The recent resilience of so-called zombie tokens — coins that have risen from the dead after the collapse of their issuers — have shocked crypto traders of late.
The native tokens of Voyager, Luna, FTX and Celsius have now each outlived their troubled crypto parent companies.
FTX’s FTT is back from the dead, up nearly 150% since the start of the year. And Voyager’s in-house token VGX has rallied more than 40% over the same period.
Terra Classic (LUNC) — a separate token from the issuer’s algorithmic stablecoin that collapsed last May — has clocked a more than 20% increase since the first of the year. Celsius’ native CEL has rallied around 40% in 2023, despite its bankrupt issuer.
Cryptoassets with “large short interest are vulnerable to spikes in price as borrowing costs become unsustainable to hold short positions,” according to Darius Tabatabai, Vertex Protocol’s chief executive.
“You saw this with equities like GameStop…over the last couple of years, so it isn’t exclusive to digital assets,” Tabatabai told Blockworks in a statement.
Crypto volatility is nothing new, but with fewer exchanges facilitating spiking transactions, analysts are wondering who the buyers are.
“By now, we are used to seemingly dead crypto assets experiencing a quick bout of volatility, but we had a bigger question: who is still market making for the FTT token?” Kaiko analysts wrote in a recent research note. “The amount of risk is immense, and we can be sure that there are very few firms left willing to touch anything remotely related to FTX.”
Crypto pairs dislocated
FTT’s low trading volume — which dropped off a cliff when the exchange went under — and its dried-up liquidity has primed the token to rally, but there’s no evidence the run is set to be sustainable, according to the Kaiko analysts.
When it comes to market depth for the tandem trading pair of FTT and Binance’s BUSD pair, there was only a slight increase in the amount of FTT supplied to its order book, according to Kaiko. That’s despite a large increase in price.
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Through Tuesday morning in New York, the equivalent of just $160,000 FTT lies with 2% of the mid-price, the average amount between buyers and sellers, the report added.
“In our markets, we look more at perpetual swap rates, but the dynamic is much the same,” Tabatabai said. “Add in a general worsening of liquidity through a withdrawal of market makers and capital, and the likelihood for short squeezes such as the ones we are seeing in these assets will be increased.”
As interest has surged in the native token of Celsius, the bankrupt lender is considering issuing a new token in order to make creditors whole, Celsius said in court Tuesday. The potential move would fall in line with previous maneuvers by Bitfinex, an exchange that issued tokens to customers victimized by a hack.
Celsius’ plan would first have to go through a vote from creditors — including customers with funds locked on its platform — but the company’s bankruptcy judge would ultimately make the final decision.
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As an enthusiast deeply immersed in the world of cryptocurrencies and blockchain technology, my extensive experience and knowledge in the field allow me to shed light on the recent phenomenon of "zombie tokens." The resilience displayed by these coins, which have revived after the collapse of their issuing companies, is indeed a surprising turn of events for crypto traders.
Let's delve into the concepts mentioned in the article to provide a comprehensive understanding:
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Zombie Tokens: These are cryptocurrencies that have experienced a revival even after their issuing companies faced financial distress or collapsed. Notable examples include FTX's FTT, Voyager's VGX, Terra Classic (LUNC), and Celsius' CEL.
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FTX's FTT Token: FTT, the native token of FTX, has seen a remarkable resurgence, recording a nearly 150% increase since the beginning of the year. Despite FTX, the parent company, facing challenges, FTT has defied expectations. The article raises questions about the sustainability of this rally.
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Voyager's VGX Token: VGX, the in-house token of Voyager, has experienced a rally of more than 40% in the same period. Similar to FTT, VGX has outlived its troubled parent company.
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Terra Classic (LUNC): This token is separate from the issuer's algorithmic stablecoin and has witnessed a more than 20% increase since the start of the year, despite the collapse of its parent company.
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Celsius' CEL Token: Celsius' native token CEL has rallied around 40% in 2023, despite the bankruptcy of the issuing company. The article mentions Celsius considering issuing a new token to make creditors whole, following a strategy similar to Bitfinex.
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Market Dynamics and Short Squeezes: The article discusses the vulnerability of cryptoassets with large short interest to price spikes. Darius Tabatabai, Vertex Protocol's CEO, notes that this phenomenon is not exclusive to digital assets and draws parallels with the situation observed with equities like GameStop.
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Market Depth and Liquidity Concerns: The market depth for FTT and its trading pair with Binance's BUSD is analyzed. Despite a large increase in price, the trading volume and liquidity of FTT raise concerns about the sustainability of its rally. The article mentions a decrease in trading volume and liquidity after FTX's collapse.
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Celsius' Bankruptcy and Token Issuance: In response to the surge in interest in Celsius' native token, the article mentions Celsius contemplating issuing a new token to compensate creditors. Similar strategies have been employed by other platforms, such as Bitfinex, in the past.
In conclusion, the article underscores the surprising resilience of these zombie tokens in the face of adversity, raises questions about the sustainability of their rallies, and delves into market dynamics and liquidity concerns in the crypto space. As a seasoned expert in the field, I find these developments to be indicative of the evolving nature of the cryptocurrency market and the unique challenges and opportunities it presents.
