Summary
- Alameda Research Owes FTX $10 billion.
- FTX offered loans to Alameda Research using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Sam Bankman-Fried (SBF), the CEO to CEO, described as poor judgment.
- FTX had a total of $16 billion in combined customer assets, which would mean that it gave Alameda Research more than half of that amount.
- What’s worse is that this news comes after a withdrawal halt was placed on users of the exchange. This past weekend, the decision prompted $5 billion worth of investor withdrawal requests.
- The Wall Street Journal compares the current FTX story to a 2013 occurrence at MF Global. The Commodity Futures Trading Commission fined the brokerage firm $100 million for messing with customer funds. The firm was also doing this to finance risky bets. Something that FTX has done.
FTX is a cryptocurrency derivatives exchange currently facing bankruptcy. It is about to become the latest victim of the crypto bear market. Without the cash injection, the company would have to file for bankruptcy.
Founded and managed by Bankman-Fried, FTX aggressively acquired distressed assets during the cryptocurrency downturn.
Bankman-Fried says the company has an $8bn (£7.2bn) shortfall, and he needs $4bn (£3.5bn) to remain solvent. He told Bloomberg, an FTX reporter told Bloomberg.
In 2021, FTX, which operates the FTX token (FTT) as part of the ecosystem, recorded a revenue increase of over 1,000%.
According to leaked FTX internal financial documents seen by CNBC in August 2022, revenue increased from $89 million in 2020 to $1.02 billion in 2021 and from $17 million in 2020 to 2021. Later it increased to $388 million.
What Went Wrong?
In the first quarter of 2022, FTX made $270 million in revenue. Then came the crypto bear market, which severely pressured the entire sector.
In July 2022, several cryptocurrency companies filed for bankruptcy, including the decentralized finance (DeFi) platform Celsius Network (CEL).
This was followed by Singaporean cryptocurrency hedge fund Three Arrows Capital (3AC) filing for bankruptcy in July. Digital (VGX), which also went bankrupt in July.
However, the “liquidity crisis” that Bankman-Fried confirmed on Twitter played a decisive role in FTX’s downfall.
Sentiment On FTT/USD: Binance Had Offered A Lifeline
On November 8, 2022, Binance announced that it would acquire FTX. Zhao tweeted that FTX had asked the exchange for help with a “major liquidity crisis.”
Zhao said Binance would get FTX in full but not FTX.US. Separately, Bankman-Fried stressed that FTX.US is a separate company and will not be affected.
Zhao’s deal included a “discretionary decision to opt out of trading at any time.” This is precisely what Binance did 24 hours after, following due diligence and a news report about mishandling customer funds and investigating a questionable US agency.
In a series of tweets, Binance said, “Initially, we wanted to be able to help FTX customers provide liquidity, but issues are beyond our control or ability to help. USD Coin (USDC), a peer-to-peer payment technology company that issues the stablecoin, commented on the FTX situation:
“It is disappointing that a technology spawned in reaction to the Lehman Bros moment of 2008 has given rise to its version of the same.”
Could The Founder Of Tron Step In To Help FTX?
Justin Sun, the founder of the blockchain-based platform Tron (TRX), has announced that he wants to endorse all TRX and Huobi Token (HT) holders on FTX.
Sun also added:
“The ongoing liquidity crisis, short-term in nature, is detrimental to both industrial development and investors.”
“Building Ark is well underway and is the latest cryptocurrency journey for FTX users to weather the cryptostorm,”
Sun added that Tron would be a “standby” powered by Huobi’s global infrastructure. He said that he was waiting for it.
