FTX: A tale of innovation and disruption in the world of cryptocurrency
The unexpected collapse of FTX, a major cryptocurrency exchange, left investors reeling
19 January 2023
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Jayashri Ghorpade
In its prime, FTX spent its money on a number of sponsorship deals.
When CoinDesk published a damning report about Alameda Research, a crypto trading firm also owned by Bankman-Fried, things began to sour for FTX.
According to CoinDesk, the majority of Alameda Research's assets on its balance sheet were made up of FTX's native FTT token, which the firm relied heavily on.
On November 11th, FTX and Alameda Research filed for Chapter 11 bankruptcy and Bankman-Fried stepped down as CEO.
FTX, one of the newer cryptocurrency platforms that had become wildly popular in 2021, was pegged by some as a key competitor to Coinbase in the retail investor market. Sam Bankman-Fried and Gary Wang launched FTX in May 2019, two years after Bankman-Fried founded Alameda Research, a quantitative trading firm specializing in cryptocurrency.
It used to offered derivatives, options, tokenised stocks, leveraged tokens and an NFT marketplace. It has also launched its own utility token, FTT.
In August 2020, FTX acquired Blockfolio for $150 million, giving it access to one of the largest cryptocurrency services for retail investors.
Things began to go down for FTX when CoinDesk published a report about Alameda Research, the crypto trading firm also owned by Bankman-Fried. It stated that, Alameda Research relied heavily on FTX’s native FTT token and made up the majority of its assets on Alameda’s balance sheet.
The intertwined nature of the two businesses and their potential to manipulate and artificially inflate the value of FTT raised concerns, spelling even bigger problems for
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Bankman-Fried. After this came to light, Changpeng "CZ" Zhao, the CEO of the crypto exchange Binance, announced his plans to sell Binance's FTT holdings, causing panicked investors to withdraw their funds from FTX.
The result was that had FTX processing more customer withdrawals than it could actually afford. FTT has since plunged in value.
FTX and Alameda Research filed for Chapter 11 bankruptcy on November 11th, and that’s also when Bankman-Fried stepped down as CEO. According to an analysis by Bloomberg, Bankman-Fried's net worth plummeted by 94 percent in a single day, going from around $16 billion to $1 billion.
According to the most recent news, Sam Bankman-Fried is back in the US, released on $250 million bail.
The sudden and catastrophic collapse of FTX sent reverberations throughout the entire cryptocurrency industry. Once the third-largest cryptocurrency exchange, FTX is now in a death spiral that has billions of dollars left in shatters.
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