Genesis Block
Home » Crypto Classroom Lesson #15: FTX

Crypto Classroom Lesson #15: FTX

FTX is a cryptocurrency derivatives exchange that offers futures, leveraged tokens and OTC trading.  Due to the poorly designed risk management systems, current futures exchanges have frequent large clawbacks, leading to losses in the millions. FTX reduces the likelihood of clawbacks by using a three-tiered liquidation model. The goal of FTX is becoming the leading exchange ahead of BitMEX and OKEx in the coming years. FTX was launched in April and boasts some of the most liquid order books in the space. As of late, FTX futures have had volumes worth of $100m per day.

 

Product Type Exchange
Token Type ERC20
Token Supply 350,000,000
Tokens for sale 70,000,000 (20%)
Ticker FTT
Listing Date 29th July 2019
Country Antigua and Barbuda

 

Key Features

– Stablecoin settlement (TUSD/USDC)

– New index futures (ALT, MID, SH*T along with USDT, BNB, etc.)

– Automated OTC trades

– Backstop liquidity provider to stop clawbacks

– One universal margin wallet

– Low fees, tight spreads, deep orderbooks, and a complete API


Notable Team Members

– Sam Bankman-Fried – CEO of Alameda Research. Former trader on Jane Street’s ETF desk. Designed Jane Street’s automated OTC trading system. MIT graduate.

– Gary Wang – CTO of Alameda Research. Former software engineer at Google. Developed price aggregation and serving systems for Google Flights. MIT graduate.

 

Token Utility

– Token Burn

1) 33% of all fees generated on FTX futures, until half of all FTT is burnt

2) 10% of net additions to the insurance fund (‘Socialized Gains’)

– Discount on Trading Fees

10% if holding >$10k USD value of FTT

Max discount 30%

– OTC Rebates

 

Why FTX?

Like any new exchange, the challenge is acquiring users and taking market share from existing players. Below are what the team sees as the key advantages: 

– Low fees: Maker and taker is 2bps and 7bps respectively

– Simple and innovative products: Futures contracts in FTX are non-inverted, allowing easier calculation of PnL. They also offer leveraged tokens (ERC20) which can potentially be listed on other exchanges without the need for a separate margin pool.

 


A quick comparison of inverted vs. non inverted futures:

– FTX futures are standard, rather than inverted.  This means that they are true BTC/USD futures instead of USD/BTC futures.
Realised PnL =  (# of BTC contracts) x (Change in price)

– On the contrary, each BitMEX contract is worth 1 USD of Bitcoin, and is quoted in USD. Margin and PNL are denominated in BTC. It is an inverse contract structure. This means that the value in BTC declines faster as the price falls, and increases slower as the price rises.
Realised PnL = # Contracts x Multiplier x (1/Entry Price – 1/Exit Price)

 

Current futures exchanges, for example OKEx, have faced large clawbacks leading to losses in the millions due to poorly designed risk management systems and low maintenance requirements. FTX reduces the likelihood of clawbacks by using a three-tiered liquidation model: 

– Closes positions down with rate-limited liquidation orders (automated actions put in place based on margin level)

– Unique backstop liquidity provider program which jumps in to provide liquidity (hedging the position elsewhere)

– Leverages the insurance fund to prevent customer losses

 

Further Reading

– Whitepaper https://docs.google.com/document/d/1u5MOkENoWP8PGcjuoKqRkNP5Gl1LLRB9JvAHwffQ7ec/edit

– Terms
https://help.ftx.com/hc/en-us/articles/360029638552-FTT-Transparency-Page

– Fees
https://help.ftx.com/hc/en-us/articles/360024479432-Fees

– Liquidation process
https://medium.com/@ftx/ftx-liquidation-process-flow-chart-685907c1750b

 

Written by Jeffrey Yung
[email protected] Block
For any queries please contact [email protected]