Key Takeaways

FTX is enabling its users to withdraw their funds, but only if they buy select tokens from the TRON network.
These tokens—TRX, BTT, JST, SUN, and HT—are trading at a steep mark-up on FTX compared to other platforms.
Some suspect FTX may be trying to arbitrage its way into plugging the $9.4 billion hole in its balance sheet.

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Some FTX users can now withdraw their funds from the exchange, but only by surrendering 80% of the value of their portfolio to arbitrageurs.

A Deal With the Devil

FTX has a questionable rescue plan for some of its users.

The collapsing crypto exchange announced today that it had reached an agreement with the TRON blockchain to allow holders of TRX, BTT, JST, SUN, and HT—the major coins of the TRON ecosystem—to withdraw their tokens from FTX at 18:30 UTC. 

Rumors of TRON’s involvement began circulating late yesterday, and the official announcement sent the tokens soaring in price on the exchange. At the time of writing, TRX is trading on FTX for $0.32, BTT for $0.00000382, JST for $0.17, SUN for $0.029, and HT for $29.8, though prices are rapidly evolving. These are significantly different prices from the quotes found outside of the exchange: on Binance, TRX is trading for $0.05 and BTT for $0.00000073, and on Huobi Global JST is exchanging for $0.023, SUN for $0.0057, and HT for $6.35. 

This means that FTX users, should they wish to withdraw their funds, must accept to buy TRON coins from FTX at a significant markup compared to the price at which they will be able to sell them on solvent exchanges. In other words, they will only be able to withdraw their funds from FTX if they voluntarily take a loss ranging from 78% to 86%.

Worse still, it appears that TRON will only deploy $13 million worth of funds into FTX’s books for the time being, meaning that there are no guarantees that users will be able to withdraw their funds even if they buy the coins at exorbitant prices. 

The scheme obviously sets up huge arbitrage opportunities for any market-makers with access to FTX’s order books, as it allows them to buy “cheap” TRON tokens from solvent exchanges and sell them to FTX customers for much higher prices. As it so happens, Alameda Research—the quant trading company founded by FTX CEO Sam Bankman-Fried—is known for specializing in arbitrage.

In the end, what matters is that FTX may be attempting to partially plug the $9.4 billion hole in its balance sheet by forcing its captive users to surrender about 80% of their portfolio to the arbitrageurs it has set up (with no guarantee that they will be able to withdraw their funds). It’s notable that while FTX announced the TRON scheme only an hour ago, the five coins selected have been trading at marked-up prices since 05:00 or 06:00 UTC—depending on the token—or about 11 or 12 hours before the announcement. 

It would therefore be quite natural to suspect that FTX is purposefully inflating the price of its tokens, that it gave a head start to insiders, or both. The suspicion is exacerbated by on-chain data indicating that select FTX users were allowed to withdraw funds through the Ethereum network. It took more than two hours for the official FTX account to clarify that these withdrawals were enabled for certain Bahamanian customers in accordance with that country’s regulations. FTX is headquartered in the Bahamas.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other cryptocurrencies.

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