FTX – at first leading cryptocurrency exchange platform that became insolvent and filed for bankruptcy, all in a matter of days.
Politics funding, sister company, customer funds mishandled, an attempt to bail out, secret token transfers, and more. That’s what you’ll find in the story of FTX and its CEO Sam Bankman-Fried.
If you want to know what exactly happened in the last few days, dig in to Binance – FTX update article.
Key Terms
FTX: FTX Trading Limited is a cryptocurrency exchange company founded by Sam Bankman-Fried and Gary Wang in 2019. FTX has been incorporated in Antigua and Barbuda and has its headquarters in the Bahamas.
The company is said to be a platform built by traders, for traders, with both a website platform and a mobile app – FTX Pro on deck. Key people working at FTX have been previously either connected with Wall Street trading, have been working as software engineers at Google and Facebook, or have been associated with investment banking.
Binance became the shareholder of FTX in 2019, but backed out of that investment later on.
Binance: Binance is also a cryptocurrency exchange platform, co-founded in 2017 by Changpeng Zhao, also known as CZ and by Yi He. Binance is one of the leading blockchain ecosystem and digital asset exchange platforms.
The company’s headquarters are located in Malta.
Binance has acquired a few organizations so far, including CoinMarketCap, Trust Wallet, and Swipe.io.
TL;DR: FTX Update Timeline
2017: Binance was founded
2019: FTX was founded
2019: Binance becomes one of FTX shareholders
2021: Binance backs out from the investment, sells their equity and receives FTTs as part of the sales revenue
2022: November:
- CoinDesk publishes their article on FTX finances
- Binance announces that they are selling their FTTs
- FTT’s value decreases
- Binance announces that they are going to acquire FTX due to their liquidity crisis (FTT decreases 80% in value)
- Binance backs out from acquiring FTX after looking into FTX’s books
- Sam Bankman-Fried loses his wealth due to FTTs decreasing more than 80% in value in a span of 24 hours
- Sam Bankman-Fried files for bankruptcy for FTX, FTX US, and Alameda on 11th of November, 2022
How it all started?
So how did we get to this drama?
Since FTX’s beginnings in 2019, it was evident right from the start that the platform is not here to play. Binance saw that immediately and decided to keep its competitor in control, becoming one of their shareholders in 2019.
With time, FTX has been gaining more popularity, funding, users, and power.
But interestingly, in the year of 2020/2021 Binance decided to withdraw from being one of the FTX’s shareholders.
The company’s CEO commented the action to be a natural investing cycle, but the circumstances may point to something else being the cause of Binance backing out.
Conflict of interest
So what might have been the reason behind Binance backing out of their investment in FTX?
Well, the most probable theory that’s come to light is that FTX was becoming a bit too influential, not going in the same direction as Binance, which in turn would result in a conflict of interest.
Up until the big loss of FTX, the platform has been extremely successful, being the second largest exchange platform in terms of turnover.
But that’s not where the negative for Binance influence would come from.
The most probable reason behind all this would be the fact that FTX’s CEO – Sam, financially supports the current government of the US to help him pass bills that will help in regulating cryptocurrency.
In the 2020 election cycle alone, Sam is said to have donated more than $5 million to the Joe Biden campaign.
The thing is, it is believed that the bills he was trying to pursue would be very beneficial to FTX, but not so much for companies like Binance.
So now, everyone believes that Sam has been doing his utmost to pass bills that will help him out, but may negatively impact the world of crypto in general. For example, completely get rid of DeFi.
FTX’s fall
But even all this doesn’t explain why FTX lost that much of their assets.
The financial loss lies in a different kind of narrative.
Besides Binance CEO – CZ sharing the narrative of Sam going against the whole crypto community, an exact financial description of FTX has come to light on top of all that.
Coindesk crafted an article covering the financial standing of FTX and their sister company – Alameda.
You can find that article here: https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/.
The thing that stood out is that after looking into Alameda’s balance sheet, we learn that even though the company’s assets are impressively big, they are also full of FTX tokens. Primarily the FTT token.
Now how is that relevant?
Think of it this way:
If that much of Alameda’s assets are based on tokens of their sister company, what will happen in the case of those tokens value decreasing?
In this chess match, CZ decided to use this situation in his next move and sell all their FTT tokens saying that they can’t risk FTT being the next LUNA.
This move causes the ultimate chaos.
People start to believe that FTX can now actually become insolvent, which in turn made the FTT token drop. The downward spiral has gained speed causing people to withdraw their assets from the FTX exchange.
And now we’re here.
FTX has to withdraw the assets of their users and actually starts to become insolvent.
Binance attempt to save FTX
On the 8th of November, 2022, Binance announced that they are willing to acquire FTX to help them with the liquidity crisis and help their users in withdrawing their assets.
However, just one day later, the company stated that they will not pursue the acquisition.
It turned out that after looking into FTX’s books, Binance found some worrying contents and decided to back out.
The worrying parts in the books are said to be the fact that FTX transferred around $4 billion from FTX to Alameda Research without any notice to the public. The money was supposed to include customer funds.
Transferring customer funds from FTX to Alameda to help the sister company reach their liabilities is what supposedly led Binance backing out from acquiring FTX in their liquidity crisis.
FTX Update
Sam Bankman-Fried files FTX, FTX US, and Alameda for bankruptcy
On the 11th of November, 2022, the situation led Sam Bankman-Fried to file for voluntary Chapter 11 proceedings in the US.
Meaning that FTX, FTX US, and Alameda are now considered insolvent. Even though, FTX CEO claimed that FTX US users are completely fine since this branch was not affected by the situation, just the day before filing for bankruptcy.
Binance and Huobi block FTT deposits
FTTs were supposed to be released in large batches, per normal.
But, on Sunday 13th of November, all remaining FTTs were unlocked, without being scheduled and without notice. The remaining FTTs amount to over $190 million tokens being released from the main deployer’s address, as per the blockchain data.
Following this information, Binance and Huobi blocked FTT deposits.
