The fall of FTX created a “huge vacuum” in the cryptocurrency market, says Can Sun, cofounder of Backpack, a new crypto exchange under development in the United Arab Emirates. Sun knows that better than most: He was previously the general counsel at FTX, whose high-profile collapse has led to industry-wide turmoil this year. Backpack is one of the parties racing to fill the hole FTX left behind. It’s a “winner-takes-all” opportunity, Sun says.
Sun has partnered with Armani Ferrante, previously a software engineer at Alameda Research, the sibling company through which FTX founder Sam Bankman-Fried ran billions of dollars that weren’t his before spending them. Their front-row perspective of the FTX debacle, the duo say, could help give Backpack a competitive advantage.
The rise and rapid fall of FTX “taught us a number of lessons,” says Sun. The biggest? The precarious art of balancing the need to reel in customers with a deep range of trading options, including riskier trades involving borrowed money, with the regulatory compliance necessary to ensure their funds remain protected.
The ambition is for Backpack to serve customers outside the United States, as the US Securities and Exchange Commission and Department of Justice have filed a raft of charges against crypto businesses. Crypto firms elsewhere face a less hostile reception. It will provide a similar selection of trades as FTX did, says Sun, but under a regulatory regime in Dubai, whose crypto-specific rules—including daily checks for accounting aberrations—are meant to prevent customer funds from being siphoned away.
There are only a “few teams in the world” capable of threading the needle correctly, claims Sun. Embroiled as they are in legal battles with regulators, many of the large incumbent exchanges, he says, are not well placed to “take over the FTX mantle.” The trick will be in beating the competition to the punch.
It took just three years for Bankman-Fried to turn FTX into a $32 billion company with millions of customers across the globe. It fell to pieces over the course of little more than a week.
The fall of FTX was a watershed moment, whose knock-on effects—including a market slump, a crypto banking crisis, regulatory backlash, and further bankruptcies—have weighed heavily on the industry. In November 2023, in a court in New York, Bankman-Fried was found guilty of seven counts of fraud and conspiracy. He awaits sentencing.
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