Backpack: Completing the FTX puzzle and leveraging compliance to become the leader in TradFi

Written by: TechFlow

Trading is the main theme of encryption, so exchanges are the core infrastructure of encryption.

We can see that in each cycle, representative exchanges emerge, leading innovations in capital efficiency:

This is the case with BitMEX, which introduced perpetual contracts to the crypto market in 2016;

The same is true for FTX, which became popular in 2020 with its stablecoin settlement, cross-position margin, and tiered clearing mechanism.

So far in this cycle, there has not been a phenomenal exchange product like FTX. In the current competition, who will stand out?

Hyperliquid may have a chance to fight. Since the airdrop detonated the market in 2024, the trading volume of Hyperliquid contracts has quickly exceeded the trillion US dollar mark, but the successive price manipulations and the community's doubts about the liquidation mechanism and decision-making transparency have caused it to be caught in a whirlpool of public opinion.

Another seed player frequently nominated by the community is Backpack: on the one hand, due to the relationship between Backpack and FTX, it is difficult for the community not to compare the two; on the other hand, Backpack has been shouting the slogan of "compliance" since its inception. Not only has it recently officially completed the acquisition of FTX EU, but its products have captured a large number of users with innovative mechanisms such as "automatic lending" and "interest-bearing perpetual contracts."

If we reflect on the development of exchanges from the perspective of FTX’s explosion and demise, can we more clearly predict the competitive landscape of exchanges in this cycle?

Based on "taking the essence and discarding the dross" of FTX, will Backpack replicate or even surpass the past glory of FTX?

This article aims to penetrate Backpack’s product logic, compliance layout, and future planning, and find more accurate answers therein.

Made in America: FTX Takes Capital Efficiency to the Next Level with Backpack

Made in the USA has always been a well-known label in the crypto industry: it means a more complete financial infrastructure, higher-quality talents, a more open policy environment, and more active capital. In the past decade, it has given birth to well-known crypto companies including Coinbase, ConsenSys, and a16z Crypto.

The influence of the United States in this cycle cannot be underestimated: on the one hand, under the crypto-friendly attitude of the new President Trump, the United States is leading the global crypto market to usher in a more open, inclusive and clear regulatory framework, and compliance has become a key factor in attracting institutional entry; on the other hand, with the continuous escalation of geopolitical conflicts and trade frictions brought about by tariffs, on-chain finance, which has the main advantages of no license and reduced friction, will rise rapidly, which will undoubtedly bring more incremental funds and users to American concept crypto companies.

From FTX to Backpack: Twins Made in the USA

Whether it is FTX or Backpack, both of them have the indelible "Made in the USA" mark:

FTX was born in the United States, and Backpack was also founded in the United States;

FTX founder Sam Bankman-Fried graduated from the world-renowned Massachusetts Institute of Technology; Backpack founder Armani Ferrante also graduated from a prestigious school, graduating from the University of California, Berkeley, which is known as the number one public university in the United States.

With the West as their base and looking towards the East, both founders are in love with the Asian market: FTX set up its headquarters in Hong Kong, the Pearl of the Orient, when it was first established; and Backpack set up its headquarters in Tokyo, Japan, which is also the throat of Asia's economy.

Of course, Backpack’s relationship with FTX goes far beyond this: many core members of Backpack, including founder Armani Ferrante, were once employees of FTX:

According to Armani's introduction in the interview, he worked briefly at Alameda Research (a cryptocurrency quantitative trading company founded by SBF) and joined FTX in September 2020 to focus on Solana-related businesses.

In addition, Backpack has also absorbed a large number of FTX employees responsible for legal and compliance work, including FTX's former general counsel Can Sun, who currently serves as the important head of legal affairs at Backpack.

In terms of financing background, Backpack also overlaps with FTX:

On the one hand, both have received investment from top crypto VC Jump Crypto; on the other hand, in September 2022, Coral, the development company behind Backpack, announced the completion of US$20 million in financing, led by FTX Ventures.

Born for Traders: New Issues in the New Cycle

Excellent products are often "altruistic". In other words, an excellent trading platform needs to design its products from the perspective of traders. For traders, the most important thing is the effective management of trading risks and the effective improvement of capital efficiency.

When we focus on the products themselves, we will find that both Backpack and FTX are designed with the concept of "born for traders".

SBF was born as a trader, which makes him understand traders' demands better: FTX's pioneering "three-level liquidation model" can prevent a large part of user funds from being used to make up for losses; another major innovation "unified margin account" allows users to participate in multiple derivative transactions with the same margin pool, and use stablecoins as universal margin, which not only greatly simplifies operations, but also further improves capital turnover efficiency. In addition, leveraged tokens and other functions are adopted by major trading platforms.

For Backpack, with the continuous expansion of market scale, the continuous improvement of product richness and the growth of traders, in the new market environment of the new cycle, building a "trading platform built specifically for traders" is also facing more extreme tests in terms of how to build a more robust risk engine, how to aggregate multiple chains more effectively, and how to maximize capital efficiency.

Armani is an engineer by training, and this dual perspective of transaction + product makes Backpack take the transaction experience to the next level.

No proprietary market maker + three-stage liquidation: Backpack's powerful risk engine

Most trading platforms operate their own market makers to gain more profit margins, but Backpack has chosen not to operate its own market maker, taking the devastating consequences of FTX lending customer funds to market maker Alameda Research as a warning. This fundamentally means that Backpack has no motivation to liquidate users and will not become the user's counterparty. It will also further ensure that when a crisis occurs, Backpack can make saving users its top priority.

In addition, Backpack adopts a three-stage liquidation mechanism to further ensure the solvency of the system:

• Order book liquidation: When Backpack detects that a user’s margin maintenance rate reaches 100%, the system will immediately cancel unfilled orders and try to sell or hedge in batches at the best possible price on the order book, reducing market shocks while protecting users.

• Back-up liquidation: When the order book liquidity is insufficient under extreme market conditions, the system will transfer the position to the market maker participating in the back-up plan to bear the risk.

• Automatic liquidation: If the first two steps cannot complete the liquidation, the system will force hedging or liquidation to ensure that the overall risk is zero and prevent platform default.

At the same time, Backpack also reduces market shocks through measures such as gradual liquidation and price protection bands, protects users from unreasonable liquidation, and further improves the friendliness and fairness of the liquidation process.

Amid the drastic market fluctuations caused by the Trump administration's announcement of additional tariffs, Backpack's liquidation mechanism demonstrated strong robustness. According to data from an Alameda Research article: 99.82% of liquidations on the Backpack platform are conducted directly on the order book, only 0.18% occur in the backup mechanism, and 0% are conducted through automatic position reduction.

Global margin + automatic lending + automatic profit and loss settlement: Backpack builds a perpetual motion machine for income

In terms of achieving more intuitive asset management and more mechanism-based capital efficiency, Backpack's innovative design is concentrated in its natively integrated highly automated lending market:

In terms of lowering the threshold for account management and improving capital utilization, Backpack adopts a unique single global margin account design: unlimited sub-accounts can be created with one click under a main account, and it is applicable to all products on the Backpack trading platform.

Users can manage different funding strategies or collaborate with multiple teams through different sub-accounts. For example, one sub-account is dedicated to lending, and one sub-account is dedicated to spot trading. Transferring between different sub-accounts is efficient and convenient with just a few taps. In addition, trading strategies are completely isolated to further reduce risks.

At the same time, Backpack also adopts the "cross margin margin + multi-asset collateral" design, and all eligible assets are automatically accepted as collateral and can be used for all products. This design not only improves the speed of capital turnover, but also allows for more flexible response to the ever-changing market conditions.

For each sub-account, users can set up the "automatic lending" function:

For a long time, even if a single global margin is implemented, there will still be idle funds in the account that will not generate any income.

Through automatic lending, the user's margin account and the lending pool are integrated. After it is enabled, all available assets in the sub-account that meet the lending conditions will be automatically deposited into the lending pool to earn income: these available assets can be idle funds or even floating surpluses of unclosed positions in contracts. Once the borrower repays the loan, your interest will be rolled into the available balance in real time.

It's like this: qualified chickens can lay eggs and earn income. When the eggs are still in the chicken's stomach, users can continue to earn income through these eggs, and the income generated by these eggs can even generate income through compound interest.

The assets loaned by users will be counted as 100% collateral, which means that even when holding positions, users can still obtain lending income, or earn additional income through strategies such as arbitrage trading to hedge risks, bringing higher yields and capital efficiency.

While pursuing the ultimate release of capital efficiency, Backpack also achieves highly automated settlement through the "automatic profit and loss settlement" function to further lock in profits and create an efficient and stable trading market:

Backpack completes the automatic settlement of profits and losses every 10 seconds while the contract position remains unchanged, and pays the funds of the losing party directly to the winning party. At this time, the income can be transferred to the account as "available balance", so that there are more "bullets" for the next transaction, while also avoiding the need for borrowing caused by unrealized losses.

For users who hold stablecoins, this is an efficient settlement method; for users who do not hold stablecoins, Backpack has introduced a virtual profit and loss settlement (vPNL) mechanism, which synchronizes unrealized profits and losses to the lending market through a virtual liquidity fund, allowing the losing party to pay interest and the profitable party to earn income, further reducing lending risks and margin pressure.

With the advantages of its series of products, Backpack has accumulated good user reputation and impressive on-chain data performance.

Many community members said: After getting used to Backpack, they always have a feeling of "going from luxury to frugality" when using other trading products, because when you are used to the Backpack function design always being ahead of your trading needs, it will be difficult for you to accept the closed, cumbersome and inefficient nature of other trading platforms.

On January 27, 2025, the first day of the public beta, Backpack's total trading volume (spot + perpetual contracts) exceeded $200 million within 24 hours. Among them, the perpetual contract business achieved a trading volume of $100 million within the first 20 hours after the public beta was launched.

According to data from its official website: Backpack's total transaction volume has exceeded US$60 billion, and a total of 50 billion transactions have been completed.

Of course, in addition to its product advantages, another important label of Backpack is "compliance".

From the very beginning, Backpack has firmly chosen a compliant development path, not only because of the historical lessons learned from the collapse of FTX, but also because of the Backpack team's profound insight into industry trends.

After several years of hard work, Backpack's compliance footprint has not only gradually expanded globally, but will also usher in an important growth opportunity in 2025 when on-chain finance explodes.

Compliance pioneer: integrating on-chain and off-chain to create a core hub for asset management

The market has not yet forgotten the significant impact that the collapse of FTX brought to the industry, but looking at the problem from a development perspective, the collapse of FTX also pushed the entire industry from the wild growth stage to the pursuit of transparent, compliant and standardized development.

Let every transaction happen in a "glass house": Backpack's pursuit of transparency

Since FTX, public proof of reserves has become standard for exchanges, and Backpack is no exception: Backpack regularly conducts third-party PoR audits and publishes all details. The publicly available Hacken audit report also shows that Backpack's assets cover more than 100% of its liabilities.

But as it has shown many times in product design, Backpack is a platform that pursues perfection. In the face of transparency, a basic issue related to user trust, in addition to proof of reserves, Backpack has also taken more dimensional measures: on the one hand, it has introduced multi-party computing (MPC) technology to allow users to self-custody funds; on the other hand, starting from the underlying infrastructure, multiple independent nodes in the Backpack Exchange must reach an agreement on every deposit, withdrawal, and transaction that occurs in the exchange. The entire historical record of the exchange is replayable and auditable, further improving transparency.

From the US, EU to Asia: Backpack's global compliance strategy

In addition to transparency, the more important issue is compliance.

The importance of compliance is self-evident: it is not only the cornerstone of trust, but also an important sign of the market's maturity. It is also the only way to attract traditional financial institutions, funds, and users to join and promote the deep integration of on-chain and off-chain.

However, the road to compliance is not easy: it not only involves the balance between product design and regulatory requirements, but also tests the ability of the project team to mediate with regulators in various countries and regions. Taking Japan, which has its own crypto regulatory system, as an example, if you want to pass the review of the Japanese Cryptocurrency Exchange Association JVCEA, the cycle may be at least one year.

This is exactly the value of Backpack's "Global Compliance Cryptocurrency Trading Platform":

We know that many former FTX employees on the Backpack team come from the legal and compliance departments. This mature compliance team of dozens of people enables Backpack to understand how to advance compliance strategies globally better than other crypto trading platforms.

In fact, from Backpack’s expanding compliance footprint over the past few years, we can also see the fruitful results achieved by this compliance team.

As a company founded in the United States, Backpack's compliance journey started in the United States. Its product design strictly complies with relevant laws and regulations such as U.S. KYC and anti-money laundering. Currently, Backpack's compliant crypto trading business has covered 12 states in the United States. In the future, as the United States' crypto-friendly policies continue to advance, Backpack's "U.S. compliance" strategy will quickly expand to all 50 states.

In 2023, Backpack officially obtained the Virtual Asset Service Provider (VASP) license for exchange services issued by the Dubai Virtual Asset Regulatory Authority (VARA), which became an important breakthrough for Backpack in the Asian market.

Soon after, Backpack became a member of the Japan Virtual and Crypto Asset Exchange Association (JVCEA). Japan is known for its high compliance threshold. Before the collapse of FTX, only Binance successfully passed the Japanese compliance review. In the nearly two years since the collapse of FTX, Backpack is the first crypto trading platform to pass the Japanese compliance review.

This year, Backpack’s most important progress in compliance is the official completion of the acquisition of FTX EU:

With this acquisition, Backpack will take over the compensation of 110,000 European crypto users, which also means that Backpack will directly acquire more than 110,000 high-quality crypto trading users, laying a more solid user base for its future business development.

More importantly, FTX EU holds the EU's new "Markets in Financial Instruments Directive Second Edition" (MiFID II) license. By acquiring FTX EU, Backpack has become the only trading platform in the EU that holds the qualifications to operate crypto derivatives such as perpetual contracts. It can serve the entire EU market and cover 20-30% of the global crypto trading volume.

In addition, Backpack has obtained licenses to conduct crypto-asset related activities in Australia, the United Kingdom and other places. Currently, according to the official website information, Backpack has conducted business in more than 150 countries/regions around the world. Looking forward to 2025, Backpack will continue to implement its compliance strategy, initiate license applications in more countries/regions, and strive to cover its compliance services to users in 95% of the world's GDP regions, reaching nearly 1 billion potential users.

2025: The year of the rise of on-chain finance and the explosion of Backpack

Although the total market value of cryptocurrencies has exceeded 2.6 trillion US dollars, it is still a very small size compared to traditional finance. The total market value of the US stock market (Wilshire 5000) alone will be 63 trillion US dollars in 2024, which easily exceeds the total market value of the crypto market by dozens of times. It can be said that using compliance as a starting point to guide the deep integration of traditional finance and crypto finance will not only be an opportunity for Backpack's exponential growth, but also the only way for crypto finance to achieve a large-scale outbreak.

After the United States fired the first crypto-friendly shot, traditional institutions have become more active in crypto participation. According to the latest Coinbase survey, 83% of respondents plan to expand their crypto allocation this year, and 59% of respondents plan to allocate more than 5% of their assets under management to crypto assets by 2025.

Through unwavering compliance measures, Backpack eliminates the regulatory concerns of traditional finance and provides a compliant and efficient way to participate, attracting more institutions and users.

In fact, the successful acquisition of FTX EU has laid a good foundation for Backpack's TradFi expansion: the MiFID II license is not only a license related to cryptocurrency trading, but also a full financial license, covering bond issuance, stock trading, wealth management, etc. With the support of the license, Backpack may become the Web3 version of Goldman Sachs in the EU market.

In the future, starting from the United States and Europe, it will radiate to the entire Western world, and with Dubai, Japan, and Singapore as the center, it will cover the entire Eastern market: With its first-mover advantage in compliance and huge innovation in product experience, Backpack will seize the development opportunities of TradFi in 2025 and may be expected to become the biggest beneficiary of this trend, and ultimately achieve the leap from a crypto exchage to a global asset hub.

Of course, after understanding Backpack's success factors and growth drivers, the more practical question facing users is:

How to participate in Backpack efficiently?

Season 1 is in full swing: Rewarding real trading participation and bringing a new paradigm of community incentives

Let us first use a set of data to intuitively feel the huge participation enthusiasm aroused by Backpack Season 1:

According to Backpack 'Official Twitter data, in the third week of the event, multiple trading indicators reached new highs: 24-hour contract trading volume exceeded US$950 million; contract open interest exceeded US$113 million; the number of active trading users exceeded 46,000; and the total spot and contract trading volume in Season 1 reached US$4.1 billion.

Through DeFi Llama data, we can also clearly see that the scale of Backpack assets has shown a rapid growth trend since the launch of the activity.

So why did Backpack Season 1 generate such a large engagement?

On the one hand, participating in Season 1 can earn points, and the points will be added to the expected airdrop. Users are optimistic about the future development of Backpack, so they naturally hope to win more points to accumulate airdrop chips;

On the other hand, it is inseparable from Backpack’s unique design of the activity rules.

Backpack aims to reward real trading users through Season 1:

It is reported that Backpack plans to launch three quarterly activities in stages, with each quarter taking 10 weeks as a cycle. 10 million points will be issued every week, and a total of 100 million points will be issued each quarter. The points will be issued every Friday at 10:00 (UTC+8).

During the event, users can explore the products to their heart's content, including providing liquidity, inviting transactions, holding positions, lending, etc. Each operation button may generate points.

Every week, Backpack dynamically adjusts the points calculation method to ensure that users are not aware of the points reward plan, thereby avoiding quick-in-and-out point-brushing and wool-picking behaviors, encouraging users to focus more on the transaction itself, and distributing rewards to real transaction participants.

At the same time, Backpack is committed to creating truly fair participation:

In addition to the initial points rewards issued to 475,000 users who participated in the pre-season and public beta, there is no pre-allocation of points and they cannot be purchased, transferred or sold. They belong only to users who use Backpack.

In addition, Backpack has also launched a series of strict measures to ensure the fairness of the distribution of points. Previously, Backpack had issued an announcement stating that it had discovered multiple witch attacks and called on users not to create multiple accounts to participate in activities, otherwise they might face the consequence of points being redistributed.

So, as a user, how can you participate in Season 1 more efficiently?

Perhaps following the rules and returning to basics is the most efficient way.

Obviously, unlike most of the airdrops, Backpack does not take the route of multiple accounts, but encourages real transactions and real participation. In this case, it is better to follow the guidance of Backpack, experience the transaction and feel the product seriously. Based on Backpack's commitment to real users, I believe that users who really participate in it will not be disappointed in the future.

In addition, Backpack has launched an agent program, where qualified referrals can invite friends to earn more points.

Currently, the 10-week Season 1 has entered its fifth week. Both community feedback and the Backpack team's response speed have been well received. There are also a large number of detailed tutorial articles on social media for reference, and interested traders can participate. As an important attempt by Backpack to encourage real participation and improve platform liquidity, with the recommendation of the points activity, a crypto-financial ecosystem with efficient capital circulation, high compliance, and high community participation is growing rapidly.

Conclusion

Although some people in the community often say that the exchange landscape has been determined, this is not a track where disruptors are likely to emerge.

However, trading is an eternal theme in the crypto market, and trading innovations are endless, so the structure of exchanges will never be determined.

As Backpack CEO Armani said in a recent community AMA: The name Backpack was inspired by the item backpack of the character in World of Warcraft. In the game, the backpack is the core tool for players to store and manage game items, and Backpack aims to become the primary carrier for all asset trading activities of users. With this Backpack, users can travel around the world and start their adventure.

In the future, Backpack will continue to deepen its efforts in lowering barriers, optimizing liquidity, and global compliance. In the near future, Backpack will further promote the deep integration of its wallet products and exchange businesses, and launch a new wallet experience through account abstraction, helping users retain the security of self-custody without seed phrase. In addition, users can access dApps by logging into Backpack Exchange without installing an additional wallet. In addition, Backpack will also support services such as US stocks, retirement accounts, Apple Pay, and fiat currency recharges, and further promote the application of major global compliance licenses.

A new round of exchange competition has begun. Can Backpack, a trading platform with deep roots in FTX, bring a new trading experience of efficient capital operation with functions such as automatic lending, automatic profit and loss stages, and global margin accounts, and become a representative of innovative exchanges in this cycle? At the same time, by embracing strategic initiatives such as compliance and improving transparency, and introducing narratives such as TradFi and RWA, it can further build a core hub for on-chain and off-chain asset management and achieve long-term sustainable growth and development?

As friendly regulation and the rise of on-chain finance become keywords for 2025, we look forward to more exciting performances from Backpack.

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