Coin Report #42: FTX Token

Coin Report #42: FTX Token

N.B: The following Coin Report on FTX Token is a Sponsored Post.

Welcome to the 42nd Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of FTX Token. This will be comprised of an analysis of a number of significant metrics, an evaluation of the project’s community and development and an overview of its price-history. The report will conclude with a grading out of 10. I hope you enjoy the read!

Introduction

Unlike many of my recent reports, I was indeed well-aware of the FTX Token prior to beginning my research process; moreover, I was familiar with FTX as an exchange and, given its immense success since launching in 2019, I was intrigued to learn more about both the exchange and its native token to assess whether, as was the case with BNB, buying and holding FTX Token made speculative sense. As, much like my previous Coin Report on Lykke, this is focused on an exchange, the format of the report will differ a little, as I intend to dig into the exchange itself; although, as FTX Token is the subject of my focus, the process of evaluation will remain largely the same. I am ultimately seeking to assess the speculative opportunity, if any, in FTT, whilst keeping the report contextual.

I hope this report will prove objective where it must be and fair on more subjective matters. For those who’d like to learn a little more about FTX Token prior to reading this report, here are some primary links:


Fundamental

General:

Name: FTX Token

Ticker: FTT

Algorithm: ERC-20

Sector: Exchange Token

Exchanges: FTX, Huobi Global, Huobi Korea, Binance, BitMax, FatBTC, CoinEx and Bitfinex

Launch Overview

FTX Token was publicly launched on July 29th, 2019, on the ERC-20 standard, although the token was available for purchase prior to that date. In the form of three private rounds, the exchange raised funds by selling FTT at an average of $0.15, $0.40 and $0.70, respectively, ultimately raising an expected $9.486mn from the sale of 59.3mn FTT. The exchange itself, and thus its native token, was a product of Alameda Research, who are a quantitative trading firm responsible for up to $1bn+ of daily volume across markets.

350mn FTT were originally created, with 175mn FTT allocated to the company but locked for a three-year vesting period. As the FTX Token has a burn mechanism, it is deflationary, which we will discuss at length a little later.

The token itself was launched for the purposes of utility within the FTX ecosystem.

Price-History Overview

Given that FTX Token has only been listed on exchanges for a little over 4 months, there isn’t much available price-history to analyse and there have not been any distinct market cycles that have yet played out. That said, for the purposes of this overview, it will suffice to say that FTT formed its all-time low at 10,660 satoshis in September 2019, from which point it has continually rallied, printing its all-time high at 31,130 satoshis at the turn of the New Year.

Project Overview

Most readers of this blog will likely already be somewhat familiar with FTX, but, for those that are not, it is an exchange offering derivatives within cryptocurrency markets. The aim here is straightforward: to provide traders with a well-designed and robust platform and a plethora of products.

As stated in its whitepaper:

FTX is a cryptocurrency derivatives exchange that offers futures, leveraged tokens and OTC trading. Currently, futures exchanges have many crippling flaws holding the space back. Our mission is to solve these problems and move the derivatives space toward becoming institutional grade.

Regarding FTX Token, this is stated to be the backbone of the FTX platform, providing users with multi-faceted utility, including deflation through token burns, collateral for positioning, discounts on fees, OTC rebates, white label solutions purchased in FTT and socialised gains.

I look forward to assessing the progress FTX has made.

Let’s begin with some Metric Analysis:


Metric Analysis:

Below are listed a number of important metrics, all of which are accurate as of 8th January 2020. For anyone reading this who has yet to read a Coin Report, it might be worth reading this section of the first report, where any potentially unfamiliar terms are explained. For any terms or metrics specific to this post, I will provide explanations besides the figures.

Metrics:

General:

Price: $2.14 (25,732 satoshis)

Circulating Supply: 77,857,664 FTT

Total Supply: 347,965,433 FTT

Exchange Volume: $15.488mn

Network Value: $166.505mn (20,034 BTC)

Maximum Supply: 347,965,433 FTT

% of Max. Supply Minted: 100%

Network Value at Max. Supply: $744.154mn

Exchange Volume-to-Network Value: 9.3%

Category: Largecap

Average Price (30-Day): $2.05

Average Exchange Volume (30-Day): $4.197mn

Average Network Value (30-Day): $182.736mn

Average Exchange Volume (30-Day)-to-Network Value: 2.3%

Volatility* (30-Day): -0.01697 

Average Daily On-Chain Transactions (30-Day): 44.7

Average Daily Transactional Value** (30-Day): $7.059mn (source)

NVT*** (30-Day): 23.58

% Price Change USD (30-Day): +16.2%

% Price Change USD (1-Year): N/A

USD All-Time High: $2.71

% From USD All-Time High: -21.2%

Premine % of Max. Supply: N/A

Premine Location: N/A

Liquidity (calculated as the sum of BTC in the buy-side with 10% of current price across all exchanges): 272.1 BTC

Liquidity-to-Network Value %: 1.36%

Supply Available on Exchanges: 3,081,386 FTT

% of Circulating Supply Available on Exchanges: 3.96%

*Volatility is calculated by taking the average price over the given time-period, calculating the difference between it and the highest price and it and the lowest price over that same time-period, and multiplying those figures together. The closer to 0, the less volatility during that period, and vice-versa. Read this for more on this volatility metric.

**Transactional Value in $ is calculated by taking the daily transactional value in FTT and multiplying it by price.

***NVT is calculated by dividing the Network Value by the Average Daily Transactional Value. See here for more on NVT.

 

Supply Emission & Inflation:

Block Reward Schedule: Deflationary due to burn mechanism + no further emission.

Average Block Time: N/A

Current Block Height: N/A

Annual Supply Emission: 0

Annual Inflation Rate0%

Circulating Supply in 365 Days: N/A

 

ICO:

The following details were taken from this source.

Public ICO Period: Pre-July 28th 2019

Total Tokens: 350,000,000 FTT

Total Tokens Available for Sale: 175,000,000 FTT

Total Raised: $9.486mn (estimate)

Average ICO Price Per Token: $0.16

Total Tokens Sold59,300,000 FTT

Further Details: There was three-round private sale, beginning with a seed round with an average price per token of $0.15. The second round had an average price of $0.40 and the third of $0.70. The token was listed publicly at $1.

175mn FTT was allocated to the company and will be unlocked over a three-year period (May 2022).  105mn FTT of the 175mn non-company tokens remains unsold; this has been split as follows: 5% for insurance fund insurance; 5% safety fund; 20% FTT Liquidity; 20% to FTT employees; 5% to advisers; 25% added to company allocation; 10% ecosystem fund; and 10% user acquisition.

 

Distribution:

Address Count: 236

Supply Held By Top 10 Addresses: 94.84%*

Supply Held By Top 20 Addresses: 99.08%

Supply Held By Top 100 Addresses: 99.99%

Inactive Address Count in Top 20 (30 Days of No Activity): 2**

*#1 control 57% of the supply and is company-owned, with 175mn FTT out of circulation during the three-year vesting period. Further, most of this top 20 is either company-owned or exchange-owned, with few, if any privately-owned addresses. We will come to this in the subsequent section.

**Excluding exchange addresses and the top 3 addresses that are company-owned.

 

Analysis:

Due to the lack of staking or masternodes and the lack of supply emission, there are fewer metrics to work through here. That said, there are many interesting figures I’d like to cover, and I’ll begin by taking a look at those related to transactions. Now, I would like to mention that, as FTX Token is an exchange token, created for utility specific to FTX, users are incentivised to hold it on the platform (more on this when we discuss distribution of supply), As such, on-chain transactional value is not as important as it is for a medium-of-exchange or even a store-of-value. Nonetheless, FTT’s figures were quite impressive given the aforementioned incentives.

I calculated that, using the past 30 days of data, there was an average of 44.7 Daily On-Chain Transactions, equating to $7.059mn of Daily Transactional Value. This would give FTT a 30-day NVT of 23.58; less than half that of Bitcoin.

Moving on, I’d like to take a look at Volatility, which I calculated to be -0.01697 for the past 30 days; this is the fifth-lowest amongst prior reports for 30-day volatility. As such, it is possible that, at least against the Dollar, FTT may be in accumulation. Moreover, if there is speculative opportunity to be found in our analyses, then the current range may well provide an opportune entry.

Next up, we have the metrics relating to Liquidity:

Firstly, I found that there was ~272.12 BTC of buy-side liquidity within 10% of current prices to be found across all exchanges, equating to a mighty 1.36% of its Network Value. This places FTX Token second-highest for liquidity of prior reports, behind only DMME, despite having a network value 1,400x larger. In effect, it is by far the most liquid token, pound-for-pound, that I have ever featured in these reports. This is very promising, as it is indicative of a strong demand for the token, even on third-party exchanges.

As for sell-side liquidity, I found that ~3.081mn FTT was available for purchase in the orderbooks, equating to 3.96% of the circulating supply. This is the seventh-highest figure among prior reports,, indicating that, despite the huge demand, there is also a willingness to sell, with a large amount of circulating FTT being held in orderbooks across exchanges, rather than just in accounts on FTX. Now, much of this is also likely provided by FTX themselves by way of sell-side liquidity, so take this with a pinch of salt.

Moving onto volume, FTX Token is reported to have traded $15.488mn of Exchange Volume over the past 24 hours, equating to 9.3% of its Network Value; this is very impressive and highly suggestive of speculative interest in the token. Less impressive, although still of note, is  its Average Exchange Volume for the past 30 days of $4.196mn, equating to 2.3% of its Average Network Value for the same period. This places it somewhere in the middle among prior reports, which, given that FTX Token is also the largest featured, is still quite promising.

Now, let’s take a look at the (lack of) Supply Emission:

As is often the case with ERC-20 tokens that are offered in an ICO, their supply is capped at the amount created during the ICO, hence there are no further emissions. What this means for a speculator is that there are no headwinds to price growth via inflation. Moreover, what many projects do is create deflationary mechanisms for these tokens. FTX have a burn mechanism in place that runs weekly, decreasing the circulating supply and thus making FTX Token more scarce than when it was created. As such, the annual inflation rate is actually negative but not static, so, for our purposes, we will say it is 0%, but keep that deflationary mechanism in mind. More specifically, 33% of all fees generated on FTX go towards repurchasing FTT for burning, as do 10% of net additions to the insurance fund and 5% of fees earned elsewhere on the platform.

To make this clearer, let’s do some simple maths:

If FTX generated $100mn in annual fees (which its current fee structure and daily volume roughly indicates), $33mn would go towards repurchasing FTT, which would amount to 15.4mn FTT at current prices. Now, of course, this does not account for the fact that there is not 15.4mn FTT even on the orderbooks at present (nor that this is not all bought at once), thus price would undoubtedly increase as the available supply was purchased, leading to more supply coming onto the market. Ignore this for a second and consider that FTX are able to buy 15.4mn FTT at market throughout the year for the burn; this means that almost 20% of the circulating supply would become obsolete. This is also not accounting for purchases through the other two means.

Finally, let us take a look at some Distribution:

Using the rich-list, I found that there are currently 236 holders of FTX Token.

At first glance, this appears inconceivable, as it suggests that there are less holders of the exchange token of a prominent derivatives platform than there are of many microcap projects. This is, of course, misleading, as FTX incentivises the holding of FTX Token on its exchange, limiting the number of private addresses and accounting for the low address count.

Moreover, I found that the percentage of total supply held by the top 10 addresses was a whopping 94.84%; the top 20 was 99.08%; and the top 100 was 99.99%. Again, this is misleading, as the mass of FTT being held on exchanges means that supply becomes extremely concentrated at surface-level among exchange-owned addresses.

The richest address owns 198mn FTT, 175mn of which is out of circulation, and the subsequent two addresses own 98mn FTT between them and are also company-owned. Beyond this, the top 20 is primarily exchange-addresses, be it FTX or a third-party exchange like Binance or Huobi. There are only 7 non-exchange addresses outside of the top 3 yet within the top 20.

And that concludes this section.

Let us take a look at the FTX Community:


Community:

There are two primary aspects of community analysis: social media presence and Bitcointalk threads. I’ll begin with the former before moving on to the latter.

Social Media:

Concerning social media presence, there are four main platforms to examine: Twitter, Facebook, Telegram and Discord.

FTX Token is present on three of these platforms: Twitter, Facebook and Telegram. To begin, let’s look at the various social metrics that I calculated from the FTX Twitter and Facebook accounts:

Twitter Followers5,530

Tweets: 392

Average Twitter Engagement: 1.15%

Facebook Likes: 450

Facebook Posts (30-Day): 0

Average Facebook Engagement: 0%

As usual, I will be using RivalIQ‘s social benchmark report for evaluation purposes.

Twitter:

FTX has a relatively small audience on Twitter of 5,530 followers, which places it in the bottom-third amongst prior reports. More impressively, however, it has relatively strong engagement. The average engagement rate is 1.15%, which is the 18th-highest, relative to projects in prior reports. Relative to global benchmarks, this is 128x greater than the Media industry and 24x greater than the average across all industries. Clearly, as an exchange seeking to usurp BitMex as the leading derivatives platform, there is work to do insofar as social media marketing goes, although I expect the FTX users would be engaged enough to spread the word and help grow this audience if sufficiently incentivised.

Facebook:

FTX’s Facebook Page is rather small with an audience of only 450. Even less impressively, there has been no effort to engage on this platform, with zero posts over the past 30 days. Facebook is a huge platform for user acquisition, perhaps even more so than Twitter, so this is a missed opportunity that would not take much effort to rectify. As a potential new user, if I saw a Facebook Page for a derivatives platform that provided high-quality educational content, regular updates and, most importantly, that felt like it was fostering a community of like-minded traders, I would sign up to try it out immediately. It is at that point that the product is then given the opportunity to shine. I expect there are many such Facebook users.

Discord:

There is no Discord group for FTX.

Telegram:

The FTX Token Telegram group has 3,502 members.

Clearly, the Telegram group is FTX’s primary communications platform, as there is a lot of activity here and it is great to see the regularity with which Sam, the founder of the exchange, interacts with users.

Over the past week, there has been near-constant discussion here, and I have done my best to condense this and extract the most important information:

  • The pinned message is very informative for new users, providing a plethora of relevant links to resources and other social platforms, as well as concise breakdowns of the products offered by the exchange.
  • The team are very responsive to user queries on all possible matters, providing answers promptly. This is important, as many exchanges are notoriously slow to respond and, when responses are given, they are often vague or otherwise unsatisfactory.
  • There is a brief roadmap provided, including options, more tokenised products, a Quant Trading Zone, FTT being listed on more exchanges, more fiat support and app updates.
  • Any suggestions made by traders on the platform are well-received and passed on to the internal team.

Overall, I’m impressed mostly by the quality of communications and very much excited by the imminent roll-out of options.

BitcoinTalk:

There is no BitcoinTalk thread for FTX Token.

And that concludes this section – onto Development:


Development:

For the following Development analysis, I will be evaluating project leadership, the website, the roadmap, the whitepaper, the wallets and finally providing a general overview:

Project Leadership:

There is no team information available on the website but there are 11 employees listed on LinkedIn. I assume the team is actually larger than this, given the scope of the exchange.

The exchange itself is backed by Alameda Research and founded by Sam Bankman-Fried. Alameda Research are responsible for upwards of a billion dollars of daily volume across markets.

No information is publicly available on advisers to the exchange.

Website:

https://ftx.com/ (this is a ref link, for transparency – here is a non-ref link)

Firstly, given that FTX is an exchange, unlike most projects featured in these reports, there will be a couple of individual sub-sections to this evaluation of the website: the platform itself and the informational pages available for users.

The Platform: FTX, as a platform, is well-designed, with a clean, user-friendly layout, integrated TradingView charting, a clear order form and market order history table. My only gripe here is that the orderbook itself is not customisable. The platform itself offers more derivatives products than any other exchange I’ve used, including a range of novel products that we will come to in the Whitepaper section. In short, however, there are futures markets for many altcoins, as well as leveraged tokens for altcoins and indexes. The choice is great and the liquidity among the primary markets is exemplary for a new exchange.

Informational: As a website, it is also quite well-designed: the navigation menu contains a link to the markets offered, to the user’s wallet, a volume monitor for global exchanges, an OTC trading desk, an informational page for the FTX Token and a Help link leading to the informational sections of the site. In the latter, we can find a number of articles on trading on FTX, the token itself, competitions, mobile apps, KYC and account information, OTC trading, fees, announcements and more. In short, it is comprehensive and highly accessible and as a potential new user I would feel as though there is plenty here to get me started. I was glad to find transparency on the FTX Token, too, as there is a page devoted to the history of the token and its launch, as well as a separate page (the one linked in the navigation menu) that contains regularly updated statistics on supply and burns, as well as transparency on token unlocks and historical burns. Finally, there is also a useful FAQ provided.

Roadmap:

There is no roadmap available for FTX.

Whitepaper:

https://docs.google.com/document/d/1u5MOkENoWP8PGcjuoKqRkNP5Gl1LLRB9JvAHwffQ7ec/view

The whitepaper is 9 pages in length and is relevant for the exchange, not just the FTX Token.

It begins with Our Mission, in which it is stated that FTX are seeking to solve the numerous issues present in futures exchanges within crypto, with the ultimate aim being an institutional-grade platform. As the whitepaper was published post-launch, it also refers to the existence of highly-liquid orderbooks upon launch, as well as futures contracts trading over $100mn daily (this figure is closer to $800mn at present).

Following this, we are introduced to the fact that the team is reputable and renowned, with individuals from Jane Street, Facebook and Optiver, as well as the exchange being backed by Alameda Research, who have over $100mn of assets under management and trade “$600mn-$1bn a day”. They also note that they are ranked 2nd in the BitMex leaderboard.

Moving on, we come to the features of FTX, beginning with its history, with the crux here being that, as traders, the founders were unhappy with the exchanges available and wanted to build something that corrected inefficiencies and weaknesses in other products. One of the primary features discussed here is that FTX are able to “significantly reduce” the possibility of clawbacks by using three-tiered liquidation, where other exchanges have often suffered million-dollar clawbacks due to poor design. Their insurance fund is leveraged to prevent customer losses.

Further, unlike a number of derivatives platforms, FTX uses centralised collateral and a stablecoin settlement system to streamline the process of order execution and balance management for traders. At the date of publishing, USDC and TUSD were acceptable stablecoins.

More significantly, FTX introduce us to the concept of Leveraged Tokens, which are a new product that allows for traders to go short on spot markets, rather than having to use futures and risk margin calls. An example is given where a trader may want to be short 3x for BTC/USD, and so they would simply outright buy the leveraged token that facilitates that on FTX, rather than open a leveraged position in the futures market on margin. These tokens are created on the ERC-20 standard.

Subsequently, the whitepaper discusses the uniqueness of FTX, in the context of the proposal of a capital raise for its FTT token, stating that, unlike most ICOs, they already have a live, working product that is highly liquid. Further, the exchange was created by traders that play a huge role in liquidity provision in secondary markets. Moreover, the exchange has created novel products and has a strong reputation, with a “fast development cycle”.

Following this, we are introduced to revenue models, including exchange fees, leveraged token fees, other fees, and OTC trading. The document also discusses user acquisition strategies, such as traditional PR, influencer marketing, community management AMAs, reviews, affiliate programs, trading competitions and bounties.

Most importantly for our purposes, we then come to the section on FTX Token, which states that the utility of the token will be tied to the exchange, with engineered incentives and scarcity. This will be achieved by allowing for FTT to be used as collateral on futures positions, by providing discounts on trading fees for holders of FTT with a tiered model of discount, a token burn mechanism that will provide one-third of all fees towards buybacks and burns, OTC rebates and burns, socialised gains via the insurance fund, white label solutions sold in FTT and, in the future, more utility will be added via IEOs. The token is stated to be the “backbone of the FTX ecosystem.”

Finally, estimates are provided for volume possibilities, with $250m/day a likely floor and $5bn/day stated as “a real possibility”.

Overall, informative and concise.

Wallets:

FTX Token can be stored on all wallets compatible with the ERC-20 standard.

And that concludes the Fundamental sections of this report.


Technical

FTT/BTC

FTTBTCDaily

FTT/USD

FTTUSDDaily

FTX Token, as can be observed from the charts printed above, has not been traded for a very long time; in fact, it has only been in existence for about half a year. As such, there is limited available price-history and thus limited scope for analysis. Nonetheless, I will endeavour to take from it what I can and later put this in context of the value proposition of the token, particularly relating to the deflationary mechanism discussed in earlier sections.

Looking at both charts, it is quite clear that they have followed a similar pattern since inception, with a few weeks of demise culminating in an all-time low, followed by consolidation and then a rally.

For the purposes of this section, I will focus on FTT/BTC, but I have provided the Dollar pairing to simply display the correlation. After all, we are measuring gains in BTC; if FTT/USD rises but FTT/BTC falls, we may as well have been holding Bitcoin. Outperformance of the latter is what we are speculating on.

So, looking at the Daily chart for FTT/BTC, we can see that price spiked upon initial listing in August 2019, hitting 22,800 satoshis before falling for several weeks, eventually finding its all-time low at 10,660 satoshis in September 2019. Following this, there was a short period of consolidation followed by a gradual climb throughout October, ultimately topping out at 17,500 satoshis in mid-October; what followed was a brief but violent dump, with a great deal of volume appearing as FTT was sold and price hit 13,607 satoshis. Since that point, price has continued to rise, breaking to new highs almost every day for almost 2 months. At the turn of the New Year, price made its all-time high at 31,129 satoshis and then, for the past week, has taken a tumble, closing below trendline support from November 2019 and currently trading below resistance turned support at 26,000 satoshis. If today’s candle closes below this important level, I’d expect 23,500 satoshis to be retested as support.

As a long-term speculative position, however, perhaps what is more important is whether – despite price clearly having moved away from a traditional area of accumulation (sub- 19,000 satoshis here) – the current price is still indicative of undervaluation. And this is relative to utility of the token and its scarcity. As we have already covered, the utility of the token is directly related to the exchange; in effect, being exposed to spot FTX Token is a means by which to profit from the growth of the exchange itself without being a shareholder. The growth of the price of FTT is ultimately tied to the growth in userbase and revenue of FTX. Given the earlier calculations that found that, based on today’s estimates, we can expect ~$33mn+ of buyback-and-burn over the next 12 months, it seems almost inevitable that the price of FTT, relative to BTC, will grow. Further, as utility is expanded upon the growth of the exchange, coupled with engineered scarcity, I would expect speculative demand itself to drive prices up.

In short, I am expecting 26,000-satoshi FTT to be a very good price for a long-term spot position. Even better if we can grab some at 23,500 satoshis.


Conclusion

This report is now approaching 5,000 words, and it is time to draw it to a close.

My final grading for FTX Token is 9 out of 10.

If you’re considering signing up for the exchange to test it out or buy some spot FTT, here is my referral link if you’d like to use it. Here is a non-ref link if you’d prefer!

Here, you can find my grading framework, for reference.

Lastly, here is a link to a Google Sheets file with any significant data from previous reports compiled for cross-comparative purposes. I will keep this updated as I continue to write these reports.

I hope this report has proved insightful and that you’ve enjoyed the read! Please do feel free to leave any questions in the Comments, and I’ll answer them as best I can.


 

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