DebtDAO to Burn 18M FTX User Debt Tokens Following Demand Frenzy

Irrational exuberance from crypto traders for the newly issued FTX User Debt (FUD) tokens has resulted in volatile price swings, controversies, millions in trading volumes, and a decision to destroy a majority of the token’s supply permanently.

FUD traded as high as $113 earlier this week, exchanging hands for $65 on Tuesday morning at the crypto exchange Huobi. Data shows it started trading at just 50 cents on Feb. 4.

There is no relationship between the Tron-based FUD token and the bankrupt FTX exchange. DebtDAO has stated it would create more tokens when FTX confirms the actual debt and distribute the additional tokens through airdrops to FUD holders, who will have the first right to assert their right on the debt.

Huobi Global adviser Justin Sun explained the token offering in a tweet last week. "FUD token provides creditors with a new level of liquidity, allowing them to trade their FTX debt on the open market," Sun said, adding it "has been confirmed" through a contract provided by DebtDAO that the debt is in the tens of millions of dollars.

"After FTX restores the database or FTX officially confirms the actual debt of the creditor, DebtDAO will issue a secondary public offering based on the actual amount of the debt and issue airdrops to all FUD holders," Sun explained.

The bond token was issued last week by DebtDAO, which it claims was on behalf of FTX creditors. The tokens had an initial supply and circulation of 20 million FUD tokens, representing 2% of FTX's debt, giving each FUD token a value of $1 and representing approximately $100 million owed to FTX creditors.

“As the most cost-effective and prioritized FTX debt on the network, FUD creditors have the first right to assert their claims on FTX debt,” DebtDAO said in a tweet last week. “Creditors with FTX debt exceeding $10 million are also encouraged to contact DebtDAO for a debt audit and issuance, enabling the debt to circulate in the secondary market.”

DebtDAO previously considered the fair value for FUD was under $1. But the price surge on Monday meant the debt was valued at over $220 million at FUD’s $113 price level. As a result, 18 million FUD tokens will be burnt on Feb. 7, to bring the debt’s valuation in line with what DebtDAO considers fair value.

“After the destruction, the total issue will become 2 million FUDs and change from the initial 1 FUD=1 USD equivalent claim to 1 FUD=10 USD equivalent claim,” Huobi said in a statement Tuesday, citing a DebtDAO proposal.

Crypto exchange FTX fell from grace last year after discrepancies in its balance sheet were brought to light by CoinDesk. Founder Sam Bankman-Fried, once the poster boy of the crypto space, now faces multiple fraud charges in the U.S. along with other FTX executives.