Bank of England Deputy Governor warns traders against exchange-issued crypto tokens

• Bank of England’s Sir Jon Cunliffe believes exchange-issued crypto tokens can pose extreme risk.
• The failure of FTX exchange eroded trust in centralized crypto exchanges, over 50 customers lost $21 million each. 
• Binance’s BNB, OKX’s OKB and Uniswap’s UNI yielded losses overnight, exchange tokens are suffering collateral damage from FTX collapse.

The governor of the central Bank of England warned traders against the risk involved in the trade of exchange tokens. Tokens issued by exchanges are unbacked crypto assets and are used for loans and margin payments. This makes them susceptible to runs and increases the risk of default. 

Also read: Ethereum price in free fall after FTX exchange implosion, here’s what to expect

Exchange tokens nosedive, central bankers highlight risk

Exchange tokens are native tokens of cryptocurrency exchange platform issued by the platform. These crypto assets are issued for a variety of reasons and exchanges usually offer traders incentives to use these tokens for fee payments and staking on the exchange platform. 

Sir Jon Cunliffe, Deputy Governor of the Bank of England said in a speech on Monday, 

A firm accepting its own unbacked crypto asset as collateral for loans and margin payments, as there are indications may have happened with FTX, creates extreme ‘wrong-way’ risk -- i.e. when the exposure to a counterparty increases together with the risk of the counterparty’s default.

Cunliffe alerted traders to the risks involved in the trade of counterparty tokens in light of the FTX exchange collapse. FTX exchange’s liquidity crisis, resulting in bankruptcy and eroded trust in the crypto exchange. Nearly 50 customers with claims of over $21 million each lost their funds in the FTX implosion. 

Cunliffe believes holders of exchange tokens are susceptible to higher risk as the implosion started with FTT’s collapse. FTT price plummeted from $22 to $2.4 within 48 hours after Binance rolled back plans to acquire FTX exchange platform. 

Binance’s exchange token BNB, OKX’s native token OKB, KuCoin’s platform asset KCS yielded losses for holders overnight. After stellar performance in October, exchange tokens are hit by the FTX implosion and shrinking liquidity across exchange platforms. 

BNB, UNI and KCS yielded nearly double-digit weekly losses as latest developments in the FTX investigation and bankruptcy surfaced. 

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