FTX, the world's second largest cryptocurrency exchange, went from being one of the industry's leading companies to bankruptcy in just one week, and its founder, Sam Bankman-Fried, was even targeted.
The team behind FTX, Alameda Research, even had a series of incidents with their competitor, Coin, what happened? I've compiled a lazy packet and timeline of the FTX incident for you!
Event Timeline
CoinDesk Reveals Alameda Research Balance Sheet
CoinDesk has published a feature article analyzing the leaked balance sheet of FTX CEO Sam Bankman-Fried's trading firm Alameda Research. The report reveals that the majority of Alameda's reserves are in FTTs, FTX's own native token, which Swan Bitcoin CEO Cory Klippsten calls "the token that FTX centrally controls and prints out of thin air". Alameda's holdings of FTX far exceeded the amount traded on the market, raising questions about the price of his shares and the company. FTX began to be noticed, and FUD began to spread.
Coin said it would sell FTT
Binance CEO Changpeng “CZ” Zhao said he plans to sell Binance's holdings in FTT (a position that dates back to Binance's early investment in FTX). CZ further compared FTT to the imploding LUNA token, and the price of FTT began to fluctuate after the news was released.
FTX
FTX suspends its withdrawal service, so it is clear that something is wrong. Currency Security signed a non-binding letter of intent to acquire FTX. In a tweet, CZ said that FTX is facing a severe liquidity crunch and is seeking Currency Security's help. After CZ revealed his acquisition plan, FTX plunged another 75%.
Coin cancellation of acquisition
After reviewing FTX's financials, Currency Security quickly changed direction and withdrew from the transaction, which Currency Security claimed were beyond Currency Security's control or ability to address.
CZ Continued pumping after the event - Proof of reserve
CZ has announced that it will be activating the Certificate of Reserves to give full transparency to the financial structure of Cryptocurrency Security.CZ has also recommended that all cryptocurrency exchanges participate and issue the Certificate of Reserves. According to the CEO, fractional reserves only apply to traditional banks and not to cryptocurrency companies.
The FTX incident is starting to spread throughout the cryptocurrency industry.
Crypto.com CEO Kris Marszalek wrote on Twitter that Crypto.com stopped withdrawing USDC and USDT on the Solana blockchain out of an abundance of caution, explaining that FTX plays an important role in trading the Solana stablecoin and operating the Solana bridge.
On the other hand, Solend, one of Solana's loan agreements, reported on Wednesday morning that it was having problems liquidating a large loan. It also banned all lending, according to its website.
U.S. Regulators Begin Investigation of FTX
FTX Chief Executive Officer Sam Bankman-Fried told investors he needed emergency funding to cover a shortfall of up to $8 billion due to withdrawal requests received in recent days, according to people familiar with the matter.
In addition to the liquidity crisis, the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission began investigating the relationship between FTX, Alameda Research and FTX US, as well as allegations that the firm mishandled client funds.
Alameda Research Collapses - FTX Seeks Cash Bailout
According to Reuters, FTX is seeking a bailout of about $9.4 billion from investors to restore liquidity after many users pulled out of funding FTX. SBF is reportedly in talks with rival exchange OKX and stablecoin issuer Tether. He is also seeking help from FTX investors, including Sequoia Capital. He is also trying to reach an agreement with Justin Sun, founder of blockchain network Tron, to allow holders of Tron-related tokens to withdraw their holdings from FTX.
FTX application for bankruptcy, SBF drop-offs
FTX filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, and SBF resigned as CEO. FTX, Alameda Research and approximately 130 subsidiaries initiate bankruptcy proceedings. John J. Ray III, an attorney who helped run Enron after the bankruptcy, is named CEO of FTX. SBF will continue to "assist in an orderly transition.
Customer Funds Stolen
At least $1 billion in FTX client accounts have disappeared. A large portion of that (between $1 - $2 billion) disappeared after SBF transferred $10 billion in customer funds from FTX to Alameda Research. Separately, FTX said it was investigating "unauthorized transactions" after blockchain analytics firm Elliptic said $473 million in assets were transferred from FTX wallets in the early hours of the morning. In a tweet that morning, FTX's U.S. general counsel Ryne Miller said the company had taken precautions to move all digital assets to cold storage.
Intervention by the Bahamas
The Bahamian police said they are working with the Bahamas Securities Commission to investigate the company to determine if any criminal misconduct occurred. According to Bloomberg, FTX co-founder SBF was interviewed by Bahamian police and regulators on November 12th.
SBF is revealed to have set up a backdoor to access FTX funds at will.
FTX's legal and financial teams discovered that SPF was using customized software to set up a "back door" in FTX's bookkeeping system. The "back door" allowed SBF to execute orders that could alter the company's financial records without alerting any auditors. This setup meant that the transfer of $10 billion in funds to Alameda did not trigger any signals within FTX.
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