Here is Why FTX Crypto Exchange failed?
On 8 November FTX crypto exchange started to face significant downfall in the liquidity volume because of many reasons. This report will cover three main points, which reflect the mistake that was made by the FTX exchange team.
Lack of collaborative approach
As we know, the FTX exchange was standing at 2 ranks in the crypto industry and the exchange was highly reputable over all other exchanges in terms of the safety of the funds. In that situation, it was the sole responsibility of the FTX exchange officers to go with a collaborative approach with other crypto companies.
Binance, the first-ranked crypto exchange, was one of the biggest investors in the FTX exchange but still, the FTX exchange was not loyal to Binance and it resulted in a very big controversy, after the announcement by Binance CEO to sell Binance’ FTT holdings.
Fund Mismanagement
No doubt that conspiracy theories, controversies & rumours are part of every successful business but there is a very big reality where real ground-level work reflects the actual position of the company & management team.
In late 2021, the Crypto market entered the winter season and the majority of the crypto exchanges faced a downfall in their revenue. Many crypto companies reduced their workforce, to maintain the company’s financial situation in the worst scenarios of the winter season.
Opposite of it, the FTX exchange purchased the bankrupt crypto lending platform Voyager Digital and also was planning to acquire another bankrupt platform Celsius. This year, FTX invested huge funds in crypto projects & companies on behalf of the users’ funds and failed to maintain the exchange’s reserve funds.
The Binance vs FTX controversy & FTT sell decision acted as a big catalyst to create panic among the FTX users and further created a very big chain reaction where users started to withdraw their all funds from the exchange.
FTX token used as collateralÂ
FTX token ( FTT) is the native token of FTX crypto exchange and Exchange used FTT token as collateral, which may not sound like a very bad thing for the crypto investors but in reality, it was one of the big mistakes by the FTX exchange team because ups & downs in the of the value of FTT corresponds to the performance of FTX crypto exchange.
Binance CEO Changpeng Zhao also talked about this thing and said that no one crypto company should use a self-created token as collateral.
Read also: BitBoy Says No One Will Acquire FTX Exchange
