Updated: Apr 2
FTX Saga is a new cryptocurrency token created by the popular cryptocurrency exchange FTX. It was introduced in February 2023 and is designed to serve as a stablecoin and a governance token for the FTX ecosystem.
The new Lehman Brothers?
FTX Saga is pegged to the value of a basket of several different cryptocurrencies, which aims to lessen the volatility frequently linked to cryptocurrencies. The token, which is new in its kind that combines stability, governance, and utility in one package, has been designed to be used for a variety of purposes within the FTX ecosystem, such as taking part in governance decisions, paying for trading fees, and use in various DeFi applications.
The second-largest cryptocurrency exchange in the world, FTX, which Sam Bankman-Fried, a self-described "effective altruist," ran, failed last week. Sam Bankman Fried, the founder of FTX, significantly impacted the world due to his outspoken stance on cryptocurrency regulation and his financial backing of US political candidates.
A business rival's aggressive short sale of FTT, a blockchain token owned by FTX, caused a run on the exchange's virtual assets. This caused a liquidity crisis, which was swiftly followed by insolvency. Bankman-Fried apologised numerous times to the public for the poor management that caused the abrupt collapse. The complex fusion of technology and finance that crypto markets represent may be daunting for India, but it is still essential to govern and regulate them.
The "Lehman Brothers moment" refers to the collapse of the fourth-largest American investment bank, which triggered a chain reaction that reverberated throughout the global economy and resulted in the worst financial crisis since the Great Depression. As a result, many are referring to the FTX collapse as such.
Although it is too soon to say whether this heralds the demise of cryptocurrencies, FTX's downfall raises severe concerns about a largely unregulated sector.
What were the circumstances that caused FTX to collapse?
The article published by the cryptocurrency news website CoinDesk precipitated the FTX collapse. According to the report, Sam Bankman Fried owned the crypto hedge fund Alameda, which reportedly held billions of dollars worth of FTX's FTT tokens.
On FTX, Alameda was a prominent trader and market maker, and the fund used FTT as collateral when making loans. The money from Alameda was used to raise the price of FTX, and reports of fraud and the theft of investor funds stored at the exchange also started to surface.
The problem was made worse when Binance CEO Changeng Zhao decided to sell off a sizable portion of his company's FTT holdings. Investors were alarmed by this, and as word of the situation spread, the token's value plummeted from $2 at the beginning of November to $1.
Customers of FTX started withdrawing money from banks, as a result, sparking a liquidity crisis that eventually led to FTX's bankruptcy.
What effect has the FTX collapse had on cryptocurrency prices?
At $887 billion, the market capitalization of cryptocurrencies is down 15%, most of which are losing money. The most widely used cryptocurrency, Bitcoin, has decreased by 17.9% in the past week, while Ethereum has decreased by 19.1%.
The future-oriented cryptocurrency Solana, once thought to be the most promising, has since dropped by 95% from its all-time high price, which was announced on November 6. The only coin that has remained somewhat stable throughout this crisis is Tether, which is anchored to real-world investments and currencies.
What effects has the FTX incident had on Indian traders and investors?
After the FTX collapse, Trading volumes on Indian exchanges did decline following the FTX collapse. On the other hand, the spot trading figures for November are generally comparable to those reported for September and October before the FTX crash. There hasn't been much of an effect on Indian exchanges.
The FTX collapse will prevent the Indian cryptocurrency market from recovering; experts claim that even though there hasn't been much trading there due to Indian tax laws. Many contend that the FTX collapse may have been the deciding factor for Indian cryptocurrency investors.