FTX Exchange Collapse and Bankruptcy

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FTX Exchange Collage

FTX Trading Ltd., once a major cryptocurrency exchange firm valued at around $40 billion, collapsed over a 10-day period in November 2022. The catalyst for its fall was a report by CoinDesk on November 2, which revealed that Alameda Research, a quantitative trading firm also run by Sam Bankman-Fried, held a $5 billion position in FTT, the native token of FTX. This disclosure raised concerns about undisclosed leverage and solvency across Bankman-Fried's companies. Sam Bankman-Fried, the former crypto billionaire at the center of this scandal, is now facing the largest-ever pretrial bond, set at $250 million.

[1][2][3][4][5][6][7][8][9][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27][28][29][30][31][32][33][34][35][36][37][38][39][40][41][42][43][44][45][46][47]

About FTX

"FTX Trading Ltd. was one of the largest cryptocurrency exchange firms, known for its specialty in buying and selling crypto derivatives, and once valued at about $40 billion"

History Of FTX

Investors to FTX included Temasak, Paradigm, the Ontario Teachers’ Pension Plan Board, and NEA[48].

[49]

The Reality

FTX was a complicated corporate structure which allowed client assets to be used as collateral in risky trade deals conducted by Alameda Research.

A large portion of the assets of FTX were held in FTT, a token created by FTX. Rival exchange Binance held a large amount of FTT.

What Happened

FTX’s collapse took place over a 10-day period in November 2022.

Key Event Timeline - FTX Exchange Collapse and Bankruptcy
Date Event Description
January 31st, 2022 7:42:00 AM MST FTX Funds Raised FTX Trading, a major cryptocurrency exchange, raises $400 million in its third funding round in six months, increasing its valuation to $32 billion. The funding round saw participation from existing investors, including Temasak, Paradigm, the Ontario Teachers’ Pension Plan Board, and NEA. This comes shortly after FTX U.S., the independently operated sister exchange, also raised $400 million. FTX CEO Sam Bankman-Fried stated that this funding will support expansion into new regions and enhance their offerings. FTX has grown rapidly since its launch two years ago, with a 60% increase in its user base and an average daily trading volume of approximately $14 billion. Despite the recent crypto market downturn, Bankman-Fried expressed optimism, suggesting that the selloff isn't indicative of a long-term "crypto winter." Prior to the funding, Sam Bankman-Fried is worth an estimated $17.1b, the world's richest 29 year old[48].
November 2nd, 2022 CoinDesk Report Catalyst "The catalyst was a Nov. 2 scoop by crypto news site CoinDesk that revealed that Alameda Research, the quantitative trading firm also run by Bankman-Fried, held a position valued at $5 billion in FTT, the native token of FTX.

The report disclosed that Alameda’s investment foundation was also in FTT, the token that its sister company had invented, not a fiat currency or other cryptocurrency. That prompted concern across the cryptocurrency industry regarding Bankman-Fried’s companies’ undisclosed leverage and solvency."

November 6th, 2022 11:00:00 AM MST FTT Token Sale Rival exchange Binance sells all FTT tokens.
November 7th, 2022 Bailout Sought FTX announces liquidity crisis, seeks bailout from venture capitalists, then Binance.
November 8th, 2022 Binance Buy Out Binance says it will buy FTX’s non-U.S. business.
November 9th, 2022 Binance Walks Away Binance walks away from FTX acquisition after conducting due diligence.
November 10th, 2022 9:48:00 AM MST Python Script For Extracting Records Shane Barratt publishes a Python script for extracting tax information from the platform, and advises users to pull their data quickly while they still can[50].
November 10th, 2022 Bahamas Asset Freeze The Bahamas freeze assets of FTX’s subsidiary there; Bankman-Fried admits non-U.S. businesses’ liquidity crisis, says affiliate Alameda Research to wind down.
November 10th, 2022 2:46:01 PM MST Bahamian Resident

Withdrawals

Blockworks reports that FTX.com has "temporarily" halted withdrawals due to a solvency crisis and the search for new funding[51]. Although most FTX customers are still unable to withdraw their funds, withdrawal activity totaling up to $7.2 million was observed[51]. FTX confirmed via Twitter that individuals within the Bahamas were allowed to withdraw funds[51]. FTX stated that it is actively working on enabling withdrawals for users worldwide[51]. A former FTX staff member, Zane Tackett, revealed on Twitter that he had a significant portion of his funds stored on the exchange[51]. FTX allowed Tron-based tokens such as TRX, BTT, JST, SUN, and HT to be swapped from FTX to external wallets at a 1:1 ratio, thanks to an agreement with Tron[51]. This led to Tron (TRX) on FTX trading at approximately seven times the market price elsewhere[51]. FTX US, a separate entity, announced that trading "may be halted" in a few days but assured users that withdrawals will remain open[51]. Users were advised to close their positions as needed and await further updates[51].
November 11th, 2022 CEO Step Down Bankman-Fried steps down as FTX CEO, is replaced by a court-appointed CEO with restructuring experience. FTX files for Chapter 11 bankruptcy protection.
November 11th, 2022 2:14:45 PM MST Bankrupt But Trading Still Operating Blockworks reports that despite filing for bankruptcy, FTX continues to allow crypto trading on its platform. Customers are unable to withdraw funds, but trading on FTX's website and mobile app is functioning normally[52]. There has been over $200 million in spot bitcoin trading volume and over $300 million in volume for bitcoin and ether perpetual contracts on FTX, although volumes have been declining since its bankruptcy filings, and popular crypto trackers have removed FTX from their volume rankings[52]. A regulatory loophole in the Bahamas allows local accounts to still make withdrawals. Using the account tools provided by FTX is also easier for users to maintain their tax records[52].
November 12th, 2022 FTX Assets Hacked FTX reports an alleged hack, suspected to be up to $477 million, and moves its digital assets to cold storage for security reasons.
November 18th, 2022 Bahamas Asset Control The Bahamas takes control of FTX assets held there.
December 12th, 2022 Extradition Bankman-Fried is arrested by Bahamian authorities. He’s later extradited to the U.S.
December 22nd, 2022 Bail Bond Release Bankman-Fried is released on a $250 million bond, the largest in history, by a federal judge.
September 11th, 2023 5:00:06 PM MDT Crypto Liquidation Preparing for liquidation of assets held by FTX.
September 13th, 2023 11:41:00 AM MDT FTX Able To Use Assets CoinDesk reports that a judge in the U.S. Bankruptcy Court for the District of Delaware has ruled that crypto exchange FTX can sell, invest, stake, and hedge its crypto holdings to pay back creditors. The judge approved the motion and overruled objections, allowing FTX to use its crypto assets worth over $3.4 billion for these purposes. FTX had submitted a request for permission to engage in these activities in August, with the goal of limiting potential downside risk and generating low-risk returns on idle digital assets. The exchange also sought to hire Mike Novogratz of Galaxy Digital as an adviser. FTX recently disclosed holdings of $1.16 billion in Solana (SOL) and $560 million in Bitcoin (BTC), along with lesser-known illiquid tokens[53].[54]
September 14th, 2023 1:49:37 AM MDT Crypto News Flash Article Crypto News Flash reports that FTX Exchange has gained approval from the U.S. Bankruptcy Court to sell its cryptocurrency assets, which are valued at around $3.4 billion. This move is aimed at repaying its creditors and has garnered significant attention in the crypto market. The court's decision allows FTX to systematically sell, hedge, and stake its digital assets. While there have been concerns about potential market volatility (FUD) due to FTX's decision to liquidate its crypto assets, the current market appears stable, with Bitcoin showing a 0.75% increase in the past 24 hours, trading at $26,129.05[54].
September 14th, 2023 7:44:52 AM MDT Traders Impacted By FTX Liquidation Video mentioning FTX liquidation and impact on the market[55].

Technical Details

FTX was a complicated mix of corporate entities.

Corporate Entities

Alameda Trading

Total Amount Lost

The total amount lost has been estimated at $8,000,000,000 USD.

Immediate Reactions

The FTX platform remained online for a significant period of time after bankruptcy, allowing users to trade and gather tax information. Some users could even withdraw, if they were based in the Bahamas, using Tron tokens, or using the FTX US platform, which did not declare bankruptcy at the same time.


Platform Still Online During Bankruptcy

During a short period after filing for bankruptcy, FTX continued to allow crypto trading on its platform[52]. Customers were unable to withdraw funds, but trading on FTX's website and mobile app is functioning normally[52]. There were over $200 million in spot bitcoin trading volume and over $300 million in volume for bitcoin and ether perpetual contracts on FTX[52].

FTX's volumes have been declining since its bankruptcy filings[52]. While popular crypto trackers have removed FTX from their volume rankings, the exchange's markets remain operational[52]. This raises questions about why users would continue trading on an exchange when they can't withdraw their assets[52].

One reason for keeping the website and user accounts accessible is to allow customers to access their trading records, which are necessary for tax reporting and potential asset recovery processes in bankruptcy[50][52]. While this could still be done if the website is shut down, using the account tools provided by FTX makes it easier for users to maintain their records[52].

Withdrawals For Bahama User Accounts

In the period following the bankruptcy, many Bahama-based user accounts remained able to withdraw funds due to a regulatory loophole[52]. Although most FTX customers are still unable to withdraw their funds, limited withdrawal activity, totaling up to $7.2 million, was observed[51].

FTX confirmed via Twitter that individuals within the Bahamas were allowed to withdraw funds, indicating a potential prioritization of employees or insiders with verified local Bahamas accounts[51]. A former FTX staff member, Zane Tackett, revealed on Twitter that he had a significant portion of his funds stored on the exchange[51]. FTX stated that it is actively working on enabling withdrawals for users worldwide[51].

Users were taking advantage of this by using FTX's NFT marketplace to set up self-dealing auctions of low-value NFTs and then withdraw the proceeds as USDT stablecoins through Bahamas-based user accounts[52]. NFTs with no utility reportedly saw significant sales[52].

Withdrawals For Tron-Based Tokens

FTX allowed holders of Tron-based tokens such as TRX, BTT, JST, SUN, and HT to swap assets from FTX to external wallets at a 1:1 ratio, thanks to an agreement with Tron[51].

This led to a situation where Tron (TRX) on FTX was trading at approximately seven times the market price elsewhere[51].

Withdrawals Within FTX US

Shortly after FTX went bankrupt, FTX US, which is a separate entity, announced that trading "may be halted" in a few days but assured users that withdrawals will remain open[51]. Users were advised to close their positions as needed and await further updates[51].

Reactions On Twitter

[56][57]

Fail to understand trying to scapegoat CZ for everything. Would they rather FTX/Alameda continued operating the house of cards only for the inevitable fallout to be 10x worse? It's like pinning the Luna fiasco on everyone who cautioned about it

Sets very dangerous precedents.

for those wondering …

any money you have on FTX is pretty much lost

dark day in crypto, we simply pray for better times

love you all

gn

Ultimate Outcome

Sam Bankman-Fried, the former crypto billionaire at the center of this scandal, is now facing the largest-ever pretrial bond, set at $250 million. The conditions for his release include wearing an electronic monitoring bracelet, undergoing mental health counseling, and restricting his travel to certain U.S. districts.

Bankman-Fried, who voluntarily returned to the U.S. and has significantly reduced financial assets, was described by prosecutors as the mastermind behind "a fraud of epic proportions." Despite once leading a $32 billion crypto empire, he claimed to have only $100,000 left. Comparatively, his bail amount far exceeds those set for other high-profile white-collar defendants like Bernie Madoff, Jeff Skilling, and Elizabeth Holmes.


"In addition to the $250 million package, which prosecutors called “the largest-ever pretrial bond,” the former crypto billionaire would also be required to wear an electronic monitoring bracelet, submit to mental health counseling and restrict himself [to] travel within and between the Northern District of California and the Southern & Eastern Districts of New York.

Judge Gabriel Gorenstein said Bankman-Fried would require “strict” supervision following his release to his parents’ home in California.

His parents, both Stanford Law professors, were present in the courtroom. Bankman-Fried was flanked by two U.S. marshals, dressed in a blue suit and brown shoes. Bankman-Fried entered in ankle shackles as well, but traded them for his ankle monitor while in the courtroom."

"Bankman-Fried was the heart of “a fraud of epic proportions,” Assistant U.S. Attorney Nicolas Roos told the court. But he voluntarily returned to the United States, has no history of flight and has significantly reduced financial assets, Roos said.

Bankman-Fried had previously claimed that he was down to a mere $100,000, a steep fall from grace for a man who was once at the head of a $32 billion crypto empire."

"Bankman-Fried’s bail dwarfs other federal white-collar bonds. Bernie Madoff posted a $10 million bond while awaiting trial on his multibillion-dollar Ponzi scheme. Jeff Skilling, former Enron CEO, posted a $5 million bond, while Elizabeth Holmes, Theranos founder, posted a scant $500,000."

Total Amount Recovered

FTX's digital treasury includes significant holdings, such as $1.16 billion in Solana (SOL) and $560 million in Bitcoin (BTC), among other tokens.[54]

The total amount recovered is still being determined. A recent court ruling has allowed FTX to start selling and staking assets in order to repay creditors[53].

Ongoing Developments

The sale of assets is still ongoing[53].

Bankruptcy Liquidation Of Exchange Assets

FTX Exchange has gained approval from the U.S. Bankruptcy Court to sell its cryptocurrency assets, which are valued at around $3.4 billion. This move is aimed at repaying its creditors and has garnered significant attention in the crypto market. The court's decision allows FTX to systematically sell, hedge, and stake its digital assets.[54]

FTX had previously outlined its strategy, which includes hedging cryptocurrencies to protect against market fluctuations before selling assets like Bitcoin or Ether. They also plan to stake certain digital currencies to generate returns on dormant assets.[54]

The ownership of these digital assets was a point of contention during the court discussions. FTX clarified that the assets in question belong to the debtors and cannot be traced back to individual stakeholders.[54]

While there have been concerns about potential market volatility (FUD) due to FTX's decision to liquidate its crypto assets, the current market appears stable, with Bitcoin showing a 0.75% increase in the past 24 hours, trading at $26,129.05.[54]

Liquidation Impacts On Market

[48]

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.

References

  1. ↑ Zenith Owl - "" - Twitter (Nov 12, 2022)
  2. ↑ Ignacio de Gregorio Noblejas - Binance FTX War Ends In Collapse - Medium (Nov 14, 2022)
  3. ↑ The Biggest Exodus of Bitcoin Ever to Cold - Reddit (Nov 14, 2022)
  4. ↑ The Fall of FTX - Glassnode Insights (Nov 15, 2022)
  5. ↑ Former FTX CEO Sam Bankman-Fried loses Washington lobbyists - CNBC (Nov 17, 2022)
  6. ↑ There Are 225 Million Bitcoin Left on Exchanges - Reddit (Nov 24, 2022)
  7. ↑ Visualized: FTX's Leaked Balance Sheet - Visual Capitalist (Nov 29, 2022)
  8. ↑ Talking to Sam Bankman Fried - YouTube (Nov 30, 2022)
  9. ↑ I didn't ever try to commit fraud on anyone: Sam Bankman-Fried - YouTube (Nov 30, 2022)
  10. ↑ SBF Explains Losses! - YouTube (Dec 1, 2022)
  11. ↑ Sorry You’re Bankrupt - YouTube (Dec 1, 2022)
  12. ↑ FTX Disaster - 7 Unbelievable Bankruptcy Discoveries - YouTube (Dec 5, 2022)
  13. ↑ UK Treasury finalises plans for crypto regulation amid FTX downfall - Investment Week (Dec 9, 2022)
  14. ↑ You Got Robbed | FTX and BlockFI Crash - YouTube (Dec 11, 2022)
  15. ↑ Sam Bankman-Fried Applauded After Surreal Interview - Fully Crypto (Dec 12, 2022)
  16. ↑ unusual_whales - "" - Twitter (Dec 13, 2022)
  17. ↑ Crypto 24/7 - Projects Benefited By FTX Collapse - Medium (Dec 15, 2022)
  18. ↑ Sam Bankman-Fried in 'Good Spirits' in Rat-Infested Prison - Decrypt (Dec 15, 2022)
  19. ↑ I Accidentally Got SBF To Admit to Fraud - YouTube (Dec 16, 2022)
  20. ↑ FTX Was (And Is) A Complete Mess - YouTube (Dec 18, 2022)
  21. ↑ FTX Founder Sam Bankman-Fried To Be Released On - Reddit (Dec 22, 2022)
  22. ↑ House Financial Services Committee holds a hearing to investigate FTX collapse — 12/13/22 - YouTube (Dec 24, 2022)
  23. ↑ Alameda Wallets Funnel Over $1.7 Million Via Crypto-Mixers Overnight - ZeroHedge (Dec 29, 2022)
  24. ↑ Sam Bankman-Fried Arrested Immediately After Saying He Wouldn't Be Arrested - Vice (Jan 11, 2023)
  25. ↑ cz_Binance - "" - Twitter (Sep 12, 2023)
  26. ↑ FTX: Collapsed crypto giant recovers over $5bn of assets - BBC News (Sep 12, 2023)
  27. ↑ FTX founder Sam Bankman-Fried to be released on $250 million bail, will live with his parents - CNBC (Sep 14, 2023)
  28. ↑ ‘No Cooperation’: How Sam Bankman-Fried Tried to Cling to FTX - The New York Times (Sep 14, 2023)
  29. ↑ CoffeeZilla - "" - Twitter (Sep 14, 2023)
  30. ↑ SBF - MASK OFF - Rekt (Sep 14, 2023)
  31. ↑ SCBgov_bs - "" - Twitter (Sep 14, 2023)
  32. ↑ Sam Bankman-Fried and Two Former FTX Associates - Reddit (Sep 14, 2023)
  33. ↑ US senators commit to advancing crypto bill despite FTX collapse - Coin Telegraph (Sep 14, 2023)
  34. ↑ Mark Yusko - Is SBF a 'pawn' and 'useful idiot' in a bigger plot to take down crypto industry? - YouTube (Sep 14, 2023)
  35. ↑ Serious FTX Rumors - Securing Your Crypto - Reddit (Sep 14, 2023)
  36. ↑ I Accidentally Interviewed SBF And He Hated It - YouTube (Sep 14, 2023)
  37. ↑ Rep. Tom Emmer - - Twitter (Sep 14, 2023)
  38. ↑ Autism Capital - "" - Twitter (Sep 14, 2023)
  39. ↑ Sam Bankman Fried Was Arrested - YouTube (Sep 14, 2023)
  40. ↑ - YouTube (Sep 14, 2023)
  41. ↑ Caroline Ellison (CEO of Alameda) has been found! - YouTube (Sep 14, 2023)
  42. ↑ Kevin O'Leary Just Shocked Everyone With His Response To The FTX Collapse - YouTube (Sep 14, 2023)
  43. ↑ SEC Charges Caroline Ellison and Gary Wang with Defrauding Investors in Crypto Asset Trading Platform FTX - Reddit (Sep 14, 2023)
  44. ↑ FTX Is About To Liquidate $3.4 BILLION Of Crypto! (Alts Are In Trouble) - YouTube (Sep 14, 2023)
  45. ↑ FTX gets court approval to sell crypto assets - Reuters (Sep 14, 2023)
  46. ↑ The Collapse of FTX: What Went Wrong With the Crypto Exchange? - Investopedia (Sep 14, 2023)
  47. ↑ What Happened To FTX? The Crypto Exchange Fund’s Collapse Explained. - Forbes (Sep 14, 2023)
  48. ↑ 48.0 48.1 48.2 Billionaire Bankman-Fried’s Crypto Exchange FTX Lands $32 Billion Valuation And $400 Million In New Funding - Forbes (Sep 14, 2023)
  49. ↑ FTX Logo - VectorSeek (Sep 14, 2023)
  50. ↑ 50.0 50.1 Shane Barratt - "Given FTX site will likely go down soon, I made a (dependency-free) Python script to pull FTX fills/funding/borrow/lending/etc for taxes/accounting." - Twitter (Sep 19, 2023)
  51. ↑ 51.00 51.01 51.02 51.03 51.04 51.05 51.06 51.07 51.08 51.09 51.10 51.11 51.12 51.13 51.14 51.15 51.16 FTX Re-enables Withdrawals, But Only in Bahamas - Blockworks (Sep 19, 2023)
  52. ↑ 52.00 52.01 52.02 52.03 52.04 52.05 52.06 52.07 52.08 52.09 52.10 52.11 52.12 52.13 FTX is Bankrupt But You Can Still Trade Crypto There - Blockworks (Sep 19, 2023)
  53. ↑ 53.0 53.1 53.2 FTX Secures Court Approval to Sell Crypto Holdings, Including BTC and SOL - CoinDesk (Sep 14, 2023)
  54. ↑ 54.0 54.1 54.2 54.3 54.4 54.5 54.6 Billion Dollar Crypto Exchange FTX Gains Regulatory Nod to Offload $3.4 Billion in Bitcoin, Ethereum, and Ripple (XRP): No Market Impact Foreseen - Dispelling FUD - Crypto News Flash (Sep 14, 2023)
  55. ↑ Why The FTX Liquidation Will SURPRISE Everyone! - YouTube (Sep 14, 2023)
  56. ↑ Hsaka Trades - "Fail to understand trying to scapegoat CZ for everything. Would they rather FTX/Alameda continued operating the house of cards only for the inevitable fallout to be 10x worse? It's like pinning the Luna fiasco on everyone who cautioned about it. Sets very dangerous precedents." - Twitter (Nov 8, 2022)
  57. ↑ RookieXBT - "for those wondering … any money you have on FTX is pretty much lost dark day in crypto, we simply pray for better times love you all gn" - Twitter (Nov 8, 2022)
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