Dreams of restarting FTX face a cold reality that the technology was not well regarded

Before its spectacular collapse in November, FTX had been one of the biggest players in crypto, with a particularly large presence in derivatives trading. So a resurrection was tempting — both for Ray, whose job is to maximize the amount of money creditors get back, and for his former clients.

But interviews with people at major trading firms who once did business on FTX raise questions about whether it’s really worth bringing back, which possibly explains why no public progress has been made since Ray’s eye-popping comments two months ago.

While the financial problems that ultimately destroyed FTX became clear in late 2022, these interviews with CoinDesk show that the technical side of the exchange was weak since its inception, a thorn in the side of Ray’s revival plans. Excruciatingly high latency, bugs in the application programming interface (API) traders use to communicate with FTX and coding mishaps plagued the exchange, according to several former clients who spoke to CoinDesk.

FTX was “slow, incomplete, buggy and coded by people who had never done it before,” said Max Boonen, the founder of B2C2, one of the most active FTX market makers.

Round-trip latency on FTX — how long it took a customer to be notified that their trade had gone live in the exchange’s order book — was about 150 milliseconds typically and 600 to 800 milliseconds during busy periods, said Abraham Chaibi, co-founder of Dexterity Capital, another speed-sensitive former customer. (There are 1000 milliseconds in a second.)

It’s much slower than Binance, he added, noting the round-trip latency is about 5 to 10 milliseconds.

“Propagation of notifications about your fills was very slow on FTX. If you actually wanted to know immediately that your order was filled, you had to repeatedly ask about the status of your order” every millisecond, Chaibi said.

Speed ​​matters a lot to marketers like B2C2 and Dexterity. There was good reason for them to do business there, anyway, given that so much volume took place at FTX during its glory days. But market makers are a key group of firms an exchange needs to thrive, and add liquidity by buying from essentially anyone who wants to sell, and selling to those who want to buy.

Given FTX’s fall from grace, it’s a high bar to bring it back to life. And the technical shortcomings, in the face of it, can mean more.

“In terms of latency, they are by far the slowest exchange to trade on,” said Mike van Rossum, founder and CEO of trading firm Folkvang.

Apart from slow order routing, FTX also famously went down during periods of volatility. This came to a crescendo when the Federal Reserve published a market-raising economic report on US inflation in September. FTX buckled under the pressure and froze for 55 minutes as traders watched prices jump around on other exchanges.

There were “tons of problems,” van Rossum said. “The API crashed for a few hours during high volatility. It was a very messy exchange and that was the exchange we had the most trouble with.”

Companies like Folkvang stayed because FTX monopolized the retail trade’s liquidity. It was easier to trade larger sizes because the order books were filled with orders from a million retail customers. “FTX was loved for its features, not latency,” van Rossum added.

FTX pioneered an easy-to-use security model that would ultimately contribute to its downfall. Alameda Research’s balance sheet, revealed by a CoinDesk report in November, was loaded with illiquid altcoins Serum, Maps and FTT. This was then used as collateral for a number of loans. When the market eventually fell, the value of these altcoins fell to a level that meant FTX could no longer honor customer withdrawals.

The security feature allowed users to hold assets such as bitcoin, ether, stablecoins or even lower market cap altcoins, and trade derivatives – effectively allowing traders to hold a diverse portfolio while trading perpetual swaps that can be used to hedge or increase exposure. And while this feature was praised by users, it was ultimately unsustainable. If FTX returns without such features, the bugs and slow software may matter more.

“FTX allows you to withdraw cash (USD) that is backed by other coins,” Chaibi said. “For example, if you have a large balance on FTT, you can withdraw USD and FTX will treat it as a ‘loan’ with very little haircut. No other exchange allows you to withdraw a negative balance like this. It is and was insane.”