Why did FTX fail and collapse?

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Main topic: Tech
Other topics: Crypto, FTX
Short answer:
  • FTX lent sister company Alameda Research an estimated $10 billion in customer funds.
  • They filed for bankrupcy on 11 November 2022.

It started with Coindesk article about Alameda caused withdrawal run on FTX[edit]

  • Coindesk reported on 2 November 2022 that Alameda Research, the sister proprietary investment firm also owned by Sam Bankman-Fried, was possibly insolvent. It had $8 billion in liabilities and $15 billion in assets, but most of these assets were the highly volatile FTT, SOL, and other Solana tokens.[1]

FTX is estimated to owe clients $9.4B[edit]

Size of FTX's balance sheet hole. Canva file available here.
  • Reuters reported that Bankman-Fried was trying to raise $9.4 billion from investors.
  • The WSJ also reported that FTX needed $8 billion to cover withdrawal requests.[2] FTX lent $10 billion to its sister company Alameda Research, out of a total of $16 billion in customer deposits.[3]
  • Earlier, FTX was looking for $1 billion, according to Semafor.[4]

FTX paused withdrawals on 8 November 2022[edit]

  • On 8 November 2022, around 12 PM GMT, FTX paused withdrawals.[5][6]
  • That was after processing $6 billion in withdrawals over the past 72 hours.[7]

CEO SBF initially claimed that FTX has assets to pay back clients[edit]

  • On Twitter, Bankman-Fried initially claimed that FTX has enough assets to pay back clients, but that they are not all liquid.
  • He also claimed that his priority was raising money to do "right by users".

Binance and Kraken did not want to purchase them[edit]

  • On 8 November 2022, FTX and Binance announced that they signing a non-binding agreement for Binance to purchase FTX.
  • Just one day later, on 9 November 2022, Binance pulled out, citing evidence of "mishandled customer funds and alleged US agency investigations."
  • Kraken was another exchange approached by FTX. They did not reach a deal.[8]

Some users reported getting withdrawals[edit]

  • According to crypto analytics firm Nansen, starting on 10 November 2022, more than $10 million in withdrawals was processed by FTX. The details of these transactions, and whether FTX has the money to pay all clients, are unclear.[9]

FTX was hacked for $400 million[edit]

On November 11, FTX was hacked for around $400 million in crypto. The media reported it was likely an insider job.[10]

References[edit]

  1. ↑ Allison, Ian (2022-11-02). "Divisions in Sam Bankman-Fried's Crypto Empire Blur on His Trading Titan Alameda's Balance Sheet". www.coindesk.com. Retrieved 2022-11-10.
  2. ↑ "FTX Needs $8 Billion, Bankman-Fried Tells Investors". WSJ. Retrieved 2022-11-10.
  3. ↑ Kowsmann, Vicky Ge Huang, Alexander Osipovich and Patricia (2022-11-10). "FTX Tapped Into Customer Accounts to Fund Risky Bets, Setting Up Its Downfall". Wall Street Journal. ISSN 0099-9660. Retrieved 2022-11-10.
  4. ↑ "Before deal with rival, FTX scoured Wall Street, Silicon Valley billionaires for $1 billion lifeline | Semafor". www.semafor.com. Retrieved 2022-11-10.
  5. ↑ "FTX appears to have stopped processing withdrawals, on-chain data show". The Block. Retrieved 2022-11-10.
  6. ↑ "FTX 'effectively paused' withdrawals, CEO Sam Bankman-Fried tells employees". The Block. Retrieved 2022-11-10.
  7. ↑ "Crypto exchange FTX saw $6 bln in withdrawals in 72 hours". Reuters. 2022-11-08. Retrieved 2022-11-10.
  8. ↑ Shen, Lucinda (2022-11-10). "FTX approaches Kraken amid scramble to find funding". Axios. Retrieved 2022-11-10.
  9. ↑ twitter.com https://twitter.com/Blockanalia/status/1590746975703797760. Retrieved 2022-11-10. Missing or empty |title= (help)
  10. ↑ Sandor, Krisztian (2022-11-14). "FTX Hacker Panicked, Still Holds $339M in Ether, Cryptos: Arkham Intelligence". www.coindesk.com. Retrieved 2022-11-15.
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