PYMNTS-MonitorEdge-May-2024

African Startups With Ties to FTX Face Heavy Losses, Uncertain Future

Prior to its dramatic collapse earlier this month, the Bahamas-based cryptocurrency exchange FTX was preparing to debut an Africa-focused version of the platform that would facilitate deposits and payouts in African currencies.

The firm had even set up a waitlist for prospective traders and investors, and at the time of writing (Nov.28) the africa.ftx.com domain was still calling on African customers to sign up for a chance to “buy and sell a variety of cryptocurrencies like Bitcoin, Ethereum, and Solana with low trading fees.”

Of course, there were likely many Africans already using the FTX platform via supported fiat currencies such as dollars or euros. In fact, according to TechCrunch, the company was able to acquire over 100,000 customers on the continent before it went bust.

Related: Retail Transactions Boost Crypto Adoption in Sub-Saharan Africa

But as with their peers elsewhere, these investors are facing the risk of losing the funds kept on the platform as FTX navigates a bankruptcy turmoil that aims to prioritize repaying its creditors.

While ordinary users are still unable to withdraw their assets, it has been reported that at least $1 billion in customer deposits may be missing from the company amid investigations of potential criminal wrongdoing at the highest level of the company.

FTX-Alameda’s African Empire

For a company that sold itself as a safe custodian of users’ assets, FTX’s network of global licenses would likely have given African customers an assurance of its credibility.

For example, through a deal with South African crypto exchange OVEX, FTX was, until this month, authorized to provide derivatives products and services to customers in the country under the umbrella of OVEX’s financial service provider license.

See more: FTX Collapse Creates ‘Sense of Urgency’ Among World’s Regulators

With these licensing arrangements acquired through partnerships with established local entities, the firm was able to sidestep regulatory warnings that it was operating without approval. This was the case of OVEX, which became FTX’s license sponsor shortly after the South African Financial Sector Conduct Authority (FSCA) issued such a warning.

And those ties run deeper than just an agreement to lend FTX its FSCA approval.

As the company’s CEO, Jon Ovadia, reportedly said, FTX acted as one of three liquidity providers for the platform while Alameda Research, a cryptocurrency firm co-founded by FTX founder Sam Bankman-Fried, holds an 8% stake in OVEX.

In an attempt to sever those ties, the African firm began withdrawing its assets from FTX a day before the crypto exchange filed for bankruptcy, at the same time as businesses and individuals around the world rushed to do the same.

But even at that stage, Ovadia said that transactions that would usually confirm in 10-20 minutes were taking as long as five hours, although that move may well have saved OVEX significant financial losses.

Unfortunately, not all African crypto firms were that lucky.

At around the time OVEX was rushing to secure crypto assets held by FTX, Nigerian decentralized finance (DeFi) and Web3 startup Nestcoin announced “uncertainties including the outcome” of assets it held at the firm. Per a Financial Times report, Nestcoin’s exposure to FTX may have been as much as $4 million.

The announcement to investors, shared in a Twitter post, also revealed that although Alameda held less than 1% equity in Nestcoin, the uncertainty over the future of its assets would “unfortunately” mean saying goodbye to some “talented” colleagues.

Besides OVEX and Nestcoin, Alameda also held stakes in other African businesses including Chipper Cash, Mara, VALR, Jambo and Bitnob.

And although investment ties with Alameda doesn’t necessarily mean that these companies will be significantly impacted by the fallout from FTX’s collapse, it reveals the extent of FTX-Alameda’s involvement in the African crypto and wider FinTech ecosystem.

On top of strategic investments and partnerships, the crypto exchange also aggressively marketed its services to African consumers.

In West Africa especially, FTX ran campaigns that targeted retail investors, including a promotion in Ghana that offered $5 free for every new account sign-up and a network of university campus-based promoters enlisted to help recruit new users.

Whether they used the exchange for speculative investment as a way of accessing the Web3 economy or as a means of off-ramping crypto revenues, everyday Africans who held funds on the platform can also be considered victims of FTX’s monumental demise.

 

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PYMNTS-MonitorEdge-May-2024