Coinbase says FTX’s crypto liquidation sales are unlikely to cause market shock.

Coinbase says FTX's crypto liquidation sales are unlikely to cause market shock.

The Resilience of the Blockchain Industry: Analyzing the FTX Token Sale

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Introduction: The blockchain industry has witnessed steady growth and transformation over the years. One of the recent developments is the token sale by FTX, a bankrupt crypto exchange. While concerns have been raised about the potential market shock resulting from this sale, Coinbase’s research report offers valuable insights and mitigating factors that suggest otherwise.

Limited and Gradual Liquidation: To prevent flooding the market, FTX’s token sale will be carried out in a controlled manner. In the initial phase, liquidations are limited to $50 million per week, gradually increasing to $100 million in the following weeks. Coinbase emphasizes that any permanent increase to a maximum of $200 million per week requires approval from committees representing FTX debtors. These measures ensure a controlled release of tokens, mitigating the risk of market disruption.

FTX Token Holdings: According to recent court filings, FTX holds a diverse range of cryptocurrencies. These holdings include approximately $1.16 billion in solana (SOL), $560 million in bitcoin (BTC), $192 million in ether (ETH), and an additional $1.49 billion in other tokens. With the court’s ruling allowing FTX to sell and invest these holdings to pay back creditors, it becomes essential to examine the potential impact carefully.

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Strict Controls for Insider-Affiliated Tokens: Coinbase’s research report highlights the presence of strict controls in place for selling certain “insider-affiliated” tokens. These tokens require a 10-day advance notice to committees representing FTX debtors. This measure ensures transparency and accountability in the token sale process, reducing the chances of unfair advantages or market manipulation.

Lock-up Periods and Token Vesting Schedules: A significant portion of FTX’s solana holdings remains locked up until 2025 due to the token’s vesting schedule. Similarly, other tokens that need to be sold also have lock-up periods. This indicates that the full potential of FTX’s token holdings may not be immediately unleashed into the market. The measured pace of token release ensures a gradual and balanced approach, reducing the risk of sudden market volatility.

Hedging Through Investment Advisers: The report mentions that FTX will have the ability to hedge its sales of bitcoin, ether, and other tokens through an investment adviser once it has received the committee’s approval. This strategic move allows FTX to manage potential market risks associated with the token sale.

Conclusion: Analysts and experts in the blockchain industry are optimistic about the token sale by FTX, believing it will not result in a market shock. The controlled liquidation process, limited weekly amounts, strict controls for insider-affiliated tokens, lock-up periods, and the option to hedge sales with an investment adviser contribute to maintaining market stability. Taking a comprehensive approach, FTX aims to repay its creditors while ensuring a controlled and sustainable market environment.

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References:

• Cryptocurrency Altcoin Crash Is Coming: Matrixport

• Edited by Sheldon Reback

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