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

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Prominent crypto voice on Twitter, @0xfoobar, revealed that several FTX users have been buying non-fungible tokens (NFTs). These users have been purchasing NFTs from Bahamian holders to rescue themselves from the FTX crisis.

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

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

How NFT Transactions are taking place 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, say, for $10 million. If an FTX customer purchases the NFT for $10 million, the funds would get transferred to the Bahamian seller’s account and can then be recovered from the exchange.

A Bahamian would list an NFT (which he or she already owned or could have purchased at the time) and the person with whom they had a deal would buy it from them.

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

Since FTX charged a 2% fee every time an NFT transaction takes place, the company has most likely profited in the hundreds of thousands of dollars from these sales.

A possible Federal crime?

A Twitter handle, @Loopifyyy also pointed out that the loophole was resolved in the early hours of 11 November, but not before the FTX marketplace reportedly saw $50 million in trading volume.

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

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Saman Waris works as a News Editor at AMBCrypto. She has always been fascinated by how the tides of finance and technology shape communities across demographics. Cryptocurrencies are of particular interest to Saman, with much of her writing centered around understanding how ideas like Momentum and Greater Fool theories apply to altcoins, specifically, memecoins. A graduate in history, Saman worked the sports beat before diving into crypto. Prior to joining AMBCrypto 2 years ago, Saman was a News Editor at Sportskeeda. This was preceded by her stint as Editor-in-Chief at EssentiallySports.
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