What to learn from the FTX crash

The recent crash of FTX triggers another slump in cryptocurrencies. We have analyzed how this amplifies the relevance of Proof of Reserve and what changes this entails for the token's ESG rating.


In the recent rating review in October 2022, FTX’s token (FTT) received a governance score of A-. After the sudden collapse of the exchange who issued the token, we feel it is important to explain how our ESG rating is composed.


Among other factors, the following criteria are evaluated when determining the governance score of a token:

  • network security

  • probability of a 51% attack

  • number of network incidents or lack thereof

  • number of developers

  • conflicts of interest

  • regulatory risks

  • transparency

  • disclosure of the registered office

  • regular and proper audit


FTT performed above average in all these rating components compared to other tokens, resulting in a governance rating of A-. Even though good governance can reduce risks, it is by no means an indicator for the financial performance of an asset. This holds especially true in cases such as the FTT incident, where unsound corporate practices were purposefully concealed to the public.


Generally, there is still a lack of third-party audited disclosure of balance sheets of cryptocurrencies exchanges. For example, all the exchange tokens that we have rated lack to provide a so-called "Proof of Reserve": an independently audited confirmation that a depository owns the assets it holds on behalf of its clients.


Currently, Kraken, is one of the few central Exchanges (without its own tokens) that have this external audit “Proof of Reserve”. Binance has just announced in connection with the FTT crisis to introduce this audit in the future.


In light of these developments, we will perform an ad-hoc review of the rating of the FTT token and also assess whether additional governance criteria might be required for exchange tokens going forward.


For more information on how we create an ESG rating for cryptocurrencies, see our blog article on this topic.


This content does not constitute professional and/or financial advice.


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