According to crypto Twitter, FTX is allegedly using NFTs to bypass withdrawal blocks for elite users. This investigation kicked off after UpOnly host Cobie pointed out that one particular address withdrew $21m worth of Tether from FTX and transferred it to another address. So, what is happening with FTX, and have they paused withdrawals completely?
FTX & NFTs: What we know so far
According to Cobie, the address that is withdrawing Tether is a Bahamian account and is withdrawing other people’s funds for them. By doing this, they are allegedly bypassing the internal balance transfers block by selling NFTs on the FTX NFT marketplace.
“Eg. Bahamas account creates an NFT, the stuck user buys the NFT with their full balance,” tweeted Cobie. Cobie also pinpointed a particular NFT, with more than $5m of sales, that aligns with this theory. Following these allegations, FTX paused NFT trading after exceeding over $50m volume on the FTX NFT marketplace on November 10.
Is this money laundering?
Many people called out FTX for money laundering. According to US law, money laundering is the practice of engaging in financial transactions that aim to conceal the origin of money obtained from illegal activities.
The Bahamas is long known for being an offshore fund and wealth management hub. The European Union has recently removed The Bahamas from its blacklist of anti-money laundering jurisdictions. However, the country still has several links to money laundering operations.
While there is no concrete evidence that this case is linked to money laundering, individuals may use NFTs to bypass withdrawal blocks to commit money laundering. This is illegal in nearly all jurisdictions.
About the FTX crisis
FTX is the world’s second-largest cryptocurrency exchange. It recently made headlines since it is currently in crisis. To clarify, this all started when a Coindesk article claimed that FTX founder Sam Bankman-Fried’s crypto hedge fund held billions of dollars in FTT as loan collateral. Therefore, a drop in the value of FTT would damage both companies and put users’ money at risk.
To make matters worse, Binance’s chief executive, Changpeng Zhao, tweeted that the company would be selling $500m worth of FTT holdings due to these revelations. As a result, the value of FTT collapsed, resulting in a surge in withdrawals and user exodus.
This latest alleged initiative by FTX to use NFTs to bypass withdrawal blocks could be a way for the company to keep its elite users. The firm currently needs around $4 billion to stay afloat, with a funding gap of $8 billion.