FTT Report (July 2021)
With a recent raise of $900million and a deal struck to the naming rights of the Miami Heat stadium, Sam Bankman-Fried and FTX have gone mainstream.
FTT is the exchange token native to FTX. It is designed to increase network effects, demand, and to decrease its circulating supply.
FTT has a discount structure in two forms available to users of the FTX platform: as a holder and as a staker.
Here is the discount structure for FTT holders.
Users who hold above 500 FTT (~$13,500) also automatically earn weekly Serum airdrops.
There are many incentives as a staker of FTT as well to users as seen in the chart below.
Staking FTT provides many incentives but will take 14 days to unstake.
FTX also employs a buy and burn mechanism to FTT. FTX repurchases and burns tokens equal to (up to 50% of the total supply which is 175,000,000):
- 33% of fees generated on FTX
- 10$ of net additions to the insurance fund
- 5% of fees earned from other uses on FTX
Tokens are purchased and burned on a weekly schedule.
Earlier this week, FTX announced a raise of $900 million at a valuation of $18 billion (the biggest crypto investment round in history). While the market cap of FTT sits at ~$2 billion.
The key difference between FTT, the exchange token, and FTX’s private market valuation, is that one acts as a utility, and the other is equity. There are claims to ownership over FTX as a holder of FTT. As a utility, one has the ability to exchange value and access discounts on trading fees.
So how do we value the exchange token itself? It’s a difficult question because risk and volatility in the crypto markets differ greatly from that of the primary markets. For example, FTT’s market price could reflect the crypto market sentiment especially with volatile moves in the price of Bitcoin. Back in April when Coinbase IPO’d, its valuation took a hit before it hit the secondary markets. That’s when we saw exchange tokens like FTT and BNB perform their best. This may have been the market's attempt pricing in valuations of exchanges not listed on the NYSE as COIN is.
Earlier in the report, it was stated FTX buys/burns 33% of fees generated on the platform. This means 33% of the revenue FTX generates technically is shared with FTT holders. The act of burning tokens in the open market decreases overall supply hypothetically increasing the value of a token holder’s bag.
FTT is meant to represent the network effects of FTX’s platform. Network effects simply value something based on the number of users it has.
Deciding how we value FTX is the biggest question here. Though, that may be for the market decide. Crypto markets are a good measuring stick for investor sentiment. Sometimes digging in deeper does a disservice to the narrative in the short term. Long term — there are some good questions to be made whether or not FTT is a good asset to hold. Especially with regulation talks of recent.
