FTX, the world’s second-largest cryptocurrency exchanges, has been in the headlines for the past couple of weeks for its financial turmoil. The rival of Binance has filed for Chapter 11 bankruptcy in the US, and its CEO, Sam Bankman-Fried (SBF), a billionaire and major donor to the US Democratic party has immediately stepped down as CEO.
Parallelly, the former billionaire Sam Bankman-Fried’s net worth plummeted to zero from a massive $16B, which reports point as, one of history’s greatest-ever destructions of wealth.
So how did the downfall of FTX and Sam Bankman-Fried start?
#1 How did it start?
It all started when reports came out, which revealed that the value of Bankman-Fried’s crypto trading firm, Alameda Research, was heavily reliant on the value of FTT.
To reiterate, Sam Bankman-Fried’s cryptocurrency conglomerate is divided into two parts — FTX (crypto exchange) and Alameda Research (trading firm).
According to the report, Alameda had $14.6B of assets as of June 30, but much of it is the FTT token issued by FTX. Consequently, Changpeng Zhao, CEO of Binance, who happens to be the first investor of FTX, announced to sell off its FTT token, triggering fears among investors.
Many began to withdraw the funds. However, many customers found it difficult to withdraw. As the day progressed, the situation worsened, and that’s when SBF sought help from Binance.
#2 Binance offered to help
Finally Binance, led by Changpeng Zhao, announced on Twitter to acquire FTX for an undisclosed amount after due diligence. However, he added that Binance could pull out from the deal anytime.
Soon after, Binance announced that it scrapped the deal to bail FTX, citing mishandled customer funds and alleged US agency investigations.
“Every time a major player in an industry fails, retail consumers will suffer. However, over the last several years, we have seen that the crypto ecosystem is becoming more resilient, and we believe in time that outliers that misuse user funds will be weeded out by the free market,” Binance tweeted.
#3 Sam Bankman-Fried’s response
Post-Binance’s announcement, Sam Bankman-Fried notified his employees about exploring other options for his firm.
The FTX CEO sought a rescue package of up to $9.4 billion for his troubled cryptocurrency exchange FTX, however, he had little progress in putting the rescue package together, reports Reuter.
#4 $600M wiped out due to hacking
FTX announced it had been hacked amid the turmoil, wiping out more than $600M on Friday. The crypto exchange stated in its official Telegram account that it had been compromised, instructing users not to install any new upgrades and to delete all FTX apps.
“FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don’t go on the FTX site as it might download Trojans,” wrote an account administrator in the FTX Support Telegram chat. FTX General Counsel Ryne Miller pinned the message.
A few hours later, Ryne Miller tweeted that FTX US and FTX.com had been moving all their digital assets to cold storage because of the Friday bankruptcy.
As a result, many FTX wallet holders reported $0 balances in their FTX.com and FTX US wallets. According to CoinDesk, the transfers occurred on the same day the firm filed for Chapter 11 bankruptcy protection in the US after losing or misappropriating billions of dollars in user funds.
#5 Filed bankruptcy
On Friday, FTX said it would file bankruptcy protection for FTX.com, FTX U.S., Bankman-Fried’s proprietary trading firm Alameda Research, and approximately 130 additional affiliated companies.
However, the crypto exchange reportedly didn’t notify all 134 companies named in the bankruptcy filing, and employees learned about it via Twitter. Further, the online report also said that Bankman-Fried sold FTX equity to employees at a 50% discount.
“Hopefully, things can find a way to recover. Hopefully, this can bring some amount of transparency, trust, and governance to them. This doesn’t necessarily have to mean the end for the companies or their ability to provide value and funds to their customers chiefly, and it can be consistent with other routes. Ultimately I’m optimistic that Mr. Ray and others can help provide whatever is best,” adds Sam
Sam Bankman Fried also stepped down as CEO, giving way to John J. Ray III.
“The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority, and stakeholder that we will conduct this effort with diligence, thoroughness, and transparency,” said the new chief.