The Fall of FTX — What Went Wrong?
FTX, once a crypto exchange valued more than $32 Billion, now a company struggling to stay afloat filing for bankruptcy.
On Nov. 11, the famous crypto exchange FTX collapsed. FTX’s former CEO Sam Bankman-Fried stepped down and the company filed for bankruptcy. More than 1 million users lost money during this crash, and probably won’t be expected to get their money back.
Piecing Together The Process, How Did FTX Fall?
Nov 2 — Coindesk reveals that Alameda’s main assets were FTT, the coin made by it’s sister company FTX causing fear, uncertainty, and doubt (Also known as FUD) in the community.
Nov 6 — CZ (Changpeng Zhao), CEO of the crypto exchange Binance tweeted that Binance would be selling any remaining FTT tokens held by them “due to recent revelations that have came to light”
Nov 6 to 8 — CZ’s tweet led to mass panic and triggered mass withdrawals from FTX and the rapid decline of FTT’s price.
Nov 8 to 11 — FTX suspends all non fiat withdrawals on the platform while CZ makes a deal to bail out FTX in order to prevent further decline in the crypto market.
Nov 9 — CZ withdraws from the original deal, he tweets that Binance will not be acquiring FTX due to news reports of “mishandled customer funds” and “alleged US Agency investigations”.
Nov 11 — FTX volantarily files for chapter 11 bankruptcy proceedings for FTX and Alameda. (Chapter 11 bankruptcy enables the company to continue operating while reviewing their debt unlike chapter 7 straightforward liquidation)
FTX reported that assets have been drained and their platform had been hacked. Coindesk reported that more than $600 million was drained from wallets. The exchange posts on Telegram “FTX has been hacked. FTX apps are malware. Delete them. Chat is open. Don’t go on FTX site as it might download Trojans.”
FTX is based in the Bahamas, where it is currently under criminal investigation. Former CEO Sam Bankman-Fried is known to reside there with 9 other colleagues who run the exchange with him.
Why Did FTX Fall?
From my perspective, I believe the root FTX’s collapse is greed and centralization.
Cryptocurrencies were originally invented as a decentralized currency, now twisted by greedy individuals to make money. Sam Bankman-Fried moved large sums of customer funds from FTX to his hedge fund Alameda, which he used to make himself high risk profits. Irresponsibly handled customer funds led to at least $1 billion in missing customer funds and the lack of liquidity to pay users trying to withdraw.
Centralized platforms like FTX will always have the risk of greedy people like Bankman-Fried screwing up. Greed is part of human nature, and it isn’t as easy as it sounds to overcome it and do the right thing. Centralization it gives the CEOs and founders of a project possibilities to be greedy, and when that happens no one wins :(
The people behind these scandals may change, but the ending never changes…
