The following article is from S&P Global who provide insight into the impact the FTX Collapse is having on the blockchain market in the US
Introduction
The dust is beginning to settle on the collapse of FTX Trading Ltd., and as it does, the scale of the crisis becomes increasingly evident. Blockchain vendors servicing enterprise clients have been stuffing analyst and investor inboxes with assurances around their companies’ distance from the cryptocurrency exchange. Some of these emails suggest the impact will be negligible. Others even forecast a positive impact due to escalated calls for regulatory reform. The least realistic suggest the collapse is not a commentary on blockchain at all. It is this thread that we will pull upon, looking at not just what FTX reveals about the state of blockchain ecosystems, but also the likely impact FTX will have on the enterprise blockchain market.
It is tempting to position the FTX collapse as a positive for enterprise blockchain applications. A stimulant for further regulation, the collapse could also trigger a transition away from the unsustainable business models and low-value assets associated with blockchain. Established companies planning to integrate blockchain into their product offerings, or technology providers already competing with Web3-native vendors, may see their position strengthened as a once burgeoning startup market cools yet further. The reality is more complicated, however. Lower investor confidence in cryptocurrency may limit the value organizations see in establishing business-to-consumer “on chain” offerings. The vision of selling into public blockchain networks has driven much of the convergence of the enterprise and cryptocurrency blockchain ecosystems. Lower cryptocurrency values will also reduce the capital available to many innovative projects, slowing improvements to tooling as well as critical initiatives around interoperability, scalability and security.
FTX collapse a lens to scrutinize a volatile market
FTX Trading Limited was founded in 2017, incorporated in Antigua and Barbuda, and headquartered in the Bahamas. The founders were Sam Bankman-Fried, who became CEO of the company, and Gary Wang, chief technology officer. The privately held entity operated a major cryptocurrency derivatives exchange and trading platform, FTX.com, claiming over 1.2 million registered users in early 2021. In January, FTX raised $400 million in a series C funding round, valuing the cryptocurrency exchange at $32 billion. In March, the FTX token, FTT, had a capitalization of $14 billion. FTX was commonly cited as the second-largest cryptocurrency exchange after behemoth Binance Holdings Ltd., which dwarfs competing exchanges.
Concerns about the sustainability of FTX alongside its sister company, trading firm Alameda Research, were first raised by media outlet CoinDesk on Nov. 2. Fears generated by this article led to a run on FTX, which had lent over $10 billion of funds, including customer deposits, to Alameda; this made meeting the scale of withdrawal demands impossible. Bankman-Fried, with FTX facing a major “liquidity crunch,” agreed to a nonbinding letter of intent to sell the business to Binance. This deal fell through, with Binance CEO Changpeng Zhao citing corporate due diligence concerns, alongside alleged U.S. agency investigations. The cryptocurrency exchange subsequently filed for Chapter 11 bankruptcy protection in the U.S., and reports suggest that it could owe money to more than a million creditors.