Troubled FTT investors turn to NFTs as means to recover funds. Decoding…
Prominent crypto voice on Twitter, @0xfoobar, revealed that several FTX users have been buying non-fungible tokens (NFTs). These users have been purchasing NFTs from Bahamian holders to rescue themselves from the FTX crisis.
FTX’s compliance with Bahamian regulators enabled desperate FTX users to get their locked funds by buying nearly worthless NFTs.
People now withdrawing FTX balances by buying NFTs from Bahamian accounts for six- and seven-figure amounts, buyer then gets side payment and Bahamian withdraws funds
Tens of millions of Tether taken so far pic.twitter.com/UVnz5FUBNT
— foobar (@0xfoobar) November 11, 2022
FTX filed for bankruptcy on 11 November. FTT investors would probably have to wait months, or even years, to regain their deposits, assuming they can at all. Since FTX has blocked transactions, customers realized that buying these NFTs off Bahamian holders would be a better option after paying a fee.
Press Release pic.twitter.com/rgxq3QSBqm
— FTX (@FTX_Official) November 11, 2022
How NFT Transactions are taking place on FTX
A Bahamian user can exploit the loophole by purchasing an NFT for $1 and then listing it for the amount of their locked funds plus a fee, say, for $10 million. If an FTX customer purchases the NFT for $10 million, the funds would get transferred to the Bahamian seller’s account and can then be recovered from the exchange.
A Bahamian would list an NFT (which he or she already owned or could have purchased at the time) and the person with whom they had a deal would buy it from them.
The Twitter user, @0xfoobar also pointed out that the FTX Crypto Cup 2022 Key NFT collection was purchased for $2.5 million and $999,999. Additionally, the “Great Ape,” also recently sold several paintings for hundreds of thousands of dollars, including “Ape Art #312” for $10 million.
Since FTX charged a 2% fee every time an NFT transaction takes place, the company has most likely profited in the hundreds of thousands of dollars from these sales.
A possible Federal crime?
A Twitter handle, @Loopifyyy also pointed out that the loophole was resolved in the early hours of 11 November, but not before the FTX marketplace reportedly saw $50 million in trading volume.
– Bahamian accounts can withdraw their FTX balance
– People are making deals with them to withdraw their funds
– Internal balance transfers are blocked, so NFTs are being traded for millions instead (some 8 figs+)
– NFTs are being used as a bridge to transfer funds as we speak pic.twitter.com/Fw47BIH5Xo— Loopify 🧙♂️ (@Loopifyyy) November 11, 2022
Matthew Gold, a partner and bankruptcy attorney at Kleinberg Kaplan, told Fortune that customers who exploited that loophole may have violated Federal law. This was because they took assets from a bankruptcy estate under false pretenses. However, whether the traders who took advantage of the loophole are penalized may also depend on whether they are based in the United States.
