The fall of FTX

Over $15 billion in 3 days, that is how much the world’s 15 largest cryptocurrencies lost in market  value. The reason for this is the crypto exchange platform FTX, which is behind the token named FTT.

On November 6th, the token’s value began to fall, losing more than 80% of its worth in the span of 72 hours. Once seen as a survivor in a struggling market, the fall of FTX has sent  shockwaves through the crypto currency industry.

So, what went wrong?

FTX is the brainchild of Sam Bankman-Fried, commonly known as SBF on social media. He’s been previously hailed as a savior of the crypto industry.

Bankman-Fried founded the quantitative trading firm Alameda Research in 2017. Two years later, he started FTX, an exchange platform for buying and selling cryptocurrencies. Right now, he’s the majority owner of both firms.

That kind of aroused some skepticism among industry players and traders, investors and stakeholders, that there could be some sort of conflict of interest in terms of whether research was getting preferential treatment on FTX and vice versa. But the official narrative that SBF gave in the past is that the two companies are separate entities.

After its launch, FTX attracted major investments from Silicon Valley and Wall Street and it grew into the fourth largest cryptocurrency exchange for derivatives trading. Celebrities promoted the platform in ads. FTX was gaining steam, and in the process, often tussled with Binance, the world’s largest crypto exchange by volume.

When FTX was getting started, Binance invested in FTX and it was one of the crypto exchange’s earliest investors. But FTX grew really rapidly and became a very substantial rival to Binance. As FTX grew in the industry, SBF furthered his reputation as a crypto savior when digital asset prices collapsed earlier this year. He bailed out firms, spending about a billion dollars. But that image did not last.

On November 2nd, CoinDesk published a report based on a leaked Alameda balance sheet. According to the leaked data, Alameda claimed it had over 14 billion dollars in assets at the end of June, but most of that was FTX’s tokens. Alameda CEO Caroline Ellison tweeted that the balance sheet wasn’t complete. Caroline also said its financial situation is under control, the company is doing well. However, it seems like the market didn’t really buy that, and then traders continue to withdraw from FTX.

Things escalated on Nov 6th, when Binance said it would offload hundreds of millions of dollars of FTT. The announcement sparked mass withdrawals. That day, FTX processed $4 billion of transactions, many times the normal amount for a day. Some got backlogged, which sparked demand for more. By Nov 7th, that number ballooned to $6 billion. On the 8th, FTX’s finances were in crisis. Binance stepped in and said it would buy the company. It seemed like FTX might have solved its liquidity problem.

But on the 9th, Binance backed out of the non-binding acquisition. The next day, The Wall Street Journal reported that FTX used money from customers to fund risky bets made by Alameda.

It’s a shocking revelation for a lot of people in the industry, because even though there has been a lot of speculation about FTX and Alameda research being joined at the hip, nobody could have foreseen that SBF was willing to transfer billions of customers funds at his crypto exchange to help his crypto trading firm. The Securities and Exchange Commission and Justice Department are investigating FTX.

SBF told the investors that FTX couldn’t cover the withdrawals since its collateral was dropping in value and couldn’t be liquidated.

On the 11th, SBF resigned as CEO and FTX and Alameda filed for bankruptcy. Afterwards, FTX said it was probing a potential hack. More than $370 million worth of crypto funds appeared to be missing.

As of Nov 11th, according to the bankruptcy filing, FTX estimation of their liabilities would make it the largest crypto-related bankruptcy ever filed


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