themselves around the complexities of risk management. All is done at the background and allows the trader to focus on the market while enjoying all the benefits of margin trading. Moreover, their indices are incredibly useful for traders. The altcoin index, for example, can be used to determine the prevailing altcoin sentiment, allowing a trader to prepare accordingly.
- There are lots of products on offer including perpetuals, futures, spot markets, leveraged tokens and even OTC trading. The team will introduce Options in the near future. If anything, this is the exchange’s main value proposition.
- Their partnership with leading stablecoin providers, including TrueUSD and Circle, for flexibility. Deposits or withdrawals in stablecoin will be credited or withdrawn as USD.
- The exchange is pulling ahead of the crowd with fast order matching, liquidity, and order execution times. At the time of writing, there has never been down times or order submission errors even during peak hours. According to Darren Wong, the CTO of FTX, the average latency of their order matching engine is 100 ms. The concept of clawback prevention is also a big plus.
- Settlement in OTC trading is in FTT, and since there are no minimum limits, investors can channel funds to their preferred assets and enjoy low fees. To showcase just how popular FTX is, their OTC RFQ system launched in Oct 2018 attracted $30 million in trading volumes at the depth of the bear market with little marketing. Progress has been made and have built an intuitive User Interface suitable for all grades of traders, and an API portal that can be integrated into the FTX ecosystem.
- In five years, the team plans to introduce the options and predictions market, commodity futures, hash rate futures and more tokenized products.
- The team is looking to list FTT in the Binance Chain for the asset to be accessible for Binance DEX traders.
- Their strategy of purchasing and burning FTT tokens until half of the total supply has been discarded is bullish for FTT token. Note that FTT can be collateral for futures trading. And as a utility, the more there is demand, the only path of least resistance is up. The first burn was completed in July 2019, and token burns will be done every week.
- They have partnered with Chainalysis to revamp their KYC and AML processes.
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