Coachella NFTs sold for $1.5M—now they’re stuck on FTX

FTX customers worldwide have assets frozen on the cryptocurrency exchange after their sudden collapse last week, apparently worth billions of dollars in total. And it’s not just cryptocurrency either DeFi tokens either – some users have NFTs stuck in FTX too.

Discord servers associated with projects launched via the FTX NFTs platform in the past year are now filling up with complaints from users unable to withdraw their Solana-based assets from the FTX account wallet.

In some cases, even those who transferred their NFTs to external self-storage wallets are now unable to see the NFT graphics due to apparent issues with the FTX server. Links to many of the projects that were launched through FTX NFT’s marketplace have also now been broken. FTX announced on Friday that it had filed for Chapter 11 bankruptcy protection.

The projects affected include major music and sports brands, including concert festivals Coachella and Tomorrowland, NBA star Steph Curryits NFT collection from 2974, and NFTs with a Formula 1 theme from Mercedes-AMG Petronas racing team.

Coachella announced its partnership with FTX US in February, and the plan to issue 10 lifetime festival passes as NFTs was hailed by some as a step forward for the mainstream Web3 adoption, not to mention actual tools for such digital assets.

The festival released various other NFT collectibles alongside the passes. Billboardwhich first reported issues surrounding the NFTs on Tuesday, said the sale generated $1.5 million in total.

However, now users in Coachella’s Discord server are reporting that they cannot transfer their purchased NFTs out of their FTX wallets. Others say that the Coachella NFTs held in the self-storage wallet do not display artwork. Discord moderators have said that it is apparently due to FTX’s server – which hosted the artwork associated with NFT – being down.

“We currently have no lines of communication with the FTX team,” a Coachella server administrator wrote Friday. “We have put together an internal team to come up with solutions based on the tools we have access to. Our priority is to remove Coachella NFTs from FTX, which appear to be disabled at the moment.”

In a statement to Decrypt today, Coachella Innovation Lead Sam Schoonover confirmed that the festival is trying to formulate a response for NFT holders. “We are actively working on solutions and are confident that we will be able to protect the interests of Coachella’s NFT holders,” he wrote.

Custody concerns

Unlike many NFT marketplaces, FTX NFTs was a custody platform– meaning it held purchased NFTs for buyers unless they chose to transfer it to an external wallet. Additionally, given that FTX’s partners were major mainstream brands, it may have served more casual buyers who didn’t mind transferring their assets to self-service wallets.

In addition to assets originally sold through the FTX NFTs platform, anyone trying to sell another supported NFT through the marketplace – either from Solana or Ethereum— Had to give FTX custody first. Now these NFTs are stuck on the FTX platform when the company starts bankruptcy proceedings.

Metaplex, the creator of Solana’s NFT protocol, worked with concert festival Tomorrowland to develop its first NFT drop on FTX NFTs earlier this year. CEO Stephen Hess said Decrypt that the situation illustrates the risks associated with centralized, custody-based marketplaces, as users currently do not have access to their purchased assets on the platform.

“Unfortunately, since FTX has always operated a centralized NFT marketplace, the Metaplex NFTs that were not retired prior to the platform’s collapse will likely be caught up for several years in the ongoing bankruptcy process,” Hess said. “We hope this serves as a wake-up call to NFT collectors and creators that escrow-based marketplaces pose significant risks.”

Magic Eden, the largest NFT marketplace on Solana, also uses an escrow-based model. Despite the platform’s popularity, it is has also faced criticism over potential problems should it face an attack or future bankruptcy. Hess believes that developers are better suited to build with decentralized marketplace protocols, such as Metaplex’s own auction house.

“With Auction House, even if a marketplace were to collapse, a user would still retain custody of their NFTs and would be able to withdraw their listings on-chain,” he added.

It remains to be seen whether Coachella and other FTX NFT partners can regain control of their projects. Hess said that if creators retained the ability to change the metadata—that is, data that specifies the functionality of NFTs—then they might be able to “invalidate the original NFTs stuck in FTX and reissue them as new tokens.” But all this is currently unclear.

“It may take some time”

FTX NFT’s users are part of the growing pile of clients whose potentially valuable digital assets are locked within the overall FTX ecosystem, which the firm said on Tuesday could top one million total creditors. The bankruptcy process, as Hess suggested, could continue for some time.

Decrypt contacted FTX representatives regarding the NFT issues and whether users will be able to access their assets on the platform, but did not immediately hear back.

“So I just lost $500?” asked user “baller4adollar” in a room dedicated to Steph Curry’s 2974 NFT project on the official FTXLand Discord server. Some users ask questions that don’t have easy or immediate answers, while others seem resigned to the fact that there may be no short-term solution. Others are still trying to keep these tokenized communities together.

“Let’s take it easy here friends, [a] many people [are] dealing with a difficult time, no reason for us to turn on each other,” wrote user “outlawtorn.eth” in the 2974 channel. “We will stay strong and find a way forward, but it may take some time.”