FTX Customers Turn to NFTs to Recover Funds

Day by day, the FTX saga continues to unfold. It all started with a liquidity crisis within the now-defunct crypto exchange that eventually led to a bankruptcy filing, an alleged hack that saw hundreds of millions of dollars sold, and a possible buyout from Binance. In the midst of all of this, thousands of customers who used FTX still have their funds stuck in the exchange with little hope of getting them out for a long time…or do they?

Recent reports show that customers have found a creative way to get around the current freeze on withdrawals and this method involves NFTs. 

How Customers Are Getting Their Money Out

It should be noted that the currency freeze on withdrawals on FTX applies to direct wallet withdrawals. However, there is a small loophole which is that FTX is required to allow the withdrawal of funds from within the Bahamas as per regulations in the country. This means that those in the Bahamas can get their money out while those outside of it can’t.

To get around this, some desperate users have struck deals with Bahamian-based FTX users. In these deals, the Bahamian user buys and lists a very cheap NFT on the site and the non-Bahamian user buys it with all the funds that they have locked up. The Bahamian user then collects the funds and gives them to the non-Bahamian user for a fee. 

This is a simple enough process that many have begun using in an attempt to recover their funds. For example, a European user (E) who has $100,000 stuck on the exchange might strike this sort of deal with a Bahamian (B) user in which B lists a cheap NFT on FTX for  $100,000 which E pays their total balance for. After the balance is paid, B withdrawals the money (as they can since they are in the Bahamas) and sends it to E after taking a cut. 

The Trouble With Loopholes

But is all of this worth it? For some users it is. When major exchanges collapsed in the past, most users never recovered their funds and many have been waiting for years in vain. For those with this knowledge, paying a fee and working around some loopholes is a small price to pay. 

And pay they certainly have. As per some Twitter users, around $50 million in NFT trading volume was recorded on the platform, though this loophole might be skirting not only FTX’s policies but the law itself. 

According to ​​Matthew Gold, a partner and bankruptcy attorney at Kleinberg Kaplan in an interview with Fortune, “This could be a federal crime if one is taking assets from a bankruptcy estate under false pretenses.” 

This, of course, depends on where the person initiating this deal is located and it will take a while before the full legal ramifications of this are unravelled. Regardless, it does show that people with money in FTX want their funds released one way or the other.