The Collapse of FTX: How the World's Largest Crypto Exchange Fell

The Collapse of FTX and Sam Bankman-Fried!

The cryptocurrency industry has seen several major projects collapse in the last seven months. Terra, Celsius, Three Arrows Capital, Voyager, and now FTX, the biggest crypto exchange in the world, filed for bankruptcy on November 11th.

This article takes a closer look at the collapse of FTX and Sam Bankman-Fried.
How it all went down On November 2nd, 2022, a crypto news website, CoinDesk, released an article on Alameda's balance sheet.

Alameda is a quantitative cryptocurrency trading firm founded by FTX's Sam Bankman-Fried in 2017. It is a separate entity from FTX, although suspicions of their close financial ties have always been present.

Alameda's balance sheet showed that over one-third of the $14.6 billion in assets held by Alameda research was made up of FTX's native token, FDT, and significant amounts of salt and other Solana ecosystem tokens.

On the same day, Caroline Ellison, Alameda research CEO, tweeted that the balance sheet information that was released only tells a portion of the reality.

A few days later, in response to Changpeng Zhao's announcement that Binance would sell its FT tokens, Caroline Ellison offered to buy Binance's FT holdings for $22.00 per token.

CZ's response was that they would stay in the free market. FTX's prices started falling after reports surfaced that FTX was running low on reserves, which triggered the run on FTX.

Fearful users rushed to withdraw funds from FTX and dumped their FT holdings. SBF tweeted to reassure users that assets were fine and withdrawals were being processed. Not even 24 hours later, FTX halted non-Fiat withdrawals.

On November 9th, both SBF and CZ announced on Twitter about their agreement for Binance to buy FDX to solve the liquidity issue and protect users. However, CZ added that Binance has the discretion to pull out from the deal at any time.

Binance pulled out of the deal just a little less than a day later, stating that it had arrived at that decision as a result of corporate due diligence.

On November 11th, FTX filed for bankruptcy, and Sam Bankman-Fried announced his resignation. More than $400 million was siphoned from FTX, and the exchange became a vector for malware.

FTX's collapse dealt a blow to an already struggling crypto market, and following the news, the overall cryptocurrency market cap plunged around 20% in a week from $1.01 trillion to roughly $830 billion.

Effects of the collapse

The FTX collapse had a ripple effect on the industry. Some major projects were also affected due to exposure to the exchange. Platforms like BlockFi had to pause withdrawals and even ask clients not to submit any deposits to BlockFi wallet count interest accounts.

Investment firms like Sequoia Capital and Galois Capital were also exposed to the FTX collapse, with the latter reporting having roughly half of its capital stuck on FTX.
The Solana Foundation also disclosed in a blog post that it held 134.54 million tokens and 3.43 million FTT tokens on FTX.

The blockchain took a bigger blow from the FTX collapse, with FTX issued wrapped assets becoming completely unbacked.

Conclusion The FTX collapse has dealt a massive blow to the cryptocurrency industry, leading to major projects being affected due to exposure to the exchange.

This article emphasizes the importance of keeping funds safe, especially during times of market uncertainty.
Asad

blockchain cryptocurrencies and decentralized systems, I will continue to bring you all this in detail in this blog and many more technologies that are currently in development.

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