Oxalus Insights

FTX’s Crash: What Happened To The NFT Ecosystem

News Nov 23 2022
How The FTX’s Crash Affected NFT Market

2022 has been a rough year for the crypto world with Bitcoin price more than quadrupling from its all-time high of $69.044, Three Arrows Capital value plummeting from $10 billion to zero, and the collapse of Terra Luna stablecoin, UST.

The recent fall of FTX once again dealt a fatal blow to our assets and trust in the crypto titans. Although the full impact of this event has yet to be seen, the FTX crash has taken a heavy toll on the NFT ecosystem because FTX was a staunch promoter of a series of NFT and metaverse projects.

Join Oxalus to find out what happened to the NFT ecosystem following the collapse of the world’s second-largest crypto exchange and what we as NFT investors should do!

The Worst Crypto Scenario in Two Years

After FTX’s liquidity crunch, the cryptocurrency markets went into a risk-off mode, sending the values of all crypto tokens, both fungible and non-fungible, plummeting

On November 8, as concerns about FTX’s insolvency became contagious, the global cryptocurrency market descended into its worst scenario in the past two years. According to Coingecko, the total crypto market cap dropped 20% in less than 10 days, from $1.069 billion on November 8 to $866 million on November 18. After Binance walked away from FTX, Bitcoin price hit a two-year low while the value of the Solana token tumbled by 45%. Most investors are still in shock at this drop.

NFT Price Slump

Most NFTs are exchanged in cryptocurrencies, therefore a decrease in Bitcoin and alt coins’ value due to the FTX crash led to a sharp decline in the NFT segment. According to Nansen, the weekly NFT volume and transactions on 8 top NFT marketplaces fell by a third in just one week from November 7 to November 14. The NFT-500 index shows that the value of the top 500 NFT projects by market cap has decreased by 35% compared to the same period last year. Even the blue-chip NFTs have suffered as their value has fallen steadily since their heyday in early 2022, down 26% year-to-date. Recently, Justin Bieber made a funny headline when his Bored Ape NFT, which was bought for $1.3 million in January 2022 is now worth only $69k (which is nearly 19 times divided in value).

>>>Join us on Oxalus Wallet App to receive more NFTs news, helpful hints, and hidden gems.

The Solana-FTX Link Now Causes Solana in Trouble

The Solana NFT ecosystem appears to be the worst hit by the FTX crisis due to the deep ties between FTX and Solana.

There are conjectures that the huge drop in SOL’s price is due to Alameda dumping a large amount of SOL tokens to raise new liquidity to stabilize the value of FTT, FTX’s native token. FTX, through Almeda, is positioned to be a significant investor in the Solana project’s private Initial Coin Offering (ICO) in 2021. Because of their participation in the funding round, Alameda Research now holds a stake in SOL. Prior to the recent liquidity crisis, Alameda had a sizable quantity of SOL and other tokens inside the SOL ecosystem, such as MAPS and OXY.

In addition, the Solana NFT ecosystem was significantly impacted by FTX and Alameda Research’s backing of a variety of NFT and metaverse initiatives on Solana. SolanaFloor stated that the overall value of its floors dropped from $449 million to $185 million in just the first half of November, a decline of almost 60%. While FTX has previously funded Solana’s NFT marketplace Magic Eden, the business has been silent on the platform’s present status.

According to DuneAnalytics, Solana-based marketplaces Magic Eden, OpenSea and Solanart have seen a significant increase in NFT trading volume, more than tripling to over 250,000 Solana traded daily from around 80,000 just a week before. As the NFT price falls, this increased volume shows that holders are rushing to get out and offload their NFTs due to the FTX crash.

In an apparent effort to calm the public’s fears, FTX-backed enterprises including Doodles, Geno Pets, Step’N, Faraway, etc., have publicly denied being impacted by the situation. Time, however, will show which projects will ultimately fail as a result of FTX’s domino effect.

The FTX crash had a significant impact on developers, thus on November 15, 2022, Binance and other major crypto businesses established a recovery fund to assist them. The NFT ecology on Solana in particular, and the crypto economy as a whole, will hopefully be somewhat restored thanks to this fund.

Million Dollars of NFT Assets Frozen

In the wake of FTX’s collapse, users are unable to withdraw assets from the platform’s NFT marketplace, and certain NFTs issued by FTX have become worthless for the time being. Those who have moved their NFTs to cold storage wallets may still be unable to view the NFT artworks owing to technical difficulties on the FTX server end. Furthermore, many of the FTX NFTs marketplace’s launched projects’ links have now been inaccessible. There has been no assurance that consumers would be compensated for lost property throughout the bankruptcy process, which may take a very long period.

Among the affected endeavors are Coachella and Tomorrowland music events, NBA player Steph Curry‘s 2974 NFT collection, and the Mercedes-AMG Petronas racing team’s Formula One-themed NFTs.

The Potential Rise of Binance, BNB Chain, and BNB Chain NFT Ecosystem

The departure of the world’s second largest crypto exchange competitor helps Binance further assert its leadership position and superiority with users and investors. The unsuccessful parties FTX and Alameda research held a sizable portion of FTT’s net equity and participated in extensive trading and loaning. As for Binance, this is not the case.

To demonstrate that it has sufficient reserves to maintain its $12 billion daily trading volume, Binance disclosed the addresses of its cold wallets. While BNB accounts for less than 10% of the reserves, over 50% are denominated in USD stablecoins, with Bitcoin being the next biggest holding. “We don’t have loans, we don’t have debt. I believe, in the industry, we don’t owe anybody any money” (Source: Changpeng Zhao, Twitter)

As a result of Binance’s dominant position in the cryptocurrency market, Binance Coin (BNB) prices are predicted to soar during the next bull run, propelling the expansion of the BNB Chain ecosystem and the BNB Chain NFT ecosystem. For the time being, the BNB Chain’s NFT ecosystem is still underappreciated in comparison to that of Ethereum and Solana. However, during the FTX liquidity constraint, the total NFT trading volume on BNB Chain only dropped by less than 8%, demonstrating a far lesser crisis impact than Ethereum or Solana.

With the price of BNB remaining relatively stable, the BNB Chain’s NFT ecosystem could swiftly rebound and become a safe harbor and even jackpot for savvy NFT investors during the next bull run.

The Bottom Line

The crash of FTX once again reminds us that anything is possible in this crazy and volatile crypto market. Extreme and continuous harm has been done to the NFT ecosystem, which is also struggling during this year’s crypto winter.

As NFT investors, our best course of action is to keep calm and use this challenging period to learn for the future. The most important thing we learn is to watch over our possessions carefully. You should never keep the majority of your cryptocurrency holdings on a custodial exchange. Explore your options for storing your assets, including non-custodial hot wallets and cold wallets to take better protection over your wealth. The next thing to keep a watch on is the growth of the NFT ecosystem on chains other than the current overlords like Ethereum and Solana, since they may present chances from the FTX afterlife.

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