The FTX Collapse, Explained | WSJ What Went Wrong

Summary

FTX, the fourth-largest cryptocurrency exchange, faced a market value crash due to its token FTT's 80% devaluation within 72 hours. Founded by Sam Bankman-Fried, FTX and Alameda Research faced scrutiny for potential conflicts of interest. After Alameda's balance sheet leak revealed heavy reliance on FTT, Binance's decision to sell FTT triggered mass withdrawals, leading to FTX's liquidity crisis. Despite an attempted acquisition by Binance, it fell through, and allegations of customer funds misuse by Alameda surfaced. FTX and Alameda filed for bankruptcy, with over $370 million in crypto funds potentially missing, marking the largest crypto-related bankruptcy ever.

Takeaways

• 📉 The world's 15 largest cryptocurrencies lost over $150 billion in market value in three days due to the collapse of FTX.
• 🆘 FTX's token, FTT, lost more than 80% of its value within 72 hours starting on November 6th.
• 🤔 The fall of FTX raised concerns about the cryptocurrency industry's stability and sent shockwaves through it.
• 🧠 FTX was founded by Sam Bankman-Fried, known as SBF, who was once hailed as a savior of the crypto industry.
• 💼 Bankman-Fried also founded Alameda Research, a quantitative trading firm, and later started FTX, leading to concerns about conflict of interest.
• 💹 FTX attracted major investments from Silicon Valley and Wall Street, growing into the fourth-largest cryptocurrency exchange for derivatives trading.
• 🌐 FTX faced competition and occasional disputes with Binance, the world's largest crypto exchange by volume.
• 📊 A leaked balance sheet from Alameda raised questions about its financial health and its reliance on FTT tokens.
• 🚨 Binance's announcement to sell its FTT holdings triggered mass withdrawals from FTX, leading to a liquidity crisis.
• 🏦 The SEC and Justice Department are investigating FTX, and it was reported that FTX used customer funds to make risky bets through Alameda.
• 💸 Bankman-Fried resigned as CEO, and FTX and Alameda filed for bankruptcy, marking one of the largest crypto-related bankruptcies ever.

Q & A

How much did the world's 15 largest cryptocurrencies lose in market value in three days?

The world's 15 largest cryptocurrencies lost over $150 billion in market value in three days.

What is the name of the token associated with the FTX platform?

The token associated with the FTX platform is named FTT.

What percentage of its worth did FTT lose in 72 hours?

FTT lost more than 80% of its worth in the span of 72 hours.

Who is Sam Bankman-Fried commonly known as on social media?

Sam Bankman-Fried is commonly known as SBF on social media.

What was the name of the quantitative trading firm founded by Sam Bankman-Fried?

The quantitative trading firm founded by Sam Bankman-Fried is called Alameda Research.

What was the relationship between Alameda Research and FTX?

Sam Bankman-Fried is the majority owner of both Alameda Research and FTX, which raised skepticism about potential conflicts of interest.

How did FTX attract investments and grow its business?

FTX attracted major investments from Silicon Valley and Wall Street and grew into the fourth largest cryptocurrency exchange for derivatives trading.

What was the relationship between FTX and Binance?

Binance was one of FTX's earliest investors, but as FTX grew rapidly, it became a substantial rival to Binance.

What event triggered the crisis for FTX?

The crisis for FTX was triggered when CoinDesk published a report based on a leaked Alameda balance sheet, which showed most of Alameda's assets were FTX's tokens.

What was the response of Binance to the leaked balance sheet of Alameda?

Binance announced it would offload hundreds of millions of dollars of FTT, which sparked mass withdrawals from FTX.

What was the reported action of FTX regarding customer funds and Alameda?

The Wall Street Journal reported that FTX used money from customers to fund risky bets made by Alameda.

What actions did FTX and Alameda take after the crisis?

After the crisis, Sam Bankman-Fried resigned as CEO, and both FTX and Alameda filed for bankruptcy.

What was the reported outcome of the bankruptcy filing for FTX?

According to the bankruptcy filing, FTX's estimation of their liabilities would make it the largest crypto-related bankruptcy ever filed.