Crypto exchange Coinbase (NASDAQ:COIN) has suggested that the sale of tokens held by its bankrupt counterpart FTX is unlikely to cause a significant market shock, according to a research report published on Thursday. The report outlines several mitigating factors that could help cushion potential market impacts.
For starters, the volume of token sales will be subject to limitations. Liquidations are expected to be limited to $50 million per week initially, with plans to increase this limit to $100 million in the following weeks. Any permanent increase to a maximum of $200 million per week would require approval from committees representing FTX debtors.
In a recent court filing, it was revealed that FTX currently holds substantial amounts in various cryptocurrencies including approximately $1.16 billion in Solana (SOL), $560 million in Bitcoin (BTC), and $192 million in Ethereum (ETH), along with $1.49 billion in various other tokens. Last week, the court authorized FTX to sell these assets and utilize the proceeds to repay its creditors.
The report also highlights that there are strict controls in place for selling certain 'insider-affiliated' tokens. These controls require a 10-day advance notice to the relevant committees, as stated by David Duong, head of institutional research at Coinbase.
Furthermore, a significant portion of FTX's Solana holdings will remain locked until 2025 as part of the token's vesting schedule, along with some other tokens slated for sale. This lock-up period could further moderate the impact of these sales on the market.
Finally, once committee approval is secured, FTX will have the option to hedge Bitcoin, Ethereum and other token sales through an investment advisor. This strategy could potentially mitigate any negative effects on the market due to large-scale liquidations.
In light of these factors, Coinbase's research suggests that the token liquidation sales by FTX are unlikely to result in a significant market shock.
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