FTX and Tron have launched a very suspicious withdrawal scheme
Important takeaways
- FTX enables users to withdraw their funds, but only if they purchase selected tokens from the Tron network.
- These tokens – TRX, BTT, JST, SUN and HT – trade at a steep premium on FTX compared to other platforms.
- Some suspect that FTX is trying to arbitrage itself to plug the $9.4 billion hole in its balance sheet.
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Some FTX users can now withdraw their money from the exchange, but only by surrendering 80% of the value of their portfolio to arbitrage.
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 main coins in the Tron ecosystem – to withdraw their tokens from FTX at 18:30 UTC.
Rumors of Tron’s involvement started circulating late yesterday, and the official announcement sent the tokens skyrocketing 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, although prices are evolving rapidly. These are significantly different prices from the offers found outside the exchange: on Binance, TRX trades for $0.05 and BTT for $0.00000073, and on Huobi Global JST exchange for $0.023, SUN for $0.0057, and HT for $6.35.
This means that FTX users, if they want to withdraw their money, must accept to buy Tron coins from FTX at a significant markup (540%, 423%, 639%, 408% and 369% respectively) compared to the price that they will be able to sell them on solvent exchanges. In other words, they will only be able to withdraw their money from FTX if they voluntarily take a loss ranging from 78% to 86%.
Even worse, Tron appears to only distribute $13 million worth of funds on FTX’s books for now, meaning 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 creates huge arbitrage opportunities for all 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 clients for much higher prices. As it happens, Alameda Research – the quant trading company founded by FTX CEO Sam Bankman-Fried – is known to specialize in arbitrage.
Ultimately, what matters is that FTX is trying to partially plug the $9.4 billion hole in its balance sheet by forcing its captive users to hand over roughly 80% of their portfolio to the arbitrageurs it has set up (with no guarantee that they will be able to withdraw their money). It is noteworthy that while FTX announced the Tron scheme just an hour ago, the five selected coins have been trading at marked prices since 05:00 or 06:00 UTC – depending on the token – or roughly 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 insiders a head start, or both. The suspicion is reinforced by data on the chain indicates that selected FTX users were allowed to withdraw money through the Ethereum network. It took more than two hours for the official FTX account clarify that these withdrawals were enabled for certain Bahamian 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.
