Ruin the Fall of Crypto Exchange FTX with a Web of Financial Misdeeds

FTX's financial misdeeds were a long time coming, but the final blow came when the exchange's CEO, Sam Bankman-Fried, was forced to resign in November 2022.

The company's collapse was a result of a series of financial missteps, including using customer funds to cover its own losses and engaging in a series of risky trades that ultimately backfired.

FTX was also accused of misrepresenting its financial health to investors and customers, claiming to have more liquidity than it actually did.

The company's lack of transparency and accountability ultimately led to its downfall, as investors and customers lost trust in the exchange and withdrew their funds.

FTX, a leading cryptocurrency exchange, went bankrupt in November 2022 due to allegations of embezzlement and misusing customer funds. Sam Bankman-Fried, the CEO, was sentenced to 25 years in prison and ordered to repay $11 billion.

The collapse was triggered by a CoinDesk scoop on November 2, revealing that Alameda Research, a sister company, held the majority of its assets in FTT and other tokens invented and controlled by FTX insiders.

Scores of investors and customers pulled their funds from FTX, making it insolvent and forcing it to declare bankruptcy.

The collapse of FTX was a result of several key factors.

A major catalyst for the collapse was a November 2 scoop by crypto news site CoinDesk, revealing that the majority of assets held by Alameda Research consisted of FTT and other tokens invented and controlled by FTX and its insiders.

FTX's reliance on Alameda Research was a significant concern, as it created a precarious financial situation.

Scores of investors and customers pulled their funds from FTX after the revelations, forcing the exchange to become insolvent and declare bankruptcy.

FTX's financial management risks were exacerbated by its use of "precarious financial accounting metrics".

The US Securities and Exchange Commission is one of the key organisations that played a role in the FTX collapse.

The Commodity Futures Trading Commission (CFTC) is another significant regulatory body involved in the FTX saga.

FTX itself was a major player in the collapse, being the company at the center of the crisis.

Here are some of the key organisations involved in the FTX collapse:

On-chain data analysis reveals a crucial link between Terra-Luna's collapse and FTX's bankruptcy.

High-quality on-chain data from Glassnode (2023) shows that both FTX and Alameda Research suffered from a credit crunch after the failure of the algorithmic stablecoin.

The decrease in FTT's price and the increased difficulty in obtaining credit from lenders led to this situation.

Bankruptcies in summer 2022, such as 3AC, Voyager Digital, and Celsius, contributed to market uncertainty and decreased lending volume.

This resulted in a generalised down-market and made it difficult for FTX and Alameda Research to control FTT price.

As a consequence, the leverage mechanism described in Figure 1 was abruptly interrupted.

The CEO of Alameda Research informed employees that the firm used FTX clients' funds to pay back creditor's loans recalled due to the credit crunch.

An apology letter from Sam Bankman-Fried to employees further confirms the crucial role of Terra-Luna's failure in FTX bankruptcy.

He stated that the events leading to the breakdown in November 2022 included a crash in markets this spring (Terra-Luna) that led to a roughly 50% reduction in the value of collateral.

FTX started selling its reserves in May 2022, slightly after the Terra-Luna collapse, to overcome the credit crunch.

In contrast, its main competitor, Binance, did not sell its reserves at this time.

FTX's collapse was a result of a combination of factors, including a lack of regulation and a flawed business model.

The company's use of customer funds for trading and other purposes was a major red flag.

Sam Bankman-Fried, FTX's CEO, had touted the exchange as a safe and secure platform, but behind the scenes, things were chaotic.

FTX's balance sheet was a mess, with a significant amount of debt and a lack of transparency.

The company's Alameda Research trading arm was also heavily leveraged, which added to the overall risk.

In the end, it was the combination of these factors that led to FTX's downfall.

Binance, one of the largest crypto exchanges in the world, has a significant stake in the centralized finance (CeFi) sector.

The company's CEO, Changpeng Zhao, has been vocal about the benefits of CeFi, citing its ability to provide liquidity and stability to the crypto market.

Binance's own CeFi products, such as Binance Lending, allow users to earn interest on their crypto holdings, which has attracted a large following.

However, the company's focus on CeFi has also raised concerns about its potential to undermine the decentralized nature of the crypto market.

In an interview, Zhao acknowledged that CeFi has its risks, but argued that the benefits outweigh them.

Binance's CeFi offerings have been a major contributor to the company's growth, with its lending products generating significant revenue.

The company's aggressive expansion into CeFi has also led to increased scrutiny from regulators, who are concerned about the potential for market manipulation and other risks.

FTX customers are still waiting for their assets to be returned, with some reports indicating that only a small fraction of users have received their funds back.

The collapse of FTX has left many customers with significant financial losses.

According to reports, FTX owes its customers over $8 billion in assets.

FTX's bankruptcy has sparked a global investigation into the company's financial dealings.

Some customers have reported receiving emails from FTX offering to return their assets, but these claims are yet to be verified.

FTX's failure has also led to a significant increase in the use of alternative cryptocurrency exchanges.

The US Securities and Exchange Commission (SEC) is investigating FTX's collapse, along with other regulatory bodies.