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Bankruptcy of FTX
The bankruptcy of FTX, a Bahamas-based cryptocurrency exchange, began in November 2022. The collapse of FTX, caused by a spike in customer withdrawals that exposed an $8 billion hole in FTX's accounts, served as the impetus for its bankruptcy. Prior to its collapse, FTX was the third-largest cryptocurrency exchange by volume and had over one million users.
On 2 November 2022, CoinDesk published an article stating that Alameda Research, a trading firm affiliated with FTX and owned by FTX chief executive Sam Bankman-Fried, held a significant amount of FTX's exchange token, FTT. The article triggered a spike in withdrawals from FTX, but eventually, customers became unable to retrieve the money they had deposited in the exchange. On 11 November, FTX, Alameda Research, and over 100 affiliated entities filed for bankruptcy. Bankman-Fried resigned as FTX CEO and was replaced by John J. Ray III.
The collapse of FTX has had a wide impact on cryptocurrency markets, with comparisons made to the Enron scandal and Madoff investment scandal, and was described by federal prosecutors as "one of the biggest financial frauds in American history". Following the bankruptcy, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries. Bankman-Fried's net worth, estimated at $16 billion prior to the collapse, was reported as having been wiped out, and several institutional investors of FTX wrote off their investment stakes in the company. Some $473 million in funds were later taken from FTX in an "unauthorized transaction". The collapse of FTX resulted in a ripple effect across cryptocurrency markets, with the price of Bitcoin falling to its lowest level in two years.
In late 2022 and early 2023, key executives from FTX and Alameda, such as Caroline Ellison, Gary Wang, and Nishad Singh, pleaded guilty to defrauding FTX customers and related charges. In October 2023, all three testified that it was Bankman-Fried who directed them to commit fraud. On 2 November 2023, Sam Bankman-Fried was convicted of defrauding customers of FTX and lenders of Alameda Research.
Sam Bankman-Fried cofounded Alameda Research, a cryptocurrency trading firm, in 2017. In 2019, Bankman-Fried had the idea of starting a cryptocurrency exchange to help bring in revenue to fund Alameda's activities and founded FTX. Bankman-Fried was the CEO of both companies until he formally stepped down from his position at Alameda in October 2021, promoting traders Caroline Ellison and Sam Trabucco to co-CEOs. Ellison was reported to have a romantic involvement with Bankman-Fried. As of August 2021, Bankman-Fried still owned 90% of Alameda.
The close relationship and potential conflicts of interest between Alameda and FTX drew scrutiny from the rest of the cryptocurrency industry. Alameda was once the largest trader on FTX, bringing liquidity to the exchange. Between 1 June 2022 and 22 July 2022, Alameda's known wallets were the largest stablecoin depositors and sources of liquidity to all of FTX's known wallet addresses, accounting for 10% of Tether transfers and 30% of USD Coin transfers on the exchange. According to John J. Ray III, Alameda had a "secret exemption" from FTX's auto-liquidation protocol.
Alameda Research suffered a series of losses in May and June 2022, which anonymous sources told the Wall Street Journal resulted in FTX lending the trading firm more than half of its customer funds, a decision that the sources said FTX CEO Sam Bankman-Fried described as a "poor judgment call". This was explicitly forbidden by FTX's terms of service. On 12 November 2022, the Wall Street Journal reported that anonymous sources had said that Alameda CEO Caroline Ellison said that she, Bankman-Fried, Gary Wang, and Nishad Singh were aware of that decision. The same was reported in the New York Times on 14 November 2022. FTX used software to conceal the misuse of customer funds.
Following months of arguments and disagreements between Changpeng Zhao, the CEO of Binance, and Bankman-Fried, tensions between the two had intensified days before the crisis. Zhao's firm Binance had obtained $2.1 billion in Binance USD and FTT coins in 2021, following a deal in which FTX bought back an equity stake held by Binance in FTX, and in early November 2022, it had 23 million FTT tokens, worth about $529 million at the time. On 2 November, Ian Allison of CoinDesk reported that 40% of Alameda Research's $14.6 billion in assets was FTT token, whether unlocked (their biggest asset), locked or collateral (their third biggest asset).
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Bankruptcy of FTX
The bankruptcy of FTX, a Bahamas-based cryptocurrency exchange, began in November 2022. The collapse of FTX, caused by a spike in customer withdrawals that exposed an $8 billion hole in FTX's accounts, served as the impetus for its bankruptcy. Prior to its collapse, FTX was the third-largest cryptocurrency exchange by volume and had over one million users.
On 2 November 2022, CoinDesk published an article stating that Alameda Research, a trading firm affiliated with FTX and owned by FTX chief executive Sam Bankman-Fried, held a significant amount of FTX's exchange token, FTT. The article triggered a spike in withdrawals from FTX, but eventually, customers became unable to retrieve the money they had deposited in the exchange. On 11 November, FTX, Alameda Research, and over 100 affiliated entities filed for bankruptcy. Bankman-Fried resigned as FTX CEO and was replaced by John J. Ray III.
The collapse of FTX has had a wide impact on cryptocurrency markets, with comparisons made to the Enron scandal and Madoff investment scandal, and was described by federal prosecutors as "one of the biggest financial frauds in American history". Following the bankruptcy, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries. Bankman-Fried's net worth, estimated at $16 billion prior to the collapse, was reported as having been wiped out, and several institutional investors of FTX wrote off their investment stakes in the company. Some $473 million in funds were later taken from FTX in an "unauthorized transaction". The collapse of FTX resulted in a ripple effect across cryptocurrency markets, with the price of Bitcoin falling to its lowest level in two years.
In late 2022 and early 2023, key executives from FTX and Alameda, such as Caroline Ellison, Gary Wang, and Nishad Singh, pleaded guilty to defrauding FTX customers and related charges. In October 2023, all three testified that it was Bankman-Fried who directed them to commit fraud. On 2 November 2023, Sam Bankman-Fried was convicted of defrauding customers of FTX and lenders of Alameda Research.
Sam Bankman-Fried cofounded Alameda Research, a cryptocurrency trading firm, in 2017. In 2019, Bankman-Fried had the idea of starting a cryptocurrency exchange to help bring in revenue to fund Alameda's activities and founded FTX. Bankman-Fried was the CEO of both companies until he formally stepped down from his position at Alameda in October 2021, promoting traders Caroline Ellison and Sam Trabucco to co-CEOs. Ellison was reported to have a romantic involvement with Bankman-Fried. As of August 2021, Bankman-Fried still owned 90% of Alameda.
The close relationship and potential conflicts of interest between Alameda and FTX drew scrutiny from the rest of the cryptocurrency industry. Alameda was once the largest trader on FTX, bringing liquidity to the exchange. Between 1 June 2022 and 22 July 2022, Alameda's known wallets were the largest stablecoin depositors and sources of liquidity to all of FTX's known wallet addresses, accounting for 10% of Tether transfers and 30% of USD Coin transfers on the exchange. According to John J. Ray III, Alameda had a "secret exemption" from FTX's auto-liquidation protocol.
Alameda Research suffered a series of losses in May and June 2022, which anonymous sources told the Wall Street Journal resulted in FTX lending the trading firm more than half of its customer funds, a decision that the sources said FTX CEO Sam Bankman-Fried described as a "poor judgment call". This was explicitly forbidden by FTX's terms of service. On 12 November 2022, the Wall Street Journal reported that anonymous sources had said that Alameda CEO Caroline Ellison said that she, Bankman-Fried, Gary Wang, and Nishad Singh were aware of that decision. The same was reported in the New York Times on 14 November 2022. FTX used software to conceal the misuse of customer funds.
Following months of arguments and disagreements between Changpeng Zhao, the CEO of Binance, and Bankman-Fried, tensions between the two had intensified days before the crisis. Zhao's firm Binance had obtained $2.1 billion in Binance USD and FTT coins in 2021, following a deal in which FTX bought back an equity stake held by Binance in FTX, and in early November 2022, it had 23 million FTT tokens, worth about $529 million at the time. On 2 November, Ian Allison of CoinDesk reported that 40% of Alameda Research's $14.6 billion in assets was FTT token, whether unlocked (their biggest asset), locked or collateral (their third biggest asset).