Millions of Dollars in NFTs Stuck on FTX

It is not just about lost funds in crypto, there are also millions of dollars in NFTs Stuck on the FTX exchange! There are many users reporting that they can not withdraw their NFTs from the platform after it filled out their bankruptcy documents. Even some users who transferred their NFTs to external wallets now can not see the NFT artwork because of server issues from the FTX side.

Discord servers tied to NFT projects on FTX are exploding with complaints from users who cannot withdraw their assets. This issue is mostly affecting Solana collections. Basically, every collection that launched through the FTX NFTs marketplace either has stuck assets there or is having some sort of issue.

This is due to how FTX stores its NFTs. Every time a user bought an NFT from its marketplace before the exchange filed for bankruptcy, FTX would hold down the NFT for the buyer. This is because FTX NFTs is a custodial platform, unlike other NFT marketplaces like Open Sea for example. Even those who tried to sell supported NFTs through its marketplace would have to give FTX custody first always. Another example that uses a similar model is Magic Eden, the largest marketplace on Solana.

Major titles affected by the downfall of the giant FTX include music and sports brands, concert festivals like Coachella and Tomorrowland, and Formula One NFTs from the Mercedes-AMG Petronas racing team. Now it is mostly up to the teams behind these projects to compensate their users for what is happening.

What now?

The Coachella Valley Music & Arts Festival launched their NFTs with real-life utility, as lifetime passes to the concert festival, through FTX US. After the incident, a Coachella server administrator commented: “We do not currently have any lines of communication with the FTX team” and “We have assembled an internal team to come up with solutions based on the tools we have access to. Our priority is getting Coachella NFTs off of FTX, which appears to be disabled at the moment.”.

The concert festival Tomorrowland is also involved in the NFT scene. They worked alongside Metaplex, the creator of Solana’s NFT protocol. Metaplexe’s CEO Stephen Hess mentioned: “Unfortunately, since FTX has always run a centralized NFT marketplace, the Metaplex NFTs that weren’t withdrawn ahead of the platform’s collapse will likely be caught up for years in the ongoing bankruptcy process” and “We hope this serves as a wake-up call to NFT collectors and creators that escrow-based marketplaces present significant risks”. He also added: “With Auction House, even if a marketplace were to collapse, a user would still retain custody of their NFTs and would be able to withdraw their listings on-chain”.

So, for now, how this situation will turn out for all the affected users is still unclear. What is completely clear, is the fact that centralization will always have its downsides. Many people are experiencing those right now. It is preferential to either use decentralized well-known marketplaces or to transfer owned assets to a crypto wallet.

Last Thoughts

The full scope of FTX’s damage to the whole crypto industry is still not clear. It is not just about users who had crypto or NFTs stored on FTX. It is also about all the projects that have their funds there and can not access them now and how this will affect people whose salaries depend on the success of these projects.

An example of this is the web 3 game Star Atlas. The team had most of the funds to develop the project in FTX. Imagine if a project like that fails. How many people are going to be unemployed? How many people will see their Star Atlas assets value go to zero? And this is just one example. An event like this will always cause a chain-reaction through the ecosystem.

But, in the end, I think that it will be positive for the web3 ecosystem in the long term. Right now other centralized exchanges like Binance came up with the concept of “proof of reserves”. Other exchanges and projects adhered to and are now being 100% transparent with the funds they have. This is important for users because like this they can know exactly what these entities are doing with their capital.