The FTX collapse

Most of you would have heard about the FTX collapse and its owner Sam Bankman-Fried a.k.a SBF. Without going into details of the collapse, this article covers some key info to get you up to speed on this topic.

What is FTX

FTX is a Digital Cryptocurrency Exchange where people could buy and sell their digital assets like Bitcoin, Ether and so on. Even though the company was founded in 2019, it quickly went on to become the second large exchange in the world. SBK who was a 30 year old founder had a great vision and extremely good marketing strategy powered FTC towards #2 in the Crypto-world.

FTX had quickly risen to be one of the sought after Crypto Exchanges in the world. The reason for this rise has been mainly because of the lower margins at which they operated and the huge volume handled. As reported by CNBC, the revenue grew to a whopping 1000% in 2021 alone during the Bitcoin bull run. The FTX exchange quickly created a coin called FTX coin and built the exchange to work around the coin. The coin quickly grew in value as more and more FTX coins were put into the market via the FTX exchange. This pushed their revenue even further.  The FTX empire grew as the founder and CEO SBF started making acquisitions in Switzerland and Australia. 

Let us look at few key milestones for FTX:

  • Aug 2020 – FTX acquisition of Blockfolio for 150M USD. Blockfolio was the most popular cryptocurrency portfolio tracking app which had integrations to hundreds of cryptocurrency exchanges.
  • Jul 2021 – FTX had raised over 900M from over 60 investors  including Softbank and Sequoia Capital with a valuation of 18B USD.
  • Sep 2021 – FTX announced that they are moving its headquarters from Hong Kong to The Bahamas  mainly due to the lesser regulatory restrictions compared to the United States or Hong Kong. The office was supposed to be a 60M USD campus which would pave way for large firms dealing with Digital assets into the Bahamas.
  • Jan 2022 – FTX announced that a new venture fund in the name of FTX Ventures would come into effect with a funding of $2B USD.
    • FTX Ventures had made 47 investments in total. Their last investment was on Nov 25, 2022, when Lemon Cash raised 27.8M USD.
    • FTX Ventures has made 2 diversity investments. Their last diversity investment was on Apr 26, 2022, when Cogni raised 23M USD.
  • Feb 2022 – FTX.US which is the US platform for FTX announced that it would start offering stock trading to its US customers.
  • Jul 2022 – FTX announced another acquisition finalizing a deal that gives it the option to buy BlockFi for about 240M USD.
    • BlockFi was a digital asset lender founded in 2017 based out of Jersey City, New Jersey.
  • Aug 2022 – The FDIC or Federal Deposit Insurance Corporation issued a cease-and-desist order against FTX for making “false and misleading representations” about deposits being covered by FDIC insurance.
  • Sept 2022 – FTX.US won its bid at the auction for the digital assets of bankrupt crypto brokerage Voyager Digital for around 1.42M USD including 1.31B USD in Voyager-held cryptocurrency and 111M USD in additional considerations.
  • Oct 2022 – It was reported that FTX was under investigation in Texas for allegedly selling unregistered securities.
  • Nov 2022 – FTX filed for bankruptcy and the eventual collapse started resulting in A 30 billion dollar company getting vaporized overnight.

The Collapse?

There was a news published by Bloomberg in Sept 2022 stating the close relationship that Alameda Research and FTX had. It stated that Alameda was working as a market creator for FTX during the initial days of FTX.  Further it was revealed that Alameda was heavily invested in a coin that was created by FTX which normally would be prohibited under the regulatory rules. Once the regulators started investigating the relationship between Alameda and FTX especially on the FTX coin, the entire crypto market started crashing down. The price of FTX fell drastically resulting in huge loss to both Alameda and FTX exchange. One of the largest exchanges in the world – Binance thought of acquiring FTX thereby saving it, but it backed out of the deal which pushed the exchange into bankruptcy.

On hindsight, the collapse was mainly due to the fact that there was less transparency on the relationship between Alameda and FTX. Filings came to highlight Alameda was heavily investing in coins that FTX was supposed to list which was completely against regulations and fair trade. Creating a coin FTX and moving all exchanges based on FTX was also risky.

Author Details

Roy Maria John

Roy M J is a Technology Architect with Infosys. He is a Digital Transformation Specialist associated with Digital Experience IP Platforms & Frameworks in Infosys. He helps in delivering digital transformation for large enterprises across the globe via Live Enterprise Interactions Suite and Digital Marketplace Platforms. He has rich experience in Web technologies primarily on the JavaScript stack. He is part of Cloud and Emerging Technologies track in the Digital Technology Council.

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