What’s happening with FTX? Here’s the latest on the downfall of a shining beacon of crypto
For the third time this year, the crypto world is careening—this time, after the downfall of cryptocurrency exchange FTX, a giant in the space. FTX’s liquidity crisis sent token prices off a cliff, as well as the community spiraling over the stunning revelation that a shining beacon of crypto was now underwater.
After a whirlwind 72 hours, details have tumbled out suggesting FTX was fighting an internal battle to stay afloat for months now. Three people familiar with the exchange’s operations told Reuters that in May and June, FTX’s sister company, trading firm Alameda Research, suffered devastating losses in the wake of the two crashes precipitated by the Terra-Luna tokens and the Celsius network. FTX chief Sam Bankman-Fried then made the call to bail out Alameda with $4 billion in FTX funds, which appear to have been transferred in September, based on blockchain analytics. According to the Reuters report, Bankman-Fried did not tell any other executives of the move, fearing it might be leaked to the public.
In a report from the Wall Street Journal, a source shared that FTX used customer assets to fund some of Alameda’s risky bets. In investor meetings this week, Bankman-Fried revealed that Alameda currently owes FTX about $10 billion, sources told the Journal. They also said that FTX had a total of $16 billion in customer assets—meaning it lent more than half to Alameda.
We’ve reached out to FTX for comment about the reports and will update this post if we hear back.
The massive hole in FTX’s finances finally threatened to swallow the company this week, after a leaked Alameda balance sheet was reported by CoinDesk, which showed a suspiciously close relationship between the two entities, as well as the fact that Alameda counted a large number of its collateral in FTX’s own token, FTT.
Troubles brewed over when investors began to sell off FTT in response. When Binance chief Changpeng Zhao tweeted that his firm would be dumping its roughly $580 million worth of FTT, it was the nail in the coffin.
Even so, after a deal for Binance to take over FTX fell through, FTX is now scrambling to raise liquidity. According to a report from Reuters, Bankman-Fried has been in talks with Chinese crypto billionaire Justin Sun, founder of the Tron token, to buoy FTX with $1 billion. In total, Bankman-Fried hopes to put together a $9.4 billion rescue package with another $1 billion from crypto exchange OKX, $1 billion from Tether, and $2 billion from a consortium of investment funds, but has had little success so far, a source told Reuters.
Meanwhile, the U.S. Securities and Exchange Commission and Department of Justice are both probing FTX’s collapse. According to a report from Semafor, most of FTX’s legal and compliance staff quit earlier this week, leaving few to answer questions at the company’s Bahama headquarters.
This story is developing…
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