There are concerns that cryptocurrency exchange FTX might be insolvent, as its finances rely on the same scheme that destroyed Celsius Network. A recent report from CoinDesk revealed that Alameda Research, which owns FTX, holds more FTT tokens on its balance sheet than are currently in circulation. FTX’s total assets are $14.6bn, but liabilities are $8bn, mostly in loans. The flywheel scheme involves pumping the token’s price to show gains to the balance sheet, and then raising cash through equity sales or loans, which drives the token even further, but if the flywheel stops spinning, the company could be in trouble.
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Assessing the Insolvency of FDX: Is the Flywheel Scheme to Blame?
Introduction
FDX, the cryptocurrency exchange, is currently in hot waters with growing concerns over their solvency. Recent news surrounding the firm suggests that they may follow in the footsteps of Celsius Network and end up going down to zero. According to a recent report, their finances rely on the same scheme as Celsius did, which ultimately destroyed the network. This scheme, known as the flywheel scheme, has led to speculations about FDX’s ability to stay afloat.
Assets and Liabilities
The owner of FDX has total assets worth 14.6 billion dollars, comprising of 5.8 billion FTT tokens, 1.2 billion Solana tokens, 3.37 billion unidentified cryptocurrencies, and 2 billion investments in equity securities. But with total liabilities of 8 billion dollars, out of which 7.4 billion is in loans, FDX appears to be in danger.
The Flywheel Scheme
The flywheel scheme, which is the same as Celsius, involves creating a token, pumping its price, adding gains to the balance sheet, and raising cash through equity sales or loans, resulting in an increase in token value. However, the market for these tokens is so distorted, they cannot be monetized. If the flywheel stops spinning, then the company is in trouble. This is what happened to Celsius when it couldn’t afford to keep buying its inflated token, and the price collapsed, shredding their balance sheet.
FTX’s Risky Position
Alameda Research, owned by FDX, currently holds more FTT on their balance sheet than the tokens in circulation. According to Market aggregators, there is no organic demand for these tokens. With total liabilities of 8 billion dollars, FDX’s position looks risky as they may not be able to repay the loans.
Binance’s Exit from FTX Equity
Binance had received roughly 2.1 billion USD in cash, PUSD, and FTT as part of the exit from FTX equity last year. Due to recent revelations, Binance has now decided to liquidate any remaining FTT on their books. This has caused concerns that the FTT token may go to zero, much like Luna, and the flywheel scheme may implode.
Conclusion
FDX is heavily regulated, and their management claims that they have enough to cover all client holdings, but it remains to be seen if FDX can stay solvent. With growing concerns of the flywheel scheme’s sustainability and Binance’s exit from FTX equity, FDX may be in trouble. It is necessary to wait and watch as to how FDX manages its financial situation and whether it can sustain this volatile market.
