When FTX fell apart last year, the repercussions were devastating. The contagion not only caused crypto assets to tumble and damaged the portfolios of professional traders, but it also eliminated a prominent investment pool for blockchain startups. Countless individual investors witnessed their life savings evaporate, and I sympathize with all the victims.
While acknowledging past mistakes and repercussions, there is a silver lining that cannot be ignored. Although unpopular in some quarters, the news of a potential FTX relaunch under a new name has sparked a wave of optimism in the crypto community, and with good reason. A relaunch could bring about a range of positive outcomes for the industry, investors and customers alike.
Relaunching FTX has its merits
One of the most significant advantages of a successful FTX relaunch would be the potential to attract more investors back into the crypto space. Should the exchange re-emerge with a new management team and a realized commitment to rectify past issues, it may garner renewed interest from the wider investing community. And the positive effects would compound. Increased investor participation would infuse the exchange with additional funds, which could then be used to repay users who have experienced losses in the past, again instilling trust in centralized crypto exchanges.
While the crypto community is rightly skeptical of the motives behind launching FTX 2.0, there is precedent showing that it is in fact possible to make creditors whole through restructuring. The Bitfinex incident is a great example. In 2016, crypto exchange Bitfinex was hacked, and 120,000 Bitcoins were subsequently stolen. In response to the hack, Bitfinex released the “recovery rights tokens” (RRT), designed to serve as an IOU to affected customers. These tokens promised a share of future profits to compensate for the losses. Within a year, all the tokens were redeemed and customers were repaid.
