What is FTX?
FTX is a Bahamian-based cryptocurrency exchange platform. The company primarily allows users to trade cryptocurrencies. Initially, the company started its operations in 2019 and is a fairly new name in the market. FTX is incorporated in Antigua and Barbuda and is currently headquartered in The Bahamas. However, it also operates in the US through its FTX.US branch, a separate exchange available to US residents.
Although founded in 2019, the company began operations in 2018 through its founders Sam Bankman-Fried and Gary Wang. The former of these graduated with a degree in Physics in 2014. Both his parents were law professors at Stanford University. However, he chose to venture out of his primary field and invest in other projects and organizations.
Due to his belief in effective altruism, Sam came across the world of cryptocurrencies. He found an arbitrage opportunity when the prices of Bitcoin surged in 2017. With this belief, Sam purchased Bitcoin in one market and sold it on another for a 30% profit. Through this process, he earned enough to branch out to his own venture.
Sam launched Alameda Research, a quantitative cryptocurrency trading firm and liquidity provider. He also raised $1 million in seed capital for the firm. Later, Sam hired local help to enable him to move a significant number of Bitcoin every day. Through this process, he earned substantial profits from the market. This process was at a local level and involved a high work rate.
However, he grew frustrated due to the quality of mainstream exchanges. Therefore, he came with the idea of a different exchange. Due to this, he launched FTX funded by the profits generated from Alameda. For this exchange, Sam obtained the help of Gary Wang, whom he recruited from Google. Both individuals started working on the platform in 2018.
In 2019, they came with the first public version of the platform. Later, the founders managed to raise finance from various sources. The primary aim of this platform was to allow users to transact in derivatives and cryptocurrencies with lower fees. Throughout its few years of finance, the company raised finance from several sources which have funded its operations.
How does FTX work?
FTX is a new name in the fintech industry that provides centralized cryptocurrency exchange. However, this exchange focuses more on derivatives and other financial instruments. With it, users can exchange options, leveraged tokens, NFTs, futures, fiat, and cryptocurrencies. The company also targets both retail and institutional traders.
Apart from the trading platform, FTX also offers a debit card, which allows users to spend their crypto assets. This card links with the user’s account and uses resources from it to make transactions offline. However, this feature is optional, and users can choose not to get a debit card. On top of that, these features are not available to all users. Some regulatory issues may prevent the company from offering them in some areas.
However, FTX doesn’t only offer an exchange platform. It also has its platform-native utility token known as the FTX Token or FTT. Through this token, users can transact on the exchange at reduced rates. Similarly, they can earn interest from these tokens. The company provides all these features through its website or its mobile application.
Currently, FTX Exchange is a leading centralized cryptocurrency exchange that also focuses on derivatives and leveraged products. The company offers a wide range of products that are easily accessible through its desktop and mobile apps. The platform allows investors of all levels to trade online. On top of that, it offers a comprehensive range of order types.
FTX offers several essential products. These include futures, leveraged tokens, options, MOVE, and spot markets. However, it also focuses on its FTX Token, which is available on its exchange. Through this token, users can reduce the trading fees on the platform or serve as collateral against futures positions. Similarly, it enables users to earn interest and win NFTs.
What is the FTX business model?
Being a fintech company, FTX uses a similar business model as some other names in the industry. The company primarily focuses on the provision of financial services through the use of technology. Through this model, it makes money from several sources. In most circumstances, it charges its users a commission or fees based on their transactions.
As mentioned, FTX has several products. The most important of these include derivatives, which are a primary focus for the company. FTX allows users to take both long and short positions on various leading cryptocurrencies. For this, they can use over 100 quarterly and perpetual futures pairs, with margins of up to 101 times.
Similarly, FTX offers leveraged tokens, including ERC20-based tokens. Through these, users can achieve up to 3 times leveraged exposure against the underlying trading pairs. These tokens also don’t have a margin requirement, making them more accessible to users. In addition to these, FTX also offers spot markets, with over 100 different spot trading pairs. These also provide exposure to leading cryptocurrencies.
FTX provides users with the ability to speculate on future price direction and hedge against open positions. This service falls under its options product. On top of that, it also has the MOVE product. It allows traders to bet on the price movement of cryptocurrencies. Overall, the FTX platform allows several additional features that focus on cryptocurrencies.
How does FTX make money?
Being a fintech company, FTX makes money from several sources. The platform hosts many users that perform transactions regularly. For each transaction, the company may earn an income. On top of that, it handles users’ finance, which can be a source of income for FTX. Some of how FTX makes money include the following.
Trading fees
Trading fees are one of the most prominent income sources for FTX. The company applies these fees to every transaction that users make on the platform. As mentioned, users can reduce these fees by using the company’s FTX token. However, it does not imply the company makes a loss when users do so. Instead, it can make more money due to the circulation of its native currency.
Loans
FTX also offers a line of credit facility. However, this facility is only available to some users. Only users that meet specific criteria can apply for this loan. Nonetheless, the company has not made those criteria public for users. Once FTX offers those loans, it charges an interest on them, which differs based on the deal with the user. This interest forms an income source for the company.
Interchange fees
As mentioned, FTX offers users a debit card that links to their account. This debit card comes from Visa and allows users to spend their balance offline. For every transaction that occurs through this card, the platform charges an interchange fee. Similarly, it involves payment fees linked with the payment card. Some of these fees may also go to the card provider, i.e., Visa.
NFT fees
FTX also offers users the ability to buy and exchange non-fungible tokens only. Recently, these tokens have gained significant attention due to their marketability. FTX has utilized this opportunity to make money. The company generated income by charging a fee to both the buyer and the seller, usually at 5%. This way, it generates revenues through NFT transactions.
Investments
FTX has been active in the investments market. The company has significant investments in other crypto and blockchain startups. Through these investments, the company makes a substantial passive income. On top of this income, FTX holds the potential to profit from these investments through capital gains. However, the company does not disclose the earnings it gets from those investments.
Conclusion
FTX is a fintech company that offers an online exchange that focuses on cryptocurrencies and derivatives. The company started its operations in 2019 and has gained significant attention in its few years of operations. Overall, FTX makes money from several sources through its exchange platform. These sources include trading fees, loans, interchange fees, NFT fees, and investments.
