Cryptocurrency exchange FTX files for bankruptcy due to a $8 billion shortfall; how will this affect crypto games?

According to a statement on the company's Twitter account, cryptocurrency exchange FTX, founded by Sam Bankman-Fried, has filed for Chapter 11 bankruptcy protection in the United States.

Nov 13, 2022
by Anvi Saini
Cryptocurrency exchange FTX files for bankruptcy due to a $8 billion shortfall; how will this affect crypto games?

CEO Bankman-Fried has also resigned, having been replaced by John J. Ray III; the departing CEO will remain for a short time to help with the changeover. 

Bankman-Fried informed a group of investors earlier this week that FTX required almost $8 billion to back up its customers' crypto holdings, revealing the exchange's deep troubles. 

He also said that if the firm didn't get a quick influx of capital, it could have to declare bankruptcy.

After Voyager Digital and Celsius Network, FTX is the third cryptocurrency firm to file for bankruptcy this year. Similarly, the filing casts doubt on the future of BlockFi, a cryptocurrency lender that FTX bailed out with $400 million this year.

Was Alameda the reason behind the downfall of FTX?

FTX.US and Alameda Research, a trading subsidiary of FTX and the subject of a government inquiry, are included in the bankruptcy case. Further, according to reports, the SEC is investigating whether or not Alameda employees exploited FTX client funds to make speculative market wagers.  

FTX CEO Sam Bankman-Fried said last week in investor meetings that Alameda owes FTX almost $10 billion. One of the persons alleged that FTX provided loans to Alameda using client funds put on the exchange for trading activities, a move that Mr Bankman-Fried characterised as a bad judgement call. 

According to the sources, FTX had a total of $16 billion in client assets, and the business had loaned over 50% of that money to its sister company, Alameda.

The events of the week have sent the value of cryptocurrency all around the world plunging. For example, Bitcoin and ether have seen their prices drop by over 10%, wiping out anywhere between $40 and $60 billion. In two days, from November 7th to 9th, the price of a single SOL coin dropped from $32 to $13.

Why Binance dropped the offer to acquire FTX?

After days of public bickering between the world's two biggest crypto exchanges, Binance said on Tuesday that it had signed a letter of intent to buy its most formidable competitor FTX, sending many digital assets tumbling. 

But Binance chose not to purchase FTX exchange after doing corporate due diligence and reading the most recent news stories about allegedly mismanaged client funds and investigations by US government agencies. According to Binance, the problems FTX exchange is having are beyond its control or capacity to assist.

FTX Exchange and Crypto Games

With big gaming firms like G2A, Twitch, and Microsoft Xbox joining the cryptocurrency field, crypto has gained appeal in the gaming business. In the gaming business, crypto games are a game-changer since they enable players to earn money while playing. As more gamers adopt cryptocurrency, gaming firms will have a huge market potential to reach crypto players all over the globe.

FTX's gaming business officially started in February 2022. The company's "crypto-as-a-service" section aimed to facilitate the incorporation of NFTs and cryptos into games to boost their widespread use. FTX has also expanded into the gaming industry by purchasing a game development studio. Good Luck Games joined FTX in March 2022.

FTX exchange has made significant investments in esports too. TSM secured the biggest esports naming rights contract ever inked by the exchange. Moreover, the squad rebranded as TSM FTX for ten years as part of the $210 million acquisition.  

In comparison, FTX paid $135 million for the naming rights to the Miami Heat's arena over 19 years. TSM has not yet changed FTX branding from its social media channels after the news.

The exchange also agreed to sponsor Riot Games' North American League of Legends Championship Series (LCS). FTX is the sponsor of the Most Improved Player award and sponsors all gold-related statistics on the broadcast. 

FTX exchange has also secured a few minor contracts. This includes a strategic alliance with Comcast-owned event organiser Nerd Street Gamers and a one-year, $3.2 million contract with the Brazilian club FURIA. 

FTX Ventures, the exchange's $2 billion investment arm, has invested in a number of NFT and Web3 gaming developers, including Yuga Labs, the team behind NFT project Doodles, and Mini Royale: Nations developer Faraway. The division was created by FTX's parent company.

In September, video game giant GameStop (GME) announced a partnership with Sam Bankman-cryptocurrency Fried's exchange, FTX.US. The aim of the partnership was to foster interaction between the crypto communities and gaming.

Impact of FTX Exchange Bankruptcy on Crypto Games

After the bankruptcy announcement, all the big gaming collaborations of the FTX exchange are put on hold. This is definitely a big pushback for the crypto-gaming industry. 

FTX was the second largest crypto exchange after Binance. It was one of the biggest supporters of Crypto games which is evident with its collaborations. Moreover, the downfall of FTX completely shakes the crypto gaming industry. Funds invested in the crypto-gaming industry through FTX are definitely at stake.  

Many big gaming firms like GameStop are opting out of their collaborations with FTX. The $210 million sponsorship with TSM of 10 years and a 7-year deal with LCS of FTX are also at risk. Upcoming weeks will be very crucial for FTX and the crypto gaming industry. 

This crisis has sent shockwaves through the NFT market, leading to panic selling of NFTs. As the FTX debacle continues and investors remain uncertain about the future of cryptocurrency exchange, the ”floor price” of Bored Ape Yacht Club NFTs has dropped significantly.

FTX Exchange was also Hacked

Hours after declaring bankruptcy, the cryptocurrency exchange FTX saw hundreds of millions of dollars disappear. Moreover, this made the fall of the exchange one of the most dramatic failures in financial history.

On Friday night, over $600 million in cryptocurrency was stolen from the FTX exchange. After which, FTX announced on its official Telegram channel that it had been hacked. FTX requested users to avoid downloading any updates from its website and uninstall all FTX apps.

It has already been a difficult week for FTX users, but with new developments in the story every day, it appears that the narrative will go the long way.

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