FTX, the cryptocurrency derivatives exchange that processes approximately $10.7 billion in trades daily, has become a force to reckon with. It is one of the fastest-growing cryptocurrency exchanges in the world. Sam Bankman-Fried, the 29-year-old billionaire behind FTX, has an estimated net worth of $8.7 billion.
FTX specializes in the trading of crypto derivatives, but it also has rapidly pushed into new markets. The exchange offers futures, leveraged tokens, tokenized stocks, and a host of other tradable assets. The company’s headquarters is in Hong Kong. That allows it to operate in a less regulated environment than the United States.
FTX as a Platform
FTX has also established its reputation as a trustworthy, reliable platform. It offers futures contracts on more than 20 cryptocurrencies as well as index futures, which enables trading segments of the crypto markets. The FTX exchange facilitates trading of 45 different leveraged tokens. The default is 10x leverage, but the platform allows up to 101x leverage. Like a stock exchange, the FTX exchange offers options contracts. Options enable the buying and selling of an underlying asset at a predetermined strike price and during a set timeframe. Another product that has been popular on the exchange are FTX MOVE contracts. These enable trading based on small price movements of a specific cryptocurrency. Thus, the volatility of a specific cryptocurrency is the key factor dictating the price for MOVE contracts.
Some of the market offerings of FTX, which Hong Kong allows, would not be permitted under U.S. law. For instance, FTX offers tokenized stocks, which are digital coins that track the value of shares of companies. Some of the most popular tokenized stocks include those tracking companies such as Tesla, BioNTech, and GameStop. Trading in tokenized stocks can take place 24/7 and are accessible to oversees investors.
FTX’s foray into new markets coincides with Bankman-Fried’s innovative outlook. In his view, there is a lot of room for innovation in stock exchanges, which U.S. regulators should be more willing to embrace. “Nothing operates 9:30 am to 4 pm, five days a week,” he stated in an interview.
FTX uses a tiered structure for trading fees. It offers larger discounts for larger volume orders. However, FTX does not charge fees for deposits, withdrawals, or converting in your exchange wallet.
FTX Has Come Skeptics
Despite his growing clout, Bankman-Fried has drawn skeptics. Some critics have pointed to the fact that he also runs a crypto-trading firm called Alameda Research. Alameda Research began in 2017. It presents a potential conflict of interest since Alameda Research is a significant trader on FTX. However, Bankman-Fried asserts that Alameda Research does not get any special treatment for trading on his exchange FTX. Regardless, U.S. law, and other markets, would likely prohibit this arrangement.
Rich Rosenblum, the president of another crypto trading firm called GSR, has noticed FTX’s rapid expansion, “They’ve certainly pushed the envelope in terms of products and the speed with which they’ve been able to launch products.”
Bankman-Fried, Politics & Biden
FTX has offered some new products that are not crypto-related. An avid supporter of Biden’s presidential election campaign, Bankman-Fried launched a prediction market to bet on the odds of Trump getting re-elected president. This is simply a market for betting on the likelihood of future events, with no tie to crypto. Nonetheless, it has attracted the interest of many crypto traders on the FTX platform. The prices are based on the expected probabilities of particular outcomes. There is also an FTX Trump 2024 prediction market to bet on the chances of Trump running and winning election again in 2024.
Bankman-Fried attracted media attention for being one of the largest political donors to Joe Biden’s presidential candidate. A vegan billionaire living in Hong Kong, Bankman-Fried studied physics at MIT. He is the son of two Stanford Law School professors, which inspired his interest in academic pursuits. Before entering the cryptocurrency space, Bankman-Fried worked at the quantitative trading firm Jane Street Capital.
The Effective Altruism Movement
He is a follower of the effective altruism movement. The basic premise is to make as much money as possible, and then to give most of it away. He is involved in a group called Mind the Gap that is led by his mother, Stanford professor Barbara Fried. Mind the Gap seeks to use quantitative metrics to determine the causes to donate to that would have the greatest impact per dollar.
Offshore exchanges such as FTX are likely to continue being disruptive forces in the cryptocurrency world. The complex products and offshore status of FTX offers crypto traders more flexibility than platforms such as Coinbase, which have embraced U.S. government regulations. It remains to be seen what FTX and Bankman-Fried achieve in the crypto space and beyond.