~/tokens/exchange $ cat ftt-urok-tokena-birzhi.md
The FTT lesson: how an exchange's token became the detonator of its collapse
November 2022: in one week FTX went from the world's second exchange to bankruptcy. The detonator was its own token - FTT. The mechanics are instructive to this day.
How it worked
The affiliated fund Alameda held billions in FTT on its balance sheet - a token printed by FTX itself. Loans were taken against this "asset". When the balance sheet leaked to the press, the market saw the circularity: an exchange backed by a token whose price is held up by the exchange itself. Then came CZ's tweet about selling Binance's FTT position, the token's crash, Alameda's margin calls, a hole in client funds, bankruptcy. From tweet to the end - days.
The rules that remain
- An exchange's token pledged to that same exchange is a red flag. Circular collateral collapses instantly: the token's price drop hits the balance sheet, which drops the token further.
- Watch where the supply sits. If most of the token is held by the issuer and affiliates, the "market cap" is painted: it cannot be sold into the market.
- Read proof-of-reserves in full: reserves made of the exchange's own token are not reserves.
After FTX, exchanges started publishing reserve reports - progress born of catastrophe. But the user's rule has not changed: an exchange is a counterparty, not a vault. Venue news - in the section.