BNB or FTT? A question of trust

With the failure of the crypto exchange FTX, the in-house FTT token unsurprisingly lost more than 70 percent of its value within a very short time. But where do the exchange’s own tokens such as FTT, BNB, CRO and Co. actually come from?

Exchange tokens are designed to help stabilize protocols, settle transaction fees, or distribute rewards. In addition, customers of the respective exchanges can save fees if they use the associated tokens. Contrary to this actual use, however, many of the exchange tokens only function as a perceived investment in the respective crypto company. Investors are therefore speculating, as in the classic financial market, on the development of Binance, Crypto.com and Co.

FTT and BNB as reserve currencies?

But this is where the problem begins. To the leaked balance sheet from FTX according to the now insolvent crypto exchange had at least 20 percent of the reserves in its own token. Accordingly, FTX lost liquidity after the FTT course had rapidly lost value. The Terra crash related to the algorithmic stablecoin in May was similar. Binance CEO Changpeng “CZ” Zhao recently took up this issue and distanced himself:

Never use a self-created token as collateral. […] Binance has never used BNB as collateral and we have never taken on any debt.

Changpeng “CZ” Zhao on Twitter

In response to the scandals surrounding FTX shouted then to more transparency in stocks on the stock exchange: the so-called Proof of Reserves (PoR). Binance published an overview a short time later. All in all hold 475,000 BTC, 4.8M ETH, 17.6B USDT, 21.7B BUSD, 601M USDC and 58M BNB. A little later, the crypto exchanges OKX, Bybit and KuCoin also announced the disclosure of their reserves.

FTT and BNB: The Tokenomics

The difference between Binance and FTX in terms of exchange-native tokens becomes clear when contrasting tokenomics. Both cryptocurrencies rely on Proof of Stake. The so-called burn rate also follows relatively the same approaches. Both projects aim to “burn” 50 percent of the tokens created, making the remaining amount in circulation more valuable. Just like the Binance currency, the FTX token is not based on its own blockchain, but runs as an ERC20 token on the Ethereum blockchain. From a fundamental point of view, the two cryptocurrencies hardly differ. Both exchange currencies bring user advantages and were able to record rapid price gains in the bull market. Nevertheless, the FTX token saw a massive sell-off. The reason: loss of trust.

As rumors of FTX bankruptcy simmered, sustained selling pressure built on FTT. When the scandalous revelations broke, cryptocurrencies and trust in them collapsed. Ultimately, trust plays a crucial role. When it broke at FTX, the failure of the in-house token was inevitable. BNB, for comparison, is still highly trusted by investors at 4th place by market cap. However, it remains to be seen how exchange-native cryptocurrencies will develop in the future.