Digital asset exchanges are rushing to reassure clients that their funds are safe as the collapse of Sam Bankman-Fried’s FTX crypto exchange ricochets through the industry.
Binance, the world’s biggest crypto trading venue, as well as smaller rivals including Crypto.com, OKX and Derebit, have vowed to publish proof that they hold sufficient reserves to match their liabilities to customers. Coinbase, the US-listed exchange, has also sought to distance itself from the crisis that has engulfed FTX, the digital asset venue founded by Bankman-Fried.
The sudden collapse last week of FTX and Bankman-Fried’s trading shop Alameda Research, once viewed as pillars of the industry, has severely eroded confidence in the digital asset market. FTX had less than $1bn in easily sellable assets against $9bn in liabilities before it went bankrupt on Friday, the Financial Times reported on Saturday.
Tether’s eponymous US dollar stablecoin — the largest in the industry — has faced approximately $3bn in redemptions in the past four days, according to data provider CoinMarketCap, underscoring how traders are yanking funds out of the digital asset market.
Meanwhile, balances of ether, the second-biggest cryptocurrency, have dropped 7 per cent in the past fortnight to 22.9mn across major crypto exchanges, including FTX, according to data from blockchain analytics platform Nansen. At current exchange rates, that points to a fall of about $2bn, which suggests some investors are pulling their coins from centralised venues in favour of storing them using their own systems.
Binance’s chief executive warned last week of the potential for a “cascading” crisis in the crypto sector in the wake of FTX’s failure, which he said could resemble the 2008 global financial crisis. FTX had garnered a valuation of $32bn after striking deals with big-name investors and was building a public profile through a string of sports sponsorships, such as securing naming rights for the Miami Heat arena.
Coinbase on Friday sent an email to customers, seen by the FT, describing “how Coinbase’s business is different and ultimately better protects” customer accounts and assets. The email referenced the company’s financial position and said the exchange, led by chief executive Brian Armstrong, holds customer assets on a one-to-one basis. Coinbase declined to provide comment beyond a blog post it made last week.
Trading venues have also sought to distance themselves from what remains of FTX after the group said it was investigating abnormal transactions. Elliptic, a blockchain forensics firm, said on Saturday that there were indications that $477mn in cryptoassets had been taken from FTX late on Friday night.
Kraken, a crypto trading platform, froze a handful of accounts owned by FTX Group, its sister trading company Alameda Research and their executives on Sunday after talking to law enforcement officers. “Those accounts have been frozen to protect their creditors,” the company said on Twitter, adding that other Kraken clients were not affected.
The Bahamas market regulator also said that it “has not directed, authorised or suggested to FTX Digital Markets Ltd the prioritisation of withdrawals for Bahamian clients”. FTX, which is based in the island nation, said after it halted customer withdrawals last week that it would allow redemptions of Bahamian funds “per Bahamian HQ’s regulation and regulators”.
The Royal Bahamas Police said in a statement on Sunday: “In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd, a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred.”
Binance, meanwhile, paused deposits of FTT, a token issued by FTX to protect users. “We’ve noticed a suspicious movement of a large amount of $FTT by the token’s contract deployers,” the exchange said on Sunday, and offered suggestions on how to keep their digital assets safe.