Ajitansh Kar, Gurugram, 20 November 2022
FTX was the second largest crypto exchange in the world and was seen as a revolution in the space of centralised crypto exchanges. A while back the company was valued at a little more than $32 billion; it is apparently not even worth a dollar with the events that took place last week. Its founder Sam Bankman Fried was considered as the poster child for crypto currencies and was an advocate for Decentralised finance promoting it heavily on various platforms. Sam started his career working for Jane Street capital as a trader and subsequently went on to start FTX, an exchange which allowed users to purchase various crypto currencies. Although the company started in 2019 and is only 3 years old, it became quite popular and scaled new heights in very little time. FTX started sponsoring various events and sports franchises such as that of Mercedes Petronas AMG, Miami Heat, MLB, etc. All was going well until a few revelations made last week, which caused havoc and chaos in people’s minds that eventually led to FTX going bankrupt and halting withdrawals for all its users.
The story starts at the time when FTX was growing steadily and was becoming popular among enthusiasts of crypto. People were very excited about what FTX offered and were impressed by the services it provided. Binance, the largest crypto exchange in the world decided to invest in FTX and ironically it went on to become Binance’s largest competitor. Problems for FTX started when the relationship between Changpeng Zhao (Founder of Binance) and Sam Bankman Fried started to deteriorate and financials of FTX and Alameda research (a quantitative crypto trading firm established by Sam) started to flood the internet. SBF (Sam Bankman Fried) was very active in politics and was one of the largest contributors towards Joe Biden’s election campaign. He was also active in trying to help the US government formulate laws and regulate the crypto industry. CZ (Changpeng Zhao) tweeted a while back to inform how FTX lobbied against its rivals trying to establish dominance over others in the industry and shared his resentment over the same.
Meanwhile, it was revealed that Alameda research had most of its assets in the form of FTT tokens, that were FTX’s own currency. It was also revealed that Sam moved around $10 billion worth of funds from FTX to Alameda. The money moved from FTX to Alameda was used to pump up the prices of FTT. CZ also tweeted that Binance was going to sell all its holdings in FTT (around $580 million); clearly a move to cut all his associations with FTX due to the latter’s lobbying efforts against rival exchanges. This caused panic in the market and people started to sell all their FTT tokens. The tokens lost 75% of their value in a single day on 8 November 2022 and FTX saw withdrawals of upwards of $6 billion in just 72 hours. Due to the significant liquidity crunch at the company, they were compelled to shut down withdrawals and file for bankruptcy.
It is now being claimed that more than $1 billion of users funds have evaporated from FTX. CZ announced that Binance gave FTX a Letter of Intent (LOI) for acquiring the company but did not do so due to the bad quality of assets which FTX had on its balance sheet and the liquidity crunch it was suffering from.
All that the users of FTX have left is hope of recovering their hard earned money that they entrusted FTX with; but due to the crypto industry not being regulated, it seems next to imposible for customers to get back their funds unless someone acquires the now defunct exchange.
