FTX

About

Overview

FTX is a cryptocurrency derivatives exchange offering Perpetual and Futures contracts for Bitcoin and Alt coins, leveraged margin trading and a number of unique derivatives and index markets.

The exchange was launched in mid 2019 and is owned by FTX Trading LTD, a incorporated company in Antigua and Barbuda.

We will be taking a look into this new exchange and the interesting and unique new products they are bringing to the derivatives markets.

Use case

As derivatives in the space become increasing important, the FTX platform aims to expand on the main current derivative products in the market such as BTC perpetual and futures contracts and allow indexes on Small, Mid and Large Cap alt coins.

Many market participants from previous cycles are understanding the risks of holding altcoins including the correlation with BTC price movements. The new markets offered by FTX allows users to hedge their holdings or get access to several markets via one product.

The most unique markets offered on the exchange are the ALT, MID and SHIT perpetual and futures markets available, meaning users can get exposure trading baskets of altcoins via one contract. For example the ALT-PERP contract tracks the price of a basket of altcoins, using a weighed average of the prices of BCH, BNB, BSV, EOS, ETH, LEO, LTC, TRX, and XRP. Users can trade long or short on this contract on spot or using margin from 2x to 101x.

Another one of these new products offered are the BULL, BEAR, MOON and DOOM ERC-20 leveraged tokens which which seeks a return that corresponds to +/- 3 times the daily return of  the index traded for BULL AND BEAR markets and +/-10 times the daily return of  the index traded on MOON and DOOM markets.

Adoption

FTX does not list the number of users on its exchange, however this is the norm in the industry. FTX stated several months ago that there had been over 10,000 traders KYC’d on the platform which gives a good idea of active user numbers as users are required to KYC prior to depositing and trading on the platform.

To incentivise adoption, FTX have implemented a token alongside their exchange, FTT, similar to many other leading exchanges such as Binance, Okex. We will talk more about FTT later in the review.

An excellent strategy for adoption amongst traders has been the introduction of the Battle Royale trading competition which has a prize pool of 120k FTT token. The competition allows traders to fight it out on the trading leader board for a reward of 40k FTT tokens and the recognition as FTX’s best trader!

There are 759 traders listed on the leaderboard which indicates a healthy level of adoption amongst traders. One of the other innovative ways the exchange have used this trading competition for adoption is to allow users to stake their FTT on their trader of choice, giving both stakers and traders a share of 80k FTT tokens. Full details for the competition can be found here.

A quick look at Etherscan shows only 254 FTT addresses, however exchange addresses make up around 20-25% of the circulating tokens so it is likely FTT holders are storing their coins in exchanges. In the case of exchange tokens, token holding is not a reflection of adoption in comparison to user numbers on the exchange.

 

Competition

The derivatives exchanges space has traditionally, and still is dominated by OKEx and BitMex but innovation in the space along with spreading counterparty risk has opened the door for new competitors such as FTX.

With a daily volume of ~$100 Mln split over Spot and Derivatives, FTX is smaller than competitors like BitMEX and Deribit. However, there are several unique elements FTX possess that gives them an edge over other competitors aiming to break the monopoly held by the 2 big players in the derivatives sector.

One of these includes the team behind the project, Alameda Research,  a ~$100million AUM quantitative cryptocurrency trading firm. Within a year, Alameda Research became the largest liquidity provider and market maker in the space. Alameda trades $600 million to 1 billion a day, accounts for roughly 5% of global volume and is ranked 2nd on the BitMEX leaderboard. The team are highly experienced, smart and delivering unique products to the market.

FTX also offers improvements over other crypto margin platforms such as:

• Perpetual swaps for 15 assets, whereas BitMEX and Deribit which only offer a handful of markets.
• Tradable indices like an “altcoin index” and leveraged tokens for 45+ assets.
• All contracts are settled in USD compared to competitors who settle in the traded asset.

 

Products/Features

 

Single stable coin settlement

Futures are commonly used to hedge a position, in traditional financial futures, when traded against a stable single currency, can easily be used for this purpose allowing risk to be adjusted against a stable asset – this clearly does not hold true for the crypto world.

To combat this the FTX platform allows the use of USDC and TUSD as collateral for all of the available futures allowing futures to be traded against a known risk – assuming the stable coins continue to be stable.

Socialised gains

The insurance fund used to protect traders from claw backs will periodically distributed to FTT token holders so adding utility to the exchange token

Sub accounts

These allow isolation of margin positions in different account that contain different risk profiles and trade time frames

Long or Short, leverages perpetual swap futures and indexes

1x or 3x leverage tokens for large cap alt coins allow efficient hedging of positions without creating a taxable event enabling you to stay in your long position but trade the waves of the underlying asset. With the FTX tokens representing these futures being ERC20 they can be removed from exchange onto a personal wallet and even traded on markets external to FTX should you wish.

About Summary

✅ POSITIVE	⛔ WEAKNESS	📝 IMPROVEMENT
Innovative and unique products	Index tokens failed during past big moves	Keep growing userbase
Edge over competitors	Adoption for smaller markets will take time
Impressive adoption amongst traders	Liquidity on index token is dependent on being provided by FTX
Incentivising adoption with Battle Royale competition

Team

Experience

The team behind FTX is an impressive one and headed up by Sam Bankman-Fried, who’s trading skill originated from 3-years at Jane Street (a proprietary trading firm) from where he relocated to Hong Kong and co-founded Alameda Research.

Alameda Research trade a range of quantitative strategies, such as statistical arbitrage and market making. Within 2-years Alameda has grown to turnover one billion dollars of turnover across 35 exchanges, accounting for somewhere near 5% of global crypto volume.

Alameda founded FTX after discovering inefficiencies in the derivatives markets and incorporated their OTC service into the platform, therefore bringing their back stop liquidity and allowing for a more efficient trading process and preventing a claw back process.

Advisors partnerships

Partners for FTX are listed on their website and include the parent company Alameda Research which provides the exchange with its experience and contacts in the industry.

Circle (USDC) and TrueUSD (TUSD) are key strategic partners for the exchange as they allow for settlements to be made in USD.

Funding / Expenditure / Revenue

There is no public information around funding for the exchange prior to launch, however there has been a token sale for the FTT token.

 

Team Summary

✅ POSITIVE	⛔ WEAKNESS	📝 IMPROVEMENT
Experienced and skilled team	Only one team member listed on website	Information around other members of the team
Strategic partnerships with Circle and TrueUSD	No information around security practices	Information around custody/management of user funds
New products added regularly
Uniqiue marketing approach for adoption
Registered company
LinkedIn profile for FTX

Features

API

There is a public API available free to use and documented in both English and Chinese. This is a nice touch and not seen across many exchanges.

Order Types

The trading platform allows basic and advanced order types which are documented here. Advanced order types include Stop and Take Profit Limit orders, along with Trailing Stop and Take Profit orders.

These order types give the user flexibility to enter and exit positions without having to manually enter stop or take profit orders.

Token Utility

There are several utilities for the FTT token within the exchange ecosystem, allowing users to benefit from holding the token but also trading on the FTX platform.

Token Burn

One third of all fees generated on FTX will be used for an FTT repurchase, until at least half of all FTT is burned.  Any FTT bought this way will be burned.

Collateral 

FTT can be used as collateral for futures positions. This increases utility and demand for FTT. The same applies when we launch margin trading in the future. 

Discount on Trading Fees

Customers who hold a certain amount of FTT for a period of time will receive lower FTX futures fees.

OTC rebates

Customers who hold enough FTT will receive rebates from all of their OTC trading on FTX.

OTC burn

There will be a repurchase and burning of FTT based on OTC volumes and revenue from the FTX OTC portal, powered by Alameda Research.

 

Trading Pairs

One of the most impressive element of the FTX exchange is the number of trading pairs listed currently and also possibilities in the future. There are 28 base pairs listed for trading, all of which contain an impressive number of sub markets.

Alongside a PERP contract for each base pair, there are futures markets and the BULL, BEAR, MOON and DOOM markets also, giving users a wide range of pairs and markets to trade on.

One of the things that makes this simple on the exchange, is the users ability to convert any of the listed pairs into collateral to trade on other markets, providing a seamless and pleasant trading experience with little or no barrier for users to trade on new markets.

Trading Fees

FTX are offering one of the lowest fee structures across their industry, with their regular Tier 1 trading fees as low as 0.02% for maker fees and 0.07% for taker fees. These are much lower than the industry average of 0.2%, whilst also lower than the taker fees of 0.07% at Bitmex and lower than the 0.1% standard fee charged over at Binance.

Trading fees can also be further reduced based on the volume traded by a user, with the highest Tier offering an appealing 0.01% maker rate and 0.04% taker rate.

FTX, like Binance and many other exchanges, offer a token alongside their exchange to allow for reduced trading fees in return for holding the exchange token. There is a sliding scale for the amount of FTT held by a user and the discount received, with the rates varying from a 3% discount, all the way up to a 60% discount on fees.

Features Summary

✅ POSITIVE	⛔ WEAKNESS	📝 IMPROVEMENT
Free and fully documented API	Token utility all in exchange ecosystem	Incoporate token utility outside of exchange ecosystem
Advanced order types
Several utilities for the FTT token
New and unique indexes/pairs
Low trading fees

Security

Overview

2FA is mandatory for users to deposit into FTX to commence trading and users have the option of several ways to add a 2FA to their account including Google Authenticator, and Authy.

KYC is also mandatory for users as there is a maximum withdrawal limit of $1000, after which the account requires KYC approval. Users are recommended to KYC upon registration and prior to trading to prevent any delay when requesting withdrawal.

There is currrently no IP address whitelisting available for users, which is recommended as an extra layer of security.

There is no information on the website around cold storage of users funds, however this is common for exchanges. We always recommend that exchanges advise their users how cold storage is implemented on user funds for transparency.

We can not find any record of a public security audit of the FTX exchange which is not uncommon for exchanges. We could not find any information published by the team to indicate whether there has been a security audit or if they employ a regular security audit. We always recommend that exchanges follow this practice and inform their users that the exchange has been audited by a third party.

FTX is operated by Alameda Research which is a quantitative trading firm managing over $100 Million in assets and trading over $1 Billion per day across thousands of coins. They are experienced in managing user funds.

Security Summary

✅ POSITIVE	⛔ WEAKNESS	📝 IMPROVEMENT
2FA is mandatory	No IP whitelisting	Transparency on how KYC data is held/processed/destroyed
Several 2FA options	No security audit info	Advise users if any security audits are occurring on a regular basis
Team are experienced in managing large funds
KYC partner in Chainalysis

Legal

Overview

As with many derivative cryptocurrency exchanges, FTX is registered outside of the United States which is seen as a positive, as US regulation is often restrictive in this industry, hindering growth and innovation.

In relation to user restrictions on the platform, the following countries are barred from using the exchange; United States of America, Cuba, Crimea and Sevastopol, Iran, Syria, North Korea, or Sudan.

FTX recently dismissed claims of a legal suit against itself and parent company, stating that they have not been served with any legal notice so we do not currently see this as a concern for FTX.

 

Legal Summary

✅ POSITIVE	⛔ WEAKNESS	📝 IMPROVEMENT
Based outside of USA	Restrictions for US residents	None indentified

Community

Overview

There has been a organic growth to the FTX community assisted both by its innovative products and also its trading competition, the Battle Royale.

The main channels of communication are the Telegram and WeChat channels, allowing for 2 way engagement with the community. There is also a blog providing updates around the project and a Youtube channel with videos on how to use the platform and live trading sessions with the FTX CEO and team.

Users are able to submit support requests via their website here, however we recommend that a support tab is added to the front page to make it easier for users to submit requests. The team have advised that support is multi lingual however there is no information offered on which languages are supported.

 

Community Summary

✅ POSITIVE	⛔ WEAKNESS	📝 IMPROVEMENT
Multilingual website	Limited multilingual support	Increase brand awareness
Organic growth due to products	Support tickets processed on case by case	Employ standardized customer support practices
Multilingual support	Telegram server limited to one channel	Migrate communication to Discord server
High engagement from team with community

Trading Experience

Overview

1) Very simple email / password signup will give you access to the platform for up to $1000 withdrawal before having to pass KYC.

2) Deposit Funds

FTX supports TUSD, USDC, PAX, Bitcoin, Ether, Bitcoin Cash, Litecoin, and all of the ERC20 leveraged tokens that represent the index’s on the exchange.

For the coin you want to, click ‘Deposit’

Users are able to convert any coin between any currency listed for deposit which is a really cool feature as it saves the user selling various coins to get funds to trade others

3) Trading

Choose to either trade Markets or Tokens, first viewing the list of options then clicking through to see the individual markets. Placing orders is a relatively seamless process and users are able to see and download a full list of their trading history in their account.

 

Trading Experience Summary

✅ POSITIVE	⛔ WEAKNESS	📝 IMPROVEMENT
Simple sign up and immediate registration	None identified	Allow users to customise UI
Users are required to enter a strong password on signup
2FA is mandatory before depositing
Conversion feature user friendly

Summary

Conclusion

It must be noted that the exchange itself is relatively new to the market and will take time to develop a trusted track record of managing users funds whilst also delivering uptime during periods of peak trading. That being said, there are also areas for improvement for the project, most notably the addition of Whitelisting addresses for additional user security and also advising users of any regular security audits for the exchange.

Overall the exchange has had an excellent start from its launch in July and we are highly impressed with what they bring to the table.

 

Breakdown

 

Disclaimer

• This is a community voted review
• This review is intended for educational purposes only and SHOULD NOT be considered as financial advice. 
• Before investing in any project we recommend you do your own research + consult a registered financial adviser.
• All information listed is accurate at the time of publishing in November 2019.

 

Methodology

• We use a combined rating score out of 100, covering all the listed metrics for project reviews.
• Each metric is rated out of 3 including a potential bonus point in every metric. 
• We also reserve the right to award a bonus point for outstanding achievement for a project