Announcements, News

The Klaytn Team’s Response to the FTX Bankruptcy

Last week FTX and its subsidiaries filed for Chapter 11, and the resulting fallout is currently causing a cascade of industry challenges, including weakening community sentiment, market volatility and liquidity crunches, and will most likely usher in a higher level of regulatory scrutiny. The impact of these events are far reaching, not just across the Web3 space, but also affecting TradFi entities. From individual FTX exchange users, Web3 builders and projects, to private equity and venture capital funds, for all of whom FTX and Alameda acted as trusted fiduciaries in some capacity. 

Moving forward, both “trust” and “trustless” will be vital if we are to rise up again as an industry and community. The entire Klaytn team sends out our sincerest condolences to all affected and will work to make sure any direct or indirect effects to our holders, builder community and ecosystem partners remain minimal.

The Klaytn team is closely monitoring the situation in real-time, and will be approaching all future endeavors strategically, as we are expecting the contagion from the fallout to continue.

Effects of the FTX Bankruptcy on the Klaytn Ecosystem

The Klaytn team can share with conviction that the FTX/Alameda bankruptcy has had little to no direct effects on the Klaytn ecosystem. Regardless, the Klaytn team is and will continue to proactively take necessary measures to identify and address any possible points of risk in a timely and transparent manner.

Upon hearing of the bankruptcy, the Klaytn team moved immediately to work with the Governance Council to remove Alameda as a member on November 12. Assessing the situation, it was determined that Alameda was no longer in a position to fulfill its obligations as a member of the Klaytn Governance Council in accordance with Core Cell Operator (CCO) guidelines; including but not limited to the operation of its Consensus Node (CN).

As stated above, the Klaytn team’s exposure to FTX / Alameda is minimal at best, but for the sake of full transparency, any and all transactions between the Klaytn Foundation and Alameda are listed below:

1) Governance Council Consensus Node Unstaking

  • Alameda originally had a total of 9,785,501 KLAY staked on their CN, but 4,785,401 KLAY was unstaked upon their request.
  • A total of 5,000,100 KLAYs remains staked on Alameda’s CN.
    • As of now, there has been no request for the unstaking of the remaining KLAY.
    • Alameda’s CN is currently not operational and is not participating in the Klaytn network.

2) KLAY Block Deal

During Q1 of this year, the Klaytn Foundation conducted a block deal with Alameda for 20,000,000 KLAY tokens. Details are as follows:

  • The block deal was executed as a token swap, with the Klaytn Foundation receiving the equivalent USD amount in USDT stablecoins.
    • Per the commercial terms, the Klaytn Foundation received all USDT stablecoins promised upon execution of the block deal during Q1.
  • As of now, Alameda has received all tranches, equating to exactly 20,000,000 KLAY tokens, transferred accordingly to agreed vesting terms, with the final transaction of 4,000,000 KLAY tokens taking place on November 11th (per agreed terms), which was shortly after the announcement of FTX’s bankruptcy (0x5108b0fa3e106788c6628b23d1b59e1802e5fc9166b081eb4173fb7791c135fd). 

The Klaytn team would like to emphasize that we do not, nor have we ever had any kind of exposure to FTT.

The Klaytn Team has tried reaching out to Alameda for clarity but was unable to secure a response and as of the moment, we do not believe the KLAY tokens in Alameda’s wallet will be moved or sold on the market any time soon.

We will continue monitoring Alameda’s wallets and will cooperate fully with FTX’s bankruptcy proceedings as needed. If the time comes for the liquidation of Alameda’s KLAY assets, the Klaytn team will work closely with liquidators to make sure any potential impacts to the market or ecosystem are minimized. 

Additionally, the Klaytn team would like to state that none of Alameda’s Klaytn wallets saw any kind of suspicious activities or transactions.

Moving Forward – Transparency and Trust

2022 has been one of the most challenging years for the Web3 industry, from the fall of Terra, to the resulting cascade of collapses of previously blue-chip entities like Celsius and Three Arrows Capital and now to the bankruptcy of FTX and Alameda. We as an industry have learnt that there is no such thing as “Too Big to Fail” in crypto.

Although difficult at times, the Klaytn team, not just as builders, but also as community participants has been able to stay strategic and agile throughout the contagion and believe we are stronger for it. 

With many lessons learned, the Klaytn team will focus on making sure all future endeavors and partnerships are aligned with the interests of the Klaytn community of builders and holders. As we have demonstrated over the past few weeks, the Klaytn team will continue optimizing strategies, not just at a protocol level, but also in areas of governance. Transparency is more important than ever and the Klaytn team will continue making efforts in providing more visibility and promise to be proactive in our engagement and communication with the community.

Read more about some of the forward-thinking, community oriented optimizations coming to the Klaytn ecosystem below: