Due to FTX’s collapse, assets on its NFT marketplace cannot be withdrawn, and some FTX-issued NFTs have become worthless.
As a result of the cryptocurrency exchange’s sudden collapse last week, assets belonging to FTX customers around the world have apparently been frozen to the tune of billions of dollars in total. In addition to cryptocurrencies and DeFi tokens, some users also have NFTs stuck in FTX.
Discord servers associated with projects that started on the FTX NFTs platform during the past year are currently flooded with complaints from individuals who are unable to withdraw their Solana-based assets from their FTX account wallet.
Due to apparent FTX server difficulties, even individuals who migrated their NFTs to external, self-custody wallets may no longer view the NFT artwork. Links to a significant number of FTX NFTs market-launched projects are also currently broken. Friday, FTX announced it had filed for Chapter 11 bankruptcy protection.
Major music and sports brands are among the affected projects, such as Coachella and Tomorrowland, NBA star Steph Curry’s 2974 NFT collection, and Formula One-themed NFTs from the Mercedes-AMG Petronas racing team.
In February, Coachella announced a collaboration with FTX US, and its proposal to distribute 10 lifetime festival passes as NFTs was lauded as a step forward for widespread Web3 adoption, not to mention the practical value of such digital assets.
In addition to the passes, the festival released various other NFT collectibles. Billboard, which first reported NFT-related issues on Tuesday, stated that the sale generated a total of $1.5 million.
Now, however, Coachella’s Discord server users say that they are unable to transfer their acquired NFTs from their FTX wallets. Others assert that the Coachella NFTs contained in their self-custody wallets do not feature artwork. FTX’s server, which hosted the artwork associated with the NFT, is apparently down, according to Discord administrators.
“We do not currently have any lines of communication with the FTX team,” a Coachella server administrator wrote on Friday. “We have assembled an internal team to come up with solutions based on the tools we have access to. Our priority is getting Coachella NFTs off of FTX, which appears to be disabled at the moment.”
Sam Schoonover, Head of Innovation at Coachella, confirmed that the festival is attempting to devise a response for NFT holders. “We’re actively working on solutions and are confident we’ll be able to protect the interests of Coachella’s NFT holders,” he wrote.
Custodial concerns
Unlike many NFT marketplaces, FTX NFTs was a custodial platform, meaning it held purchasers’ NFTs until they transferred them to an external wallet. Due to the fact that FTX’s partners were prominent mainstream brands, it may have catered to buyers who did not bother to transfer their assets to self-custody wallets.
In addition to assets first sold through the FTX NFTs platform, anyone attempting to sell another supported NFT through the marketplace, whether through Solana or Ethereum, would be required to provide FTX with custody. Those NFTs are currently stranded on the FTX platform as the company launches insolvency proceedings.
This year, Metaplex, the developer of Solana’s NFT protocol, collaborated with Tomorrowland to produce its first NFT drop on FTX NFTs. Stephen Hess, the chief executive officer, stated that the situation exemplifies the risks associated with centralized, custodial marketplaces, as users are currently unable to access their purchased assets on the platform.
“Unfortunately, since FTX has always run a centralized NFT marketplace, the Metaplex NFTs that weren’t withdrawn ahead of the platform’s collapse will likely be caught up for years in the ongoing bankruptcy process,” said Hess. “We hope this serves as a wake-up call to NFT collectors and creators that escrow-based marketplaces present significant risks.”
Escrow is also used by Magic Eden, which is the biggest NFT market on Solana. Even though the platform is popular, it has also been criticized for the problems it could cause if it were attacked or went bankrupt. Hess thinks that developers are better suited to build with decentralized marketplace protocols, like Metaplex’s own Auction House.
“With Auction House, even if a marketplace were to collapse, a user would still retain custody of their NFTs and would be able to withdraw their listings on-chain,” he added.
It’s still not clear if Coachella and other FTX NFT partners will be able to take back control of their projects. Hess said that the creators might be able to “void the original NFTs stuck in FTX and reissue them as new tokens” if they kept the ability to change the metadata. Metadata is data that describes how NFTs work. But right now, none of that is clear.
Users of FTX NFTs are among the growing number of customers whose potentially valuable digital assets are locked in the FTX ecosystem as a whole. The company said on Tuesday that the total number of creditors could reach one million. Hess said that the process of going bankrupt could take a long time.
“Soo I just lost $500? ” “baller4adollar” asked in a room on the official FTXLand Discord server that was set up for Steph Curry’s 2974 NFT project. Some users are asking questions that don’t have easy or quick answers, while others seem to have accepted that there may not be a solution in the near future. Others are still trying to keep these communities of tokens together.
“Let’s take it easy here friends, [a] lot of people [are] dealing with a hard time, no reason for us to turn on each other,” wrote user “outlawtorn.eth” in the 2974 channel. “We will stay strong and find a way forward, but it may take some time.”
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