Crypto Exchanges Race to Ease Customer Nerves After FTX Collapse

Digital asset exchanges rush to reassure clients of the safety of their funds as the collapse of Sam Bankman-Fried’s FTX crypto exchange ripples through the industry.

Binance, the world’s largest crypto trading venue, along with smaller rivals such as, OKX and Derebit have pledged to publish proof that they hold sufficient reserves to meet their debts to customers . Coinbase, the US-listed exchange, has also sought to distance itself from the crisis that has engulfed FTX, the digital asset platform founded by Sam Bankman-Fried.

The sudden collapse last week of FTX and Bankman-Fried trading boutique Alameda Research, once considered industry stalwarts, has severely eroded confidence in the digital asset market. FTX had less than $1 billion in readily salable assets against $9 billion in liabilities before filing for bankruptcy on Friday, the Financial Times reported on Saturday.

Tether’s eponymous U.S.-dollar stablecoin — the largest in the industry — has faced around $3 billion in redemptions over the past four days, according to data provider CoinMarketCap, highlighting how traders are withdrawing funds from the market. digital assets.

Meanwhile, balances for Ether, the second-largest cryptocurrency, have fallen 7% in the past fortnight to 22.9 million on major crypto exchanges, including FTX, according to data from the Nansen blockchain analytics platform. At current exchange rates, this indicates a fall of around $2 billion, suggesting that some investors are withdrawing their coins from centralized locations in favor of storing them using their own systems.

Binance’s chief executive warned last week of the potential for a “cascading” crisis in the crypto sector following the failure of FTX, which he says could resemble the financial crisis World Cup in 2008. FTX had amassed a valuation of $32 billion after securing deals with high-profile investors and was building a public profile through a series of sports sponsorships, such as securing the naming rights for the arena Miami Heat.

On Friday, Coinbase sent an email to customers, seen by the FT, describing “how Coinbase’s business is different and ultimately better protects” customer accounts and assets. The email referenced the company’s financial condition and said the exchange, led by chief executive Brian Armstrong, held client assets on an individual basis. Coinbase declined to provide comment beyond a blog post he did last week.

Trading platforms have also sought to distance themselves from what’s left of FTX after the group said it was investigating anomalous trades. Elliptic, a blockchain forensics firm, said on Saturday that there were indications that $477 million in crypto-assets had been withdrawn from FTX late Friday night.

Kraken, a crypto-trading platform, on Sunday froze a handful of accounts held by FTX Group, its sister trading company Alameda Research and their executives after speaking to law enforcement officers. “These accounts have been frozen to protect their creditors,” the company said on Twitter, adding that other Kraken customers were not affected.

The Bahamian market regulator also said it “did not direct, authorize or suggest to FTX Digital Markets Ltd the prioritization of withdrawals for Bahamian clients.” FTX, which is based in the island nation, said after halting client withdrawals last week that it would allow Bahamian fund redemptions “in accordance with Bahamian headquarters regulations and regulators”.

Binance, meanwhile, suspended deposits of FTT, a token issued by FTX to protect users. “We have noticed suspicious movement of a large amount of $FTT by the token’s contract deployers,” the exchange said on Sunday, and offered suggestions on how to protect their digital assets.

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