How FTX Collapsed

November 17, 2022

Biggest crypto bankruptcy in history

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FTX, once valued at $32B, announced bankruptcy on Nov 11th.
What happened?

Here’s the whole story:

1. Questionable finance

Billionaire Sam Bankman-Fried (SBF) has 2 giant businesses:
FTX (crypto exchange) and Alameda Research (trading firm).
These two are unusually close, according to @CoinDesk report on Nov. 2.

2. Full of FTT

Alameda had $14.6 billion of assets as of June 30.
42% of it is the FTT token issued by FTX.
$3.66 billion of unlocked FTT, $2.16 billion pile of FTT collateral, and $292 million of locked FTT.

3. Background of two major exchanges

In 2019, Binance invested as a shareholder in FTX.
It exited that shareholding in 2021.
Binance received $2.1b in Binance’s own stablecoin (BUSD) and in FTT tokens as part of the deal.

4. More claims about Alameda

Nov. 4th, Dirty Bubble Media published further claims.
It said that SBF “found a way to hack the financial system, printing billions of dollars out of thin air”.

5. SBF: a political mega-donor

He has spent $50 million during the past U.S. election cycle.
He was Joe Biden’s 2nd largest donor in 2020 and promised a 1 billion donation in 2024 elections

6. Short liquidity

Nov. 6th, CEO of Binance @cz_binance said SBF lobbies against other industry players behind their backs.
Zhao said his ****company was liquidating $580 million worth of FTX holdings.
And FTX didn't have enough cash to facilitate.

7. A sudden alliance

Nov. 7th, @SBF_FTX tweeted and stated that assets were “fine”.
Nov. 9th, FTX asked for @binance’s help on its significant liquidity crunch.
@binance signed a non-binding LOI, intending to fully acquire FTX.
https://twitter.com/cz_binance/status/1590013613586411520?s=20&t=lWQ7zt6uRgfait0i9zZ_ww

8. FTX failed due diligence

Before an acquisition or investment occurs,
Due diligence is done to examine a company’s financial records in detail.
Nov. 10th, Binance decides not to pursue the acquisition of FTX.
“Outliers that misuse user funds will be weeded out by the free market,” said @binance.
https://twitter.com/binance/status/1590449161069268992?s=20&t=lWQ7zt6uRgfait0i9zZ_ww

9. SBF apologizes to investors and customers of FTX.

Nov 11th, SBF resigned as CEO and the firm was filing for bankruptcy.
130+ companies in the FTX Group, including FTX Trading, FTX US, and Alameda Research started bankruptcy proceedings on Nov 11th.
The billionaire had his net worth dropping from $12B to $1B.

10. Situation worsens

Hours after bankruptcy declaration, FTX is claimed to be hacked.
$477 million is suspected to have been stolen, according to Elliptic.
https://hub.elliptic.co/analysis/477-million-moved-out-of-ftx-in-suspected-theft/

FTX’s official Telegram channel instructs users not to install upgrades and to delete all FTX apps.
FTX General Counsel Ryne Miller tweeted that FTX US and FTX.com had been moving all their digital assets to cold storage.

11. Under investigation by Bahamian authorities.

Sam Bankman-Fried and two former FTX associates are currently “under supervision” by Bahamian authorities.
It is said that they are looking for ways to flee to Dubai

12. Aftermath in crypto

Its crush is a hard blow to the crypto market.
Bitcoin has shed over 20% of its value this week alone.

13. And it could kill Solana NFTs.

Alameda Research had $1.1 billion of Solana on its balance sheet.
That's over 10% of the project's supply
Solana is down 57%.

14. Exchanges now face trust issues.

KuCoin and Crypto.com exchanges will publicly issue proof of reserves.
Chainlink Labs offers a proof-of-reserve service.

Key takeaway:

More ripple effects will likely occur.

Sources

https://twitter.com/_Ryne_Miller/status/1591326796305530880?ref_src=twsrc^tfw|twcamp^tweetembed|twterm^1591326796305530880|twgr^39d54ec990e884bc2cd119141c9c53fc8beeb3ff|twcon^s1_&ref_url=https%3A%2F%2Fwww.coindesk.com%2Fbusiness%2F2022%2F11%2F12%2Fftx-crypto-wallets-see-mysterious-late-night-outflows-totalling-more-than-380m%2F

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