Desperate FTX customers may have exploited NFT-related loopholes to recoup funds before the bankruptcy filing

Desperate FTX customers may have exploited NFT-related loopholes to recoup funds before the bankruptcy filing

FTX’s bankruptcy means some customers will have to wait months, or even years, to get their deposits back, assuming they can at all. A few daredevils apparently wouldn’t take that chance.

According to crypto Twitter personality @0xfoobar, several FTX users found a way to get some of their money back by exploiting FTX’s compliance with Bahamian regulators to permit the withdrawal of Bahamian funds.

Internal balance transfers are locked on FTX. This led to some users apparently buying near-worthless NFTs from Bahamian holders on the exchange’s NFT marketplace for the full amount locked up which they could then recover from the Bahamian holder – after paying a fee, of course.

DappRadar’s head of research Pedro Herrera said this tactic could have allowed some clients to sneak their NFTs out of the exchange. “People are using them as a way to get around the restrictions that FTX has put in place,” Herrera said Fortune. FTX “didn’t focus on NFTs and people have taken advantage of that loophole.”

To take advantage of the loophole, a Bahamian user could buy an NFT for $1 and then list it for the amount of their locked funds, plus a fee, say $10 million. If an FTX customer buys $10 million worth of NFTs, the money will be transferred to the Bahamian seller’s account as a regular sale and can then be withdrawn from the exchange.

See also  IKONIC releases its own NFT Marketplace

“A Bahamian would list an NFT (which he/she already owned or he/she could have bought it then) and then the person they made a deal with who had locked up funds would buy it from them,” said Twitter user @Loopifyyy Fortune.

Featured by @0xfoobar was a $2.5 million purchase and $999,999 purchase of FTX Crypto Cup 2022 Key NFT collection. Several other transactions related to the Meltwater Champions Chess Tour in August were in the millions of dollars, while others were in the tens of thousands, in trades made Thursday and early Friday.

Fortune was unable to reach the buyers and sellers involved in these trades to independently confirm their motives.

Another NFT collection cited by @0xfoobar was The Great Ape, which saw several sales for hundreds of thousands of dollars early Friday morning, including Ape Art #312, which sold for $10 million. The creator of The Great Ape NFT collection did not immediately respond to a request for comment.

According to Cobie, a crypto influencer and podcast host, the loophole is was plugged early Friday morning, but not before the FTX market has reportedly registered $50 million in trading volume.

Interestingly, because FTX takes a 2% fee from each NFT transaction, the company likely made hundreds of thousands of dollars from these suspicious sales, according to @Loopifyyy.

FTX did not immediately respond to a request for comment.

And customers who took advantage of that loophole may have violated federal law, according to Matthew Gold, a partner and bankruptcy attorney at Kleinberg Kaplan.

See also  Dallas schools turn to NFTs to increase student engagement

“It can be a federal crime to take assets from a bankruptcy estate under false pretenses,” Gold said Fortuneadding that whether traders who exploited the loophole are penalized may also depend on whether they are based in the US

This story was originally featured on Fortune.com

More from Fortune:

The US housing market will see the second biggest correction since the Second World War – when can we expect the bottom of house prices

Sam Bankman-Fried’s failed crypto empire ‘was run by a bunch of kids in the Bahamas’ who all dated each other

The COVID cases are increasing again this autumn. Here are the symptoms you should look for

I had to be an overachiever to escape homelessness and land a six-figure tech job. Here’s what I think about quietly quitting.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *