FTX/Alameda Collapse for Dummies: Crypto's Tower Moment
Family & friends asking about the #FTX collapse? Share this simplified breakdown of events with them.
Family & friends asking about the #FTX collapse? Share this simplified breakdown of events with them.
The main characters:
Sam Bankman-Fried (SBF): founder of FTX, a self-proclaimed 'effective altruist' who has been active with creating DeFi regulation in the US
Changpeng Zhao (CZ), founder and CEO of Binance, the largest crypto exchange in the world
It all started when the balance sheet of FTX's sister company, Alameda Research was leaked. Alameda is a trading company mostly owned by SBF. It is speculated that most of the SBF empire revenue comes from Alameda.
The leaked balance sheet looked really bad. Mainly due to the fact that over $2B of Alameda's borrower collateral is denominated in $FTT, a token that FTX launched to raise funds for itself.
This token is quite illiquid - so when Alameda becomes insolvent, borrowers won't be able to sell the token to recollect debts. This may cause (actually already caused) a domino effect that brings down FTX.
CZ was actually an early-stage investor in FTX. The exchange eventually became #2 in the world. After the leak of the balance sheet, CZ made the public decision to sell all of his FTT tokens. This triggered a series of events
The uncertainty around FTX after CZ's announcement sent customers running to withdraw. As of right now clients are having problems getting funds off the exchange. Just to have a clue about the scale of this:
Over the past week, FTX has seen more than $8.7B in withdrawals compared to $7.7B in deposits
Shortly after, @cz_binance announced that he was looking into the full acquisition of FTX. People started speculating that it was his plan all along...
Later, he reiterated by posting this:
The next day, @binance backed out from the deal stating the following: “The issues are beyond our control or ability to help”
Many say that CZ's role in this was minimal as it all started to unfold a while back:
Reuters wrote a good article on how Alameda used consumer funds to bail themselves out in May: read here.
Global regulatory backlash is inevitable at this point. FTX collapsing is a global catastrophe for crypto. This is BIGGER than Terra and Celsius combined. Sam was one of the faces of this whole industry.
Although most people forget the following fact:
A larger shift of the crypto-community from CEXes to DEXes is absolutely crucial for this space to survive.
To be continued…bookmark this thread, we will update it as events unfold:
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