FTX/Alameda Collapse for Dummies: Crypto's Tower Moment
Family & friends asking about the #FTX collapse? Share this simplified breakdown of events with them.
Family & friends asking about the #FTX collapse? Share this simplified breakdown of events with them.
The main characters:
- Sam Bankman-Fried (SBF): founder of FTX, a self-proclaimed 'effective altruist' who has been active with creating DeFi regulation in the US
- Changpeng Zhao (CZ), founder and CEO of Binance, the largest crypto exchange in the world
It all started when the balance sheet of FTX's sister company, Alameda Research was leaked. Alameda is a trading company mostly owned by SBF. It is speculated that most of the SBF empire revenue comes from Alameda.
The leaked balance sheet looked really bad. Mainly due to the fact that over $2B of Alameda's borrower collateral is denominated in $FTT, a token that FTX launched to raise funds for itself.
WOW
Per CoinDesk, Alameda research has $14.6 billion of assets, against $8b of liabilities.
For assets: $3.66b FTT, $2.16b “FTT collateral”, $3.37b crypto ($292m SOL, $863m “locked SOL”), $134m USD & $2b “equity securities.
Most net equity tied in completely illiquid altcoins.
— Dylan LeClair 🟠 (@DylanLeClair_)
Nov 2, 2022
This token is quite illiquid - so when Alameda becomes insolvent, borrowers won't be able to sell the token to recollect debts. This may cause (actually already caused) a domino effect that brings down FTX.
CZ was actually an early-stage investor in FTX. The exchange eventually became #2 in the world. After the leak of the balance sheet, CZ made the public decision to sell all of his FTT tokens. This triggered a series of events
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 Binance (@cz_binance)
Nov 6, 2022
The uncertainty around FTX after CZ's announcement sent customers running to withdraw. As of right now clients are having problems getting funds off the exchange. Just to have a clue about the scale of this:
A giant whale is worried about "bank run" on FTX and withdrawing USDC/USDT from #FTX Exchange.
He withdrew 129.8M $USDC and 115.9M $USDT from #FTX Exchange in the past 24 hours.
As soon as #FTX opens the withdrawal, he immediately withdraws stablecoins from #FTX.
— Lookonchain (@lookonchain)
Nov 8, 2022
Over the past week, FTX has seen more than $8.7B in withdrawals compared to $7.7B in deposits
Shortly after, @cz_binance announced that he was looking into the full acquisition of FTX. People started speculating that it was his plan all along...
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance)
Nov 8, 2022
Later, he reiterated by posting this:
In the spirit of transparency, might as well share the actual note, sent to all Binance team globally a few hours ago.
— CZ 🔶 Binance (@cz_binance)
Nov 9, 2022
The next day, @binance backed out from the deal stating the following: “The issues are beyond our control or ability to help”
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.
— Binance (@binance)
Nov 9, 2022
Many say that CZ's role in this was minimal as it all started to unfold a while back:
1/ Binance to acquire FTX 🧵👇🏽
Timeline:
👉25th Aug - Sam Trabucco quits as Alameda Research CEO
👉27th Sep- Brett Harrison Quits as #FTX US president 🇺🇸
👉17th Oct - FTX under investigation by Texas DOB
👉23rd Oct - SBF criticized for supporting the DCCPA #DeFi bill 📄
— Crypto India (@CryptooIndia)
Nov 8, 2022
Reuters wrote a good article on how Alameda used consumer funds to bail themselves out in May: read here.
Global regulatory backlash is inevitable at this point. FTX collapsing is a global catastrophe for crypto. This is BIGGER than Terra and Celsius combined. Sam was one of the faces of this whole industry.
Although most people forget the following fact:
FTX's failure doesn't justify a rush to regulate in the US.
FTX is a non-US exchange based in the Bahamas. By design, it didn't have any US customers so that it wouldn't be subject to US jurisdiction.
There is no law Congress can pass to prevent the failure of an offshore firm.
— Jake Chervinsky (@jchervinsky)
Nov 11, 2022
A larger shift of the crypto-community from CEXes to DEXes is absolutely crucial for this space to survive.
#FTX + #Alemeda affair summed up by @ErikVoorhees in a single word: unforgiveable.
— ShapeShift 🦊 (@ShapeShift)
Nov 11, 2022
To be continued…bookmark this thread, we will update it as events unfold:
FTX/Alameda Collapse for Dummies: Crypto's Tower Moment
Family & friends asking about the #FTX collapse? Share this simplified breakdown of events with them
Bookmark this Tweet, we will update this thread as events unfold!
🧵👇
— M6 Labs (@M6Labs)
Nov 11, 2022
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