A Quantitative Approach to Default Probability Estimation Using the ZPP Model: A Study for LUNA and FTT Virtual Currencies

Considering the recent fears regarding virtual currencies, this study aims to evaluate the risk of their collapse in the context of information that is limited to the price. Since the future of many coins is in doubt, it is important for someone to figure out if they are worth buying. In this context, two currencies that collapsed were analyzed, namely LUNA and FTT (FTX token), the latter being associated with accounting fraud. For their analysis, a model proposed by Fantazzini et al. (2007), Zero-Price Probability (ZPP) was used, obtaining very good results regarding the prediction of the probability of collapse for the FTX token and not concluding, but interesting findings regarding the LUNA coin. The data used covered a period of 2 or 3 years before the price crash (the data used stopped a few days before its accelerated decline). The results of the study show that the ZPP model is a good predictor, but with results that vary depending on the set parameters, and obviously a thorough analysis from several angles is needed to estimate the risks of a virtual currency.