The FTT exchange token was key to bringing down FTX, davidzmorris writes. But what are exchange tokens for – and are they a systemic risk to other crypto exchanges? Opinion for 'The Node' newsletter.
, that are registered in light-touch regulatory havens such as, in FTX’s case, the Bahamas. U.S.-registered exchanges Kraken and Coinbase, by contrast, do not have their own tokens because they have access to standard equity markets. Exchange tokens represent a way for offshore exchanges to raise money without that access.
But just because exchange tokens can raise money like equity doesn’t mean that’s what they are. “Currently, these aren’t part of the capital stack and you can’t claim anything in a bankruptcy, for instance,” Talati said. “There’s no governance, you can’t say you want the exchange to do X,Y and Z.” This semi-fungibility with an equity model may have eased the way to Sam Bankman-Fried’s fraudulent finances. One element of the grift was that FTT was what’s known as a “low-flow, high-fully diluted value” token. Only a very small portion traded publicly, but the public price for that fraction was assumed to apply to hundreds of millions of dollars of the token owned by FTX itself.
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