FTX was the third largest cryptocurrency exchange in the world. It is said to be in the midst of a liquidity crisis and is subject to a potential acquisition by Binance.

It was reported by Coindesk on November 2 that Alameda Research, one of the largest market makers in the space and the hedge fund closely linked to Sam Bankman-Fried, FTX’s founder, had an extremely concerning $6bn hole which was backed only by FTT, FTX’s own native token. This news was subsequently confirmed by Alameda’s CEO a few days later.

After CZ’s tweet that Binance had liquidated a sizeable amount of FTT due to recent revelations about FTX, the market witnessed a heavy run on FTX leading the company to halt all withdrawals and seek capital to plug its liquidity hole.For so many participants whose assets are still held in FTX, this is completely devastating and the contagion risk, at this stage, is immeasurably painful. 

While we are still waiting to understand the full implication of these fast evolving events with FTX, one thing that is clear is this is yet another classic example of the big problem in the cryptocurrency world where custodianship and liquidity are concentrated and fragmented. While Binance’s attempt to acquire the now insolvent FTX and Alameda Research would save the industry from more pain, the problem of fragmented and concentrated liquidity in our industry has become even greater.

Naturally we extend our thoughts to all those affected by this collapse.

In times of market capitulation, such as yesterday, I like to spend time to filter out the noise and drama and critically think things through – the question I like to ask is whether we, at FLUID, are really building the right thing in these times and whether our general direction of travel is the right one?

My take is:

  1. We are building a liquidity aggregator which is an important piece of infrastructure that helps everyone, both in times of market turmoil and uncertainty as well as in bullish frothy markets. No doubt, there will be bankruptcies and contagion from funds that invested too heavily in FTX or were linked to Alameda Research. I suspect frothy projects that are reliant on retail hype and have no real product will find it especially hard to survive now. We are in a very good place here.
  2. Our business model is driven by volume. In times like these, trading volume is driven both from those seeking attractive entry opportunities as well as those seeking exits – they both need liquidity and the ability to access the broader market with minimal price slippage. It is in times of high volatility that FLUID would be of critical importance to the ecosystem providing Best Execution to less liquid exchanges, retail traders or institutional trading funds.

  3. We should be aware that there will be more market corrections in the coming months and years as we enter a global recession with rising interest rates and capital moving away from risk-on assets. This is good for us and so we need to go to market as soon as possible to capitalize on the market volatility that we see coming.
  4. While our token is an important tool, as FTX learnt the hard way, we cannot use it as collateral or borrow or lend against it. We need to erase this from our product roadmap entirely and especially take risk management seriously.

  5. Finally, no matter how big you are, you can get it wrong if you don’t build things properly. We can get very big, very quickly but in order to avoid becoming a fallen angel, we cannot afford to make unintelligent choices on the basics.

Onwards and upwards.