Troubled FTT investors turn to NFTs as means to recover funds. Decoding…



Featured Crypto Voice on Twitter, @0xfoobar, revealed that several FTX users have been buying non-fungible tokens (NFTs). These users have been buying NFTs from Bahamian holders to bail themselves out of the FTX crisis.

FTX’s compliance with Bahamian regulators allowed desperate FTX users to get their funds locked up by buying nearly worthless NFTs.

FTX filed for bankruptcy on November 11. FTT investors would probably have to wait months, or even years, to get their deposits back, assuming they can. Since FTX has blocked the transactions, clients realized that buying these NFTs from Bahamian holders would be a better option after paying a fee.

How NFT transactions are made 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 of, say, $10 million. If an FTX client buys the NFT for $10 million, the funds will be transferred to the seller’s Bahamian account and can then be recovered from the exchange.

A Bahamian would list an NFT (that they already owned or could have bought at the time) and the person they had a deal with would buy it for them.

Twitter user @0xfoobar also noted that the FTX Crypto Cup 2022 Key NFT Collection was purchased for $2.5 million and $999,999. In addition, the “Great Ape” also recently sold several paintings for hundreds of thousands of dollars, including “Ape Art #312” for $10 million.

Since FTX charges a 2% fee every time an NFT transaction is made, it is most likely that the company has profited hundreds of thousands of dollars from these sales.

A possible federal crime?

A Twitter handle, @Loopifyyy, also noted that the loophole was resolved in the early hours of November 11, but not before the FTX market posted trading volume of $50 million.

Matthew Gold, 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 bankrupt estate under false pretenses. However, whether traders who took advantage of the loophole are penalized may also depend on whether they are based in the United States.