Home Business The Race to Fill Crypto’s FTX-Shaped Hole

The Race to Fill Crypto’s FTX-Shaped Hole


Backpack has signed tens of thousands of prospective customers to a waitlist, claim Sun and Ferrante, but the exchange will not go live until the first quarter of 2024. Meanwhile, OPNX has struggled to muscle its way into the market in its first six months in operation: In October, the firm announced it had serviced $10 billion in total trades, a volume FTX racked up in just a few days at its peak.

Incumbents like Binance have also struggled to capture FTX’s corner of the market. In the months after FTX fell, Binance’s market share rose as high as 66 percent. Data shared with WIRED by blockchain analytics firm Nansen shows that even now, the exchange consistently attracts the highest total value of crypto deposits. After US regulators filed lawsuits against the firm in the summer, though, with rumors of criminal charges to follow, customers retreated from Binance.

After reaching a settlement with the Department of Justice in November, in which Binance pleaded guilty to historical money-laundering and sanctions violations, the exchange is hoping to turn over a new leaf—and in particular, to attract new high-value institutional investors. However, the firm acknowledges there is work to be done from a reputational standpoint. “It is difficult for [institutional investors] to work with businesses and exchanges that have question marks over their compliance status,” says Catherine Chen, a Binance executive tasked with attracting high-value customers. “We know that removing concerns about illicit finance in crypto is one of the most important things we need to drive mainstream adoption and more institutional investment.”

There’s another argument that the most suitable replacement for FTX could, somewhat curiously, be FTX itself. In April, a campaign began among a group of FTX creditors—the FTX 2.0 Coalition—who sought to convince those in charge of the bankruptcy estate to consider rebooting the exchange.

The idea is for FTX to be auctioned off to bidders willing to restart it and to swap creditors’ debt for equity in the new venture. If the new FTX succeeded thereafter, the value of each creditor’s equity might some day exceed the amount they originally lost, creating an incentive for those people to trade on the platform.

The inertia of the bankruptcy court means a reboot effort is unlikely to progress swiftly, says Pat Rabbitte, one of the leaders of the FTX 2.0 Coalition, but the built-in customer base will help to compensate for the delay. “In crypto, the customer churn rate is really high and customer acquisition is really expensive,” says Rabbitte. “But here is a unique opportunity.”

FTX did not respond to a request for interview, but the administrators of the bankruptcy estate are reportedly fielding proposals from three bidders willing to restart the exchange.

The difficulty facing the pretenders to the FTX throne lies in establishing trust among crypto investors. After 18 months of turbulence and high-profile litigation involving some of the largest crypto firms, in which consumers have lost billions of dollars in aggregate, “there’s no faith in the industry anymore,” says Sun. “People think this is a scam.”

Newcomers like Backpack are proposing a techno-regulatory solution to dodge around that trust issue. In effect, they’re arguing that customers don’t need to trust the companies or their founders because the technology proves that assets are not being misused and regulators are keeping watch. With FTX 2.0, the idea is that everyone whose fingerprints might be found on a damaging crypto collapse be “taken out of the equation entirely,” says Rabbitte.

There is a feeling at Backpack that the window of opportunity is closing rapidly, as more stringent regulatory restrictions imposed on crypto businesses increase the cost of entry. “It’s going to become harder and harder [to launch new exchanges] as time goes on,” says Ferrante. The legacy of FTX—that exchanges will be held to higher standards—will benefit investors, he argues, but make it harder to build something from scratch. “Time is of the essence,” he says.