Our rules-based approached to portfolio construction didn't allow us to hold $FTT

You know where we stand when it comes to investing, if you forgot, here is the TL;DR:

• Trading is a bad idea for most people. 80% of retail traders lose money.
• A rule-based approach to building portfolios is much better.
• Finance's most adopted "rule-based" strategy is indexing.
• Indexing (or "baskets") for digital assets is a bad idea. The market isn't mature enough.

One key aspect of the "rules based" is not only letting an A.I. decide what positions should be taken, but also curating what goes into the universe of investable assets. That curation is also rules-based.

One of these rules is that asset ownership should be sufficiently decentralized.

FTT's wasn't, so even if it satisfied some other quality, volume, and market capitalisation requirements, it never made it as an investable asset in the Crypto Autopilot. So the AI could never have bought it.

Selecting counterparties

FTX was a recent crypto success story. But it was relatively young and untested and incorporated in the Bahamas.

When we select counterparties, we prefer to go for battle-tested and well regulated players. So we never engaged with FTX. We had no exposure to that exchange and therefore will not suffer any loss from its possible bankruptcy.

Could OSOM suffer from a similar type of "run on the bank"?

We could not. As we explain in our Help Center Article

"As a regulated crypto service provider (...) we have very strict obligations to meet, and as per our Terms & Conditions, will not use either your fiat or crypto funds other than for the purpose for which you entrusted them to us, i.e. trading, purchasing and selling of crypto assets on your behalf. In other words, we are the "custodians" of your crypto assets, and these remain yours at all times. As such, we have a fiduciary duty towards you, in particular with regards to your crypto assets.

For practical purposes, we do not do anything else with your crypto assets than what you instruct us to do with them, i.e. on the wallets your crypto assets stay stored where you can check the balance addresses and move them from/to at any time, and in the Crypto Autopilot they are traded on exchanges by the algorithm as per the agreement with you. As for your fiat funds, these are prepayments in view of carrying out crypto transactions. You can move either your fiat or crypto funds in and out at any time."

What Happened to FTX?

FTX.com, the second largest crypto exchange by volume, experienced €6 billion in net withdrawals. The exchange was founded by Sam Bankman-Fried (SBF).

This ‘bank run’ on FTX.com was a result of widespread fear caused in part by CZ, the founder of the largest crypto exchange, Binance.

What did CZ say?

CZ announced via Twitter that Binance would be liquidating any $FTT on their books “Due to recent revelations that have come to light”. Binance held over €500 million of $FTT.

$FTT, the exchange token of FTX.com, dropped sharply on the news. The mass withdrawals off of FTX.com soon followed.

What were those “revelations”?

A balance sheet of Alameda Research, the sister company of FTX.com and the trading firm of SBF, was leaked.

The balance sheet showed billions of dollars of exposure to FTT, putting Alameda at risk of insolvency if the price of FTT dropped sharply.

The close relationship between Alameda and FTX.com led users to believe that FTX.com was also at risk of insolvency. Triggering mass withdrawals. It was a self fulfilling prophecy.

What does this mean for Crypto?

The industry as a whole will likely be fine, but it will take a while for the dust to settle. It will likely mean stricter regulations will be imposed on custodians everywhere, which is a good thing. Custodians should custody, and not take risks and leverage the assets they have been entrusted with.

This also shows that the transparency brought by Decentralised Finance is extremely valuable and we would do well to further capitalise on that, as an industry, going forward.