Crypto traders’ irrational exuberance for newly issued FTX User Debt (FUD) tokens has led to volatile price swings, controversy, millions in trading volumes, and a decision to permanently destroy the majority of the token supply .
FUD traded as high as $113 earlier this week, trading hands for $65 on Tuesday morning on crypto exchange Huobi. Data shows that it started trading at just 50 cents on February 4.
There is no relationship between the Tron-based FUD token and the bankrupt FTX exchange. DebtDAO said it will create more tokens when FTX confirms the actual debt and distribute the additional tokens through airdrops to FUD holders – who will have the first claim on the debt.
Huobi Global advisor Justin Sun explained the token offering in a tweet last week. “The FUD token provides creditors with a new level of liquidity, allowing them to trade their FTX debt in the open market,” Sun said, adding that it “has been confirmed” by a contract provided by DebtDAO that the debt will number in the tens of millions. of dollars.
“After FTX restores the database or FTX officially confirms the actual debt of the creditor, DebtDAO will launch a secondary public offering based on the actual amount of debt and issue airdrops to all FUD holders,” explained Sun.
The bond token was issued last week by DebtDAO, which it said was on behalf of FTX’s creditors. The tokens had an initial supply and circulation of 20 million FUD tokens, representing 2% of FTX’s debt, giving each FUD token a value of $1, and representing approximately $100 million owed to FTX’s creditors.
“As the most profitable and highest priority FTX debt on the network, FUD creditors have first right to enforce their claims on FTX debt,” DebtDAO said in a tweet last week. “Creditors with FTX debt in excess of $10 million are also encouraged to contact DebtDAO for an audit and debt issuance, allowing the debt to flow into the secondary market.”
DebtDAO previously considered the fair value of FUD to be less than $1. But Monday’s price spike meant the debt was valued at more than $220 million at the $113 FUD price level. As a result, 18 million FUD tokens will be burned on February 7, to bring the debt valuation in line with what DebtDAO considers fair value.
“After the destruction, the total issue will become 2 million FUD and will change from the initial claim equivalent to 1 FUD = 1 USD to a claim equivalent to 1 FUD = 10 USD,” Huobi said in a statement Tuesday, citing a proposal DebtDAO.
Crypto exchange FTX fell out of favor last year after discrepancies in its balance sheet were brought to light by CoinDesk. Founder Sam Bankman-Fried, once the poster child for the crypto space, now faces multiple fraud charges in the US along with other FTX executives.