A prominent crypto voice on Twitter, @0xfoobar, disclosed that a number of FTX users have purchased non-fungible tokens (NFTs). These users have purchased NFTs from Bahamian holders in order to escape the FTX issue.
Due to FTX’s compliance with Bahamian regulators, desperate FTX users were able to recover their locked funds by purchasing nearly worthless NFTs.
FTX declared bankruptcy on November 11th. If possible at all, FTT investors would likely have to wait months or possibly years to recoup their deposits. Since FTX has restricted transactions, users realized that purchasing these NFTs from Bahamian holders for a charge would be a superior choice.
How NFT Transactions are Conducted on the FTX
A Bahamian user can take advantage of the loophole by acquiring an NFT for $1 and then advertising it for the amount of their locked funds plus a fee, for example, $10 million. If a customer of FTX purchases the NFT for $10 million, the funds would be sent to the Bahamian seller’s account and then reclaimed by the exchange.
A Bahamian would list an NFT (which he or she actually owned or could have bought at the time) and the party with whom they had an agreement would purchase it.
Twitter user @0xfoobar also mentioned that the FTX Crypto Cup 2022 Key NFT collection was acquired for $2,500,000 and $999,999. In fact, the “Great Ape” recently sold multiple paintings for hundreds of thousands of dollars, including “Ape Art #312” for ten million dollars.
Since FTX charges a 2% transaction fee for each NFT transaction, the company has certainly made hundreds of thousands of dollars from these sales.
A probable Federal crime?
A Twitter account, @Loopifyyy, also noted that the loophole was patched in the early hours of November 11, but not before the FTX marketplace reportedly witnessed $50 million in trade volume.
According to Matthew Gold, a bankruptcy attorney and partner at Kleinberg Kaplan, clients who exploited this loophole may have broken federal law. This was because they fraudulently obtained assets from a bankruptcy estate. However, whether or not the traders who exploited the loophole are penalized may rely on whether or not they are based in the United States.