FTX Fiasco – The Aftermath of Collapse
FTX’s collapse, which took place over a 10-day period in November 2022, began with CoinDesk’s article that revealed the balance sheet of FTX’s sister firm, Alameda Research, that dealt in the hedge fund business. Although Bankman-Fried seemed confident about handling the situation until he approached an old friend, Binance’s Changpeng Zhao, which according to many, was an unforgettable mistake that changed the course of the whole scenario. Even venture capitalists like Kevin Hart openly expressed how Binance may be responsible for the FTX downfall.
The information about Alameda Research having taken highly leveraged positions on cryptocurrency tokens (FTT) produced by its own sister company, FTX exchange, spread like wildfire throughout the cryptocurrency community. Finding out that there were dishonest activities taking place behind the scenes hurt the feelings of those who previously regarded SBF as one of the crypto industry’s robinhood.
Binance, being one of the earliest investors in FTX, had a sizable amount of FTT tokens on its own balance sheet. On November 6, Binance declared that it would offload its FTT tokens “in light of recent revelations.” As a result, traders quickly exited FTX out of fear that it would emerge as yet another failing cryptocurrency company, which caused FTT’s price to crash. Withdrawal requests totaling approximately $6 billion over 3 days were handled quickly by FTX. It appeared to experience a liquidity crunch, which meant that it lacked the resources to meet demands.In a series of tweets (that were later deleted), Sam Bankman-Fried asserted that the rival is “trying to go after us with false stories.” He even continued, saying, “FTX is fine.” The assets are good. He continued by categorically refuting all of the accusations made against him and his businesses, FTX, and the trading house Alameda Research.
FTT’s value dropped below $22 in less than two days after Caroline Ellis, CEO of Alameda Research, tweeted that Alameda Research was willing to purchase the tokens Binance was offloading, showing that they had failed to maintain the value of their own token in the public markets. This showed that investor confidence in the token was waning and unmistakably demonstrated that a crash was imminent. FTT token lost roughly 75% of its valuation in less than 24 hours on November 8, 2022.
In his last attempt to provide some relief to the users, Bankman-Fried tweeted about a “strategic transaction” with Binance just one day after asserting that everything was fine. The same day CZ, one of the most prominent figures in the cryptocurrency industry, also announced his intention to purchase the FTX exchange in order to assist users who were having trouble using it. Many looked upon it as a well-thought strategy by Binance, for one of its biggest market rivals would have been effectively eliminated by this action.
One of the fastest turnaround times for corporate due diligence was demonstrated by Binance, which announced its intention to acquire the company and then announced its withdrawal from the agreement a day later. Binance leveled a number of serious accusations against the cryptocurrency exchange that contributed to the FTX collapse, including everything from mismanaging customer funds to US government agency investigations.
Around this moment, information & reports about widespread financial misappropriation and habitual drug use started to emerge from within the company. Consequently, the FTT token had almost lost 90% of its value since the beginning of this situation. Even the company’s founder, SBF, who was amongst the youngest billionaires in 20s, saw his net worth drop from about $16 billion, at the time of the FTX crisis, to less than $1 billion.
Around the same time, FTX’s SBF announced on Twitter that he is closing down business at Alameda Research, the focal point of the entire incident and the place it all began, admitting that he made a mistake and that things could have been handled differently. On November 11, the FTX collapse came to an end just a few hours after Alameda Research, its trading firm, ceased operations. In an official press release, FTX announced that it decided to file for bankruptcy to start a systematic review and monetization of the firm’s leftover assets for the benefit of stakeholders around the world.
Sam Bankman-Fried, the co-founder of FTX, also tendered his resignation as CEO while promising to “assist in the orderly transition.” John Ray III, who was previously in charge of the Enron Corporation’s bankruptcy in 2001, has been named as the organization’s new CEO.
