Vidal-Tomás, D;
Briola, A;
Aste, T;
(2023)
FTX's downfall and Binance's consolidation: The fragility of centralised digital finance.
Physica A: Statistical Mechanics and its Applications
, 625
, Article 129044. 10.1016/j.physa.2023.129044.
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Abstract
This paper investigates the causes and the consequences of the FTX digital currency exchange's failure in November 2022. Analysing on-chain data, we report that FTX heavily relied on leveraging and misusing its native token, FTT, and we show how this behaviour exacerbated the company's fragile financial situation. To gain further insights into the downfall, we employ state-of-the-art network science instruments to model the evolutionary dependency structures of 199 cryptocurrencies on an hourly basis, and we investigate tick-by-tick public trades at the time of the events. We identify the collapse of the Terra-Luna ecosystem as the pivotal event that triggered a significant decrease in the exchange's liquidity. Results suggest that the crash was actively accelerated by Binance tweets causing a systemic reaction in the cryptocurrency market. Finally, identifying the actors who mostly benefited from the FTX's collapse and highlighting a generalised trend toward centralisation in the crypto space, we emphasise the importance of genuinely decentralised finance for a transparent, future digital economy.
| Type: | Article |
|---|---|
| Title: | FTX's downfall and Binance's consolidation: The fragility of centralised digital finance |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/j.physa.2023.129044 |
| Publisher version: | https://doi.org/10.1016/j.physa.2023.129044 |
| Language: | English |
| Additional information: | © 2023 The Authors. Published by Elsevier B.V. under a Creative Commons license (http://creativecommons.org/licenses/by/4.0/). |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10174501 |
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