Like stock certificates sprinkled with pixie dust, inflated exchange tokens were at the core of FTX’s spectacular collapse. They are still in widespread use at major cryptocurrency exchanges around the world. Will they be crypto’s undoing?



In2017, cryptocurrency exchange Binance created the first of a new kind of blockchain-minted digital asset: BNB coin, designed to reward customer behavior such as trading or referring friends to its own platform. “A model for building a scalable, and impactful cryptocurrency business,” heralded CoinDesk editor Pete Rizzo in 2019, after Binance moved the coin to its own proprietary blockchain. “Unbelievable brilliance.”



Today, the only unbelievable thing about the whole cloth of crypto inventions known as exchange tokens, like BNB, is that they have inflated to tens of billions of dollars in value and in large part have become the foundation upon which the fast-growing digital-assets markets rest.



The weakest link in former billionaire Sam Bankman-Fried’s crypto empire was FTX’s own exchange token, which traded under the symbol FTT. According to Reuters, Bankman-Fried had lent his trading company, Alameda,&nbsp;<a href="https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/" target="_blank" rel="noreferrer noopener">billions of dollars</a>&nbsp;in FTX customer funds, collateralized by these FTT tokens, which were essentially invented as a way to offer trading discounts and other perks.



“The way that FTT works,” said Bankman-Fried in an August 2022 interview with&nbsp;Forbes, “It is not that you get free FTT for doing things. The way to think about it is that you get free shit for having FTT. So, there&#8217;s a bunch of doo-hickeys.”



At the peak in 2021 FTT had a market value of $9.6 billion, but unlike a common stock, which represents legal ownership in the assets of a corporation, FTT does not represent any equity ownership in the FTX company. If FTT had any intrinsic value, it was in the form of discounts that FTX customers using these tokens could get trading on the exchange–as much as 60% for active traders. You can think of these exchange tokens as being akin to loyalty or reward points you might get as a frequent customer of Starbucks or the UnitedMiles by flying on that airline. They have value, but it&#8217;s unlikely that a bank would allow you to use them as collateral if you wanted to purchase a home.&nbsp;



However, in the highly speculative and often bizarre world of digital assets, these loyalty tokens trade on numerous crypto exchanges just as stocks do on the New York Stock Exchange, and FTX founder Sam Bankman-Fried reportedly used them as collateral for the loans his company made. Up until a week ago FTT traded at $26 and had a market capitalization of $3.5 billion. But after Bankman-Fried’s rival Changpeng Zhao, Binance’s billionaire founder, went on Twitter to say he was planning to sell over $500 million of FTT, it sparked the crypto equivalent of a bank run. Today FTT sells for $2.70, and given FTX’s recent bankruptcy filing, it is likely headed to zero.



But the story of exchange tokens in cryptoland is far from over. Forbes counts more than 16 global crypto and DeFi (decentralized finance) exchanges currently using these tokens for a combined market value of no less than $62 billion. 



In fact, so-called exchange tokens are an important underpinning to the crypto exchange ecosystem because they are effective in creating customer loyalty–especially when token prices are rising. Virtually all such tokens offer holders exchange-specific perks such as trading fee discounts, preferential margin loan terms, enhanced rewards for staking (lending) and exchange-branded cashback Visa cards. Exchange tokens are also awarded to customers that refer new traders to a platform, in a system similar to multi-level marketing organizations like Amway. Exchange tokens function as the fuel for crypto’s self-fulfilling bubbles.



Binance–the largest crypto exchange in the world–has its own token, BNB, which by itself has a market capitalization of $45.9 billion, though it does not represent any equity in Changpeng Zhao’s company nor has it been registered as a security with the U.S. SEC.&nbsp;



Anyone who opens an account on Binance and starts trading can buy or earn these BNB tokens, which offer 25% discounts on spot and margin transaction fees and 10% on futures. If you refer friends, you can get up to 40% commission every time they make a trade on Binance. Also, because Binance has created its own blockchain that mints BNB coins, you can use BNB to pay for goods and services, book airfare and hotels on sites like Travala for instance, participate in exclusive token sales and even earn free tokens by completing surveys and tasks. You can also put BNB to use by staking, earn a flexible percentage yield by depositing it on BNB Chain-based projects and apply for crypto loans. Notably, these digital assets are also essential for anyone who want to use Binance’s decentralized exchange (DEX), which theoretically can’t be shut down by U.S. regulators.



Unlike bitcoin, which is mined every ten minutes, all of the 350 million FTT tokens that would ever exist were created in what is known as a pre-mine. “There will never be any more minted,” said Bankman-Fried recently. In fact, over a period of about three months starting around June of 2019 almost all of FTT’s premined tokens were sold prior to getting listed on crypto exchanges. “Effectively, all of the FTT tokens were owned by a collection of people and entities,” said Bankman-Fried.



In order to create scarcity and essentially bolster the value of its exchange tokens, FTX and Binance conduct what are known as token burns. Periodically both exchanges send tokens to irretrievable addresses reducing the float, similarly to a share buyback, and thus increasing the value of the exchange tokens outstanding. Since 2019 FTX has burned 21 million FTT tokens. In total, Binance has burned more than 42 million BNB, which would be worth $11.6 billion at today’s prices. CZ has said Binance doesn’t borrow money and has never used BNB as collateral on loans. He recently began advocating that exchanges undergo a “proof” of funds.&nbsp;



In terms of governance, exchange tokens, like loyalty reward programs, are completely under the control of the entity that issues or redeems them, even if they profess to stick to pre-arranged schedules for issuance or burning. DeFi tokens, by contrast, claim to offer holders the ability to propose and vote on platform changes. But in reality, many large DeFi platforms concentrate governance in the hands of big investors and founding teams. Additionally, just as FTT did not give holders stakes in FTX, purchasing a DeFi token does not necessarily convey ownership rights into the underlying platform.&nbsp;



The table below offers details on some 16 different cryptocurrency and DeFi-platform exchange tokens representing more than $60 billion in market value. Conspicuously absent are Coinbase and Kraken, which are U.S.-based and have avoided issuing exchange tokens, presumably because they would likely be deemed securities by the SEC. All of the tokens listed trade on exchanges daily like stocks–most of them have plummeted in value in the last year—but not a single one offers any ownership in the companies that they are affiliated with. Buyer beware.



<h4 class="wp-block-heading" id="h-token-values">TOKEN VALUES</h4>



<h4 class="wp-block-heading" id="h-the-16-crypto-and-defi-exchanges-below-created-exchange-tokens-to-attract-and-retain-customers-though-they-trade-like-stocks-and-have-a-value-of-over-60-billion-none-represent-ownership-in-their-affiliated-platforms">The 16 crypto and DeFi exchanges below created exchange tokens to attract and retain customers. Though they trade like stocks and have a value of over $60 billion, none represent ownership in their affiliated platforms.</h4>



<figure class="wp-block-table"><table><tbody><tr><td>Exchange </td><td>Token Symbol</td><td>Headquarters</td><td>MARKET CAPITALIZATION ($ million)</td><td>12-MONTH PRICE CHANGE </td><td> TOKEN UTILITY AND PERKS </td></tr><tr><td>Binance</td><td>BNB</td><td>none, &#8220;remote first&#8221; </td><td>$45,977 </td><td>-55% </td><td> Trading discounts, access to earning higher rewards and token sales, VISA card rewards from VISA merchant network, better loan terms </td></tr><tr><td>OKX</td><td>OKO</td><td>Seychelles</td><td>$4,651 </td><td>-31% </td><td> Trading discoounts, access to token sales, payment from crypto to network of merchants </td></tr><tr><td>Uniswap **</td><td>UNI</td><td>New York</td><td>$4,188 </td><td>-78% </td><td> UNI tokens govern a platform that rewards members through revenue sharing of fees earned. </td></tr><tr><td>Crypto.com </td><td>CRO</td><td>Singapore</td><td>$2,024 </td><td>-78% </td><td> Trading discounts, Crypto.com VISA rewards on purchases, higher yield on staking, revenue sharing, access to buy rare collectible NFTs </td></tr><tr><td>Tokenize Xchange</td><td>TKX</td><td>Singapore</td><td>$803 </td><td>-16% </td><td> Trading discounts and possibly free trading when combined with VIP program, double earning program access, zero fee withdrawals </td></tr><tr><td>Huobi</td><td>HT</td><td>Seychelles</td><td>$699 </td><td>-47% </td><td> Trading discounts of up to 65% when combined with VIP program, HT staking yield of 2.5%, network revenue sharing </td></tr><tr><td>Kucoin</td><td>KCS</td><td>Seychelles</td><td>$693 </td><td>-68% </td><td> Trading discounts, KuCoin VISA rewards on purchases, higher yield on staking, earn KCS based on network activity </td></tr><tr><td>Whitebit</td><td>WBT</td><td>Lithuana</td><td>$682 </td><td>na</td><td> Trading discounts up to zero cost trading with higher WBT balances </td></tr><tr><td>PancakeSwap **</td><td>CAKE</td><td>Japan</td><td>$590 </td><td>-78% </td><td> Earn CAKE for free with high interest rates, stake CAKE and earn free tokens, access to win collectible NFTs </td></tr><tr><td>BTSE</td><td>BTSE</td><td>British Virgin Islands</td><td>$562 </td><td>-41% </td><td> Trading discounts, referral bonus boost, chances to earn bonuses, access to select asset management offers </td></tr><tr><td>Gate.io</td><td>GT</td><td>none, 100% remote</td><td>$538 </td><td>-52% </td><td> Zero trading fee, access to exclusive offers, voting activities, liquidity mining benefits </td></tr><tr><td>Synthetix Network **</td><td>SNX</td><td>Australia</td><td>$392 </td><td>-83% </td><td> SNX staking generates rewards through the network&#8217;s &#8220;inflationary monetary policy&#8221; and through transactions in staked US dollars (sUSD). </td></tr><tr><td>FTX</td><td>FTT</td><td>Bahamas</td><td>$262 </td><td>-97% </td><td> Trading discounts, staking benefits include higher referral rates and revenue sharing, earn and burn FTT weekly </td></tr><tr><td>MEXC Global</td><td>MX</td><td>Seychelles</td><td>$87 </td><td>-69% </td><td> Trading discount, MX burn program participation, referral rewards, access to M-Day events and new MEXC launchpad projects. </td></tr><tr><td>Bidget</td><td>BGB</td><td>Singapore</td><td>$27 </td><td>na</td><td> Trading discount, earn KOL partnership rewards </td></tr><tr><td>BitMart</td><td>BMX</td><td>Grand Cayman</td><td>$16</td><td>-76% </td><td>Trading discount, deflationary token</td></tr></tbody></table><figcaption>*A decentralized exchange. Source: Coinmarketcap, CoinGecko, Forbes, exchange sites.</figcaption></figure>



By Nina Bambysheva, Javier Paz, Michael del Castillo and Steven Ehrlich, Forbes Staff

Cryptocurrency Mining In Africa As Poor Sheperdherder Proves A Point

The Looming $62 Billion Crypto Contagion

A new report released by Oxford Insights shows that even though there is a digital divide as well as data poverty in Africa, five countries on the continent are taking leaps into leveraging technologies to accelerate economic growth with the use of Artificial Intelligence (AI).&nbsp;



In the 2020 Government AI Readiness Index Mauritius took the 45th position globally out of 172 countries across the world, making it the highest-ranked African country on the index. According to <a href="https://www.youtube.com/watch?v=1MEWNMV6MQI&amp;feature=youtu.be">Oxford Insights</a>, Mauritius has always been forward-looking in terms of AI as it is is the only country on the continent to have published an AI strategy.&nbsp;



“Mauritius approach to AI is fantastic… They have a clear strategy as to what they want to achieve. They are also bringing the private sector and academia with them. They have a council with all of these sectors on them. They are investing in the skills and they are thinking about how that can be transferred back into the industry. That’s amazing and that’s the perfect playbook,” Richard Stirling, Oxford Insights CEO says. &nbsp;



The methodology of this index looks at a countries’ government’s willingness to adopt AI and if the country has a good supply of AI expertise and tools from the technology sector. In addition to that part, these tools need to be built and trained on high-quality and representative data with the appropriate infrastructure to be delivered to and used by citizens. 



Mauritius is also ranked 13 out of 34 countries on this year’s Responsible Use Sub-Index. This index, also by Oxford Insights, tracks the ethical use of AI in countries across the globe. The debate around responsible AI was put into focus this year due to the Covid-19 pandemic, issues around privacy as well as ongoing global inequality. The index was measured using inclusivity, accountability, transparency, and privacy as some of its main indicators.&nbsp;



“Just because you are good at building AI, it does not mean you are using it ethically and responsibly,” Stirling says.&nbsp;



Among Mauritius, South Africa was also placed 59th globally on Government AI Readiness Index, Seychelles 68th, Kenya 71st, and Rwanda taking the 87th position. And although these countries are lower, Stirling elaborates on how these countries have focused on skills development which will harness the potential for AI not only in public services but in other sectors. Nations from the US, the UK to Russia, China, and Israel hold the top positions on the index, however, there are no countries in Africa in the top 20.&nbsp;



“We are lagging in technological development so we are playing catch up most of the time and essentially we are in catch up mode,” Araba Sey, Sub-Saharan Africa AI expert, commented on the Oxford Insights website.&nbsp;



Jean Lebel, President, International Development Research Centre (IDRC), added in a statement that though Ai has the potential to transform governance and public services throughout the world, there is a danger that regions, like in Africa, will be left behind. Lebel further adds that the index should encourage new collaborations and investments that could potentially assist with the barriers to government&#8217;s AI readiness and responsibilities. 



“We believe that this, in part, will help those currently lagging behind in our index to improve their AI readiness so that existing economic and technology inequality doesn&#8217;t become further entrenched and leave billions of citizens with worse quality public services,” Lebel said.

Young femal e engineer concept. GUI (Graphical User Interface).

Mauritius, South Africa & Seychelles Are In The Driver’s Seat Of AI Readiness In Africa

The World Court on Monday told Britain to give up control over the Chagos Islands in the Indian Ocean, and said it had wrongfully forced the population to leave in the 1970s to make way for a U.S. air base. 



Britain split the archipelago off from its colonial island territory of Mauritius in 1965, three years before granting independence to Mauritius &#8211; minus the islands.



In the early 1970s, it evicted almost 2,000 residents to Mauritius and the Seychelles to make way for the base on the largest island, Diego Garcia, which it had leased to the United States.



In a non-binding advisory opinion, the top United Nations court for inter-state disputes said Britain had acted unlawfully in the decolonization process and should relinquish control over the islands, which it calls the British Indian Ocean Territory.



Although the court was not asked to issue an opinion on sovereignty, Monday’s decision in effect urged Britain to hand the islands, which it has controlled since 1814, over to Mauritius.



But Presiding Judge Abdulqawi Yusuf said in a summary of the decision that Britain was “under obligation to bring to an end the administration of Chagos Islands as rapidly as possible”.



The case at the International Court of Justice (ICJ), as the World Court is officially known, is seen as a test of the legitimacy of deals struck between great powers and small states at the end of the colonial era.



For years Chagossians have lobbied London to let them return. In 2016, Britain extended the United States’ lease of Diego Garcia until 2036 and said expelled islanders could not go back.



<h4 class="wp-block-heading">“HISTORIC MOMENT”</h4>



 Mauritian Prime Minister Pravind Jugnauth said it was “a historic moment for Mauritius and all its people, including the Chagossians who were unconscionably removed from their homeland and prevented from returning for the last half century”.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Our territorial integrity will now be made complete, and when that occurs, the Chagossians and their descendants will finally be able to return home.”</blockquote>



The U.N. General Assembly asked the court in February 2017 to advise on whether the process of decolonization had been concluded lawfully.



In his summary, Yusuf said: “The court having found that the decolonization of Mauritius was not conducted in a manner consistent with the right of peoples to self-determination, it follows that the United Kingdom’s continued administration of the Chagos Archipelago constitutes a wrongful act entailing the international responsibility of that State.”



Mauritius argued that it had been forced to give up the archipelago to gain independence from Britain. Britain maintained that Mauritius had given up the islands willingly.



By 13 votes to one, the judges backed the decision, which is not binding but carries weight under international law.



Diego Garcia has played an important role in conflicts in Iraq and Afghanistan since 1991, acting as a launch pad for U.S. long-range bombers. The United States and Britain both voted against the U.N. resolution seeking the court’s opinion.



Philippe Sands, a member of the Mauritius legal team at the ICJ, said the next step would be for Britain and Mauritius to sit down and work out a handover:



“A way will be found to move this forward, safeguarding the interests of everyone but recognizing what the court has said.” -Reuters



-Anthony Deutsch

Tag: Seychelles

FORBES AFRICA SOCIAL MEDIA

The Looming $62 Billion Crypto Contagion

Mauritius, South Africa & Seychelles Are In The Driver’s Seat Of AI Readiness In Africa

World Court: Britain Must Return Indian Ocean Islands To Mauritius