100% Compensation! What is the Purpose of Backpack's Acquisition of FTX EU?

Since the FTX insolvency incident at the end of 2022, the market has been closely following the progress of its bankruptcy settlement and the return of user assets. The FTX Japan subsidiary was the first to resume withdrawal services in February 2023, and with the court approval of the FTX International bankruptcy plan, FTX International will also return $16.5 billion in assets to repay customers. This will undoubtedly provide the market with a significant amount of liquidity. However, other high-quality resources left by FTX have been wasted, and it is still uncertain whether FTX Japan will continue its operation in the future, with no clear restructuring plan in place for FTX International.

In contrast, Backpack's acquisition of FTX EU is of significant importance. BlockBeats also conducted an exclusive interview with Backpack regarding this acquisition. According to the Backpack team's disclosure to BlockBeats, they officially made a takeover offer to FTX EU as early as August 2023, but the deal was not finalized until recently. Throughout the entire process, various regulatory agencies, courts, banks, and other parties were involved, and not only was capital used as a measure. They also conducted a thorough due diligence on executive qualifications, company finances, security, compliance, and trading platform technology, which took over a year.

It is worth noting that FTX EU, as the "solely approved entity within the EU to provide perpetual contract trading qualifications," appears particularly scarce on a global scale, attracting many well-known trading platforms and capital participants in bidding. It can be said that most of the well-known trading platforms in the market today have participated in the bidding for FTX EU, and the competition is quite fierce. However, Backpack, relying on financial transparency, platform technology strength, and experience in compliant operations, ultimately gained the trust of regulatory authorities and the bankruptcy court.

European Market: High Potential with High Barriers

For Asian users, the European market has always seemed distant. Through this opportunity, the Backpack team also revealed to us the mysterious side of the European crypto market: European exchange platforms account for 20%-30% of the global cryptocurrency market trading volume, with the contract trading volume approaching around 75% of the overall cryptocurrency trading volume. This means that trading platforms with contract business qualifications have a great opportunity to take a core position in the European market.

However, over the past year, European regulations on cryptocurrency derivatives have been continuously strengthened, with the world's top three trading platforms successively exiting the European derivative market, leading to not a single compliant platform offering derivatives trading in Europe. FTX EU, as the only compliant licensed target, is not only a ticket to entry but more like opening a back door—obtaining FTX EU's license means having a first-mover advantage in the European cryptocurrency derivative market for a period of time.

During preliminary research, Backpack found that European users generally have higher specialized needs and prefer innovative or differentiated features. Interestingly, Backpack informed BlockBeats that although it has not yet launched large-scale marketing in Europe, Backpack has attracted many local users who spontaneously use its wallet or peripheral products, so this acquisition is also a kind of "two-way outreach."

Exclusive Provision of Perpetual Contract Services in the Short Term

As mentioned earlier, the European market is a battleground for major global cryptocurrency exchanges, but a "compliance gap" exists due to strict regulation. Now, with the highly prestigious MiFID II license successfully obtained by Backpack, this means that in the short term, Backpack may become the only exchange platform in Europe legally able to provide perpetual contracts, possessing a first-mover advantage and a relative monopoly position. The MiFID II license is recognized as one of the most authoritative licenses in the EU financial market. Currently, well-known institutions holding the MiFID II license include top global investment banks such as Goldman Sachs and Morgan Stanley, leading online brokerages like Interactive Brokers, emerging financial technology companies like Revolut, and major European exchanges like Deutsche Börse.

On the other hand, Backpack can also use this opportunity to establish closer cooperation with traditional financial institutions, achieving business diversification. With this qualification, Backpack can not only legally and compliantly provide cryptocurrency derivatives trading in Europe but also expand its business to traditional financial areas such as stocks, bonds, and contracts for difference.

After this acquisition, Backpack actually faces another major "test"—issuing 100% compensation to the 110,000 users of FTX EU. Similar to the situation with FTX Japan, the funds within the FTX EU platform are still secure, so Backpack does not need to allocate additional funds for compensation. According to information provided by Backpack to BlockBeats, the platform plans to return assets to users in February, even though there are many factors beyond Backpack's control in this process. Returning user assets is Backpack's top priority. Naturally, these 110,000 users will also become new users of the Backpack platform, bringing in new high-quality users and capital inflows to the platform.

Backpack's Next Steps

After successfully acquiring FTX EU, Backpack recently announced another piece of good news: Backpack Exchange is expected to launch a new contract feature in February. According to the Backpack team, the Backpack contract system has the following features:

• Deep Integration of Contracts and Lending System

Users just need to enable the "auto-lend" feature, and funds will automatically be lent out to earn interest, while also being available for contract margin, leverage trading, and more. This "multi-purposeful" design not only improves fund utilization but also provides users with more flexibility and earning opportunities.

• Core Features Preferred by Professional Traders

The Backpack contract system is equipped with truly flexible cross-asset collateral, automatic yield settlement, and fully functional sub-accounts with risk isolation. This is a part that most trading platforms have not yet perfected. This feature can meet the multiple needs of professional traders for strategy deployment and account management, while also providing ordinary users with a richer operational space.

• Rigorous Risk Control and Security

Backpack stated that in order to establish a "verifiable and sustainable" risk control system, they conducted in-depth research at the mathematical and technical levels, which is why the development cycle is relatively longer. For the platform's compliant operation, strict and transparent risk management is a core guarantee and will also lay a solid foundation for its further global expansion.

At the same time, there is curiosity about how the acquired FTX EU will be integrated into the Backpack ecosystem. The Backpack team responded that Backpack EU's liquidity will be merged with Backpack Exchange, rather than following FTX's independent operational mechanism. As a trading platform that has undergone thorough scrutiny, the reason why they can achieve deep sharing is because they have adhered to a compliant architecture from day one and maintained a clean and transparent order book. This allows users from various countries/regions to share the same order book, attract deeper liquidity, further enhance trading efficiency, and improve user experience.

Empowered by compliance and fund security, Backpack has been gaining increasing attention. Following the Virtual Asset Regulatory Authority (VARA) license issued in Dubai on October 31, 2023, Backpack recently successfully registered in Japan as a JVCEA Class 2 member. The successive establishment of compliance qualifications in multiple countries not only demonstrates its global ambitions but also reflects a high degree of emphasis on user fund security and asset transparency.

In a previous interview, Backpack founder Armani also mentioned that in addition to continuing to delve deep into the compliance field, after completing the Exchange+NFT+Wallet multi-dimensional layout, Backpack further considers "the new generation of crypto-native financial service providers" as its development goal. They hope that after building a complete encrypted product ecosystem, they will gradually move towards the traditional financial services field to provide a one-stop, multi-dimensional trading experience for more professional institutions and ordinary users. In their view, compliance is not only the key to winning industry and regulatory trust, but also the necessary path to drive the deep integration of the cryptocurrency ecosystem with mainstream finance.

With the gradual opening of smart contract functionality and the deep application of the European compliance license, Backpack in 2025 may experience a rapid expansion on a global scale.