eli5: Isn’t the whole FTX, FTT token analogy basically what companies do when they get listed on the nasdaq, etc? Selling shares for money?

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eli5: Isn’t the whole FTX, FTT token analogy basically what companies do when they get listed on the nasdaq, etc? Selling shares for money?

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Yes and no. The difference is what is being traded. FTT is a means of facilitating the exchange (buying/selling) within a certain market space, that generally of the exchange of crypto currencies.

In theory, it doesn’t have to be but that is where it is today.

It is up to the individual to decide if cryptocurrencies are a type of worthwhile asset to hold either as a store of value or as an investment asset in itself. If you think that crypto is “just as valuable” as company shares and “just as valid” an investment class, then it might make sense to transfer your assets into it.

It makes no sense to use the means of exchange and conflate that to the value of what is being exchanged and declare asset classes as “equivalent”. You could have a perfectly great market for the trading and exchange of bird poop. But that doesn’t necessarily make bird poop as valuable as a share of Google.

Shares of stock have an inherent value. They entitle the holder to a share (hence the name) of any profits made by the company that issued it. Firms have to be careful, for both regulatory and market reasons, before issuing new shares on top of whatever else is out there, because this dilutes the value of existing shares by dividing those profits among more people. It’s usually big news when a company first issues shares or does something that changes the number of shares in the market.

A crypto token, despite having no inherent value, could be used for this purpose if the issuer made the right promises and wrote the right contracts, but that’s not what FTX was doing. They were giving themselves more of their own token whenever they needed to balance the books. You would think this is a bad idea because it would devalue the token, and you’d be right. They were just secretive about this behavior, so all that devaluation hit all at once when investors realized what was happening.