The FTX and Sam Bankman-Fried Collapse, Explained
Not too long ago, Sam Bankman-Fried was considered one of the most powerful, influential, and effective industry leaders in the cryptocurrency space. Sam Bankman-Fried, also known as “SBF,” is the founder and former CEO of FTX, one of the largest crypto exchanges in the world. He also founded Alameda Research, a quantitative crypto trading firm.
If you ask some experts and analysts, they would tell you that SBF was THE face of crypto. Last year, FTX signed a naming rights deal for the Miami Heat’s home stadium worth around $135 million. It’s a far cry from what has unfolded over the past several weeks, which has many wondering: how did all of this happen?
How Did It All Start?
It all began with a Coindesk report revealing that Alameda Research was heavily invested in the FTT token, the native token of the FTX exchange. There were significant concerns about the fact that Alameda’s single biggest asset was not just FTT tokens - but FTT tokens that had yet to be unlocked. In other words, these tokens weren’t even in circulation yet.
Many high-profile figures within the sector were immediately skeptical of the balance sheet, including Changpeng Zhao. Changpeng Zhao, or “CZ,” is the CEO of Binance, the world’s largest crypto exchange (and FTX rival). Zhao announced on Twitter that he would sell his remaining FTT tokens.
Attempts To Save FTX
Even though Bankman-Fried and others tried to ease the industry panic, the damage was already done. The price of the FTT token plummeted, and the rumors about insolvency spread far and wide. The exchange began halting withdrawals, causing even more panic across the sector.
For a brief moment, it seemed like the situation could be salvaged. Binance announced a non-binding LOI to acquire FTX. While it might not be ideal for FTX, it seemed like the industry panic could subside and that FTX users would be protected. Unfortunately, that did not last, as Binance backed out of the deal mere hours after examining FTX’s books.
Justin Sun, the founder of the Tron cryptocurrency network, also hinted at “putting together a solution” for FTX. Unfortunately, it was too late.
Where Do FTX and Sam Bankman-Fried Stand Now?
FTX ended up filing for Chapter 11 bankruptcy. The impact on the crypto trading world is massive: there could be over 1 million creditors in the new bankruptcy filing. As if that wasn’t enough, a cybercriminal (or group of cybercriminals) was able to exploit $600 million from the beleaguered exchange. Whoever was behind the attack is now the 35th largest Ether holder in the world.
Skeptics believe that it was an inside job and that FTX employees had siphoned out the funds knowing their time was up. After his personal fortune has tanked around 94%, SBF claims that he would wind down Alameda Research and eventually break down precisely what happened with FTX.
This is a wild ride for Sam Bankman-Fried, who was once worth as much as $26 billion. Around 130 companies associated with FTX have also filed for bankruptcy, which certainly has larger implications for the crypto ecosystem.As of press time, Bankman-Fried was detained and interrogated in The Bahamas.
Bahamian regulators have also frozen FTX assets. Numerous regulatory agencies, including the U.S. Department of Justice, the SEC, and the CFTC, have also hinted that they are investigating FTX. While it’s impossible to predict whether SBF will face criminal prosecution, it’s clear that the FTX fiasco is one of crypto’s biggest disasters to date.
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