FTX, previously one of the world’s largest cryptocurrency exchanges, has taken a major hit.
Previously valued at $32 billion, CEO Sam Bankman-Fried’s wealth simmered down to $991.5 million as FTX, its sister firm Alameda Research and 130 affiliated companies under the banner of FTX filed for bankruptcy, according to Forbes.
John J. Ray III has replaced Bankman-Fried as CEO but this saga has had a ripple effect felt throughout the crypto industry.
“The fall of FTX could be the moment that really kicks off the broader decline — maybe even demise — of cryptocurrency,” James Royal, Bankrate reporter, told CNBC Make It.
A timeline: What happened to FTX?
How FTX became vulnerable at first
- It began when CoinDesk reported on a curious detail in trading firm Alameda Research’s balance sheet.
“That balance sheet is full of FTX — specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace,” the report published on Nov. 2 stated.
This indicated that Bankman-Fried’s Alameda Research largely depended on a cryptocurrency that FTX invented, and not an independent cryptocurrency.
- After the report was published, Binance CEO Changpeng Zhao, who had invested in FTX and been paid more than $2.1 billion in FTT, announced troubling news of his withdrawals.
“Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books,” Zhao said in a series of tweets on Nov. 6.
“We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete,” he said, adding that “every time a project publicly fails it hurts every user and every platform”
Did Binance try to help FTX?
- According to CNBC News, this pushed others to withdraw their funds from FTX as well. The price of the cryptocurrency dropped 72% as did the value of FTX’s assets tied to it.
Nearly $6 billion exited FTX in the 72 hours following Zhao’s tweets, per Reuters. (Cryptocurrency exchanges usually deal with withdrawals closer to “tens of millions.”)
- It quickly became clear that FTX could not handle all requests. According to Decrypt, this is where Zhao stepped in.
On Nov. 8, he tweeted: “This afternoon, FTX asked for our help.”
“To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch,” Zhao said.
Bankman-Fried also took to Twitter and said that “things have come full circle, and FTX.com’s first, and last, investors are the same.”
The CEO said that while there have been rumors that Binance and FTX were at odds as the two biggest crypto exchanges, Binance’s CEO is “committed to a more decentralized global economy while working to improve industry relations with regulators.”
Why did Binance pull out of helping FTX?
- But Zhao alone couldn’t fix the situation. The next day, Binance said that it had decided not to pursue acquiring FTX due to corporate due diligence, as well as reports which alleged mishandled customer funds and an alleged government investigation.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” the statement read.
“We believe in time that outliers that misuse user funds will be weeded out by the free market,” it said. Zhao even went on to post an explanation for his decision.
The end of FTX
- After another try at saving what was left, Bankman-Fried filed FTX, FTX US and Alameda for bankruptcy on Nov. 11.
- In a series of tweets, he apologized for the circumstances and hoped for recovery as well as advancement in the governance of cryptocurrencies.
“I’m piecing together all of the details but I was shocked to see things unravel the way they did earlier this week,” he said.