FTX Is Done

Binance CEO Changpeng Zhao (also known as CZ) tweeted over the weekend that the company will liquidate its stakes in FTT, the fiat-currency created by FTX which is the third largest crypto exchange. At the time, Binance held around $ 2.1B in FTT and BUSD (a coin issued by Binance and Paxos).

“Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books” Changpeng Zhao

These recent revelations may be a CoinDesk report on the state of Alameda Research's finances:

"Billionaire Sam Bankman-Fried’s cryptocurrency empire is officially broken into two main parts: FTX (his exchange) and Alameda Research (his trading firm), both giants in their respective industries."

"But even though they are two separate businesses, the division breaks down in a key place: on Alameda’s balance sheet, according to a private financial document reviewed by CoinDesk. (It is conceivable the document represents just part of Alameda.)"

"That balance sheet is full of FTX – specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace. While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto. The situation adds to evidence that the ties between FTX and Alameda are unusually close." By Ian Allison for CoinDesk

Clown Coins

According to interviews with several people close to Bankman-Fried and previously undisclosed communications from both companies, the seeds of FTX's demise were planted months earlier as a result of errors Bankman-Fried made after he intervened to save other crypto firms as the crypto market crashed amid rising interest rates.

Bankman-Fried's trading company, Alameda Research, suffered some major setbacks on deals it made in the months of May and June
These included a $500 million loan deal with defunct cryptocurrency lender Voyager Digital. The following month, Voyager requested bankruptcy protection, and in a September auction, the U.S. division of FTX paid $1.4 billion for its assets
To save Alameda Research, Bankman-Fried transferred at least $4 billion in FTX funds (in the form of FTT tokens and shares in the trading platform Robinhood Markets) and reportedly never disclosed this to other FTX executives

Sam Bankman-Fried thus tried to save Alameda Research with a currency created by FTX and some shares in Robinhood Markets... A bet that did not work out and led to the demise of the FTX. Still, you may be asking what FTT and other tokens are? Well, these can be understood as "Clown Coins". A currency invented by a company and backed by nothing more than the credibility of the company itself.

Imagine McDonald's makes its own money, let's call them clown-bucks, keeps most of it, and sells some to the market.

McDonald's then uses their remaining clown-bucks as collateral for actual loans.

And then people remember clown-bucks aren't real.
— Lyn Alden (@LynAldenContact) November 8, 2022

From $ 32B To Zero In A day

Binance and FTX are two of the largest exchanges in the world and Binance itself is an early-investor in FTX. To date, FTX has raised $ 1.7B in seven venture capital rounds from more than 45 investors. Lately, the company was valued at $ 32B and the net worth of its founder, Sam Bankman-Fried, was estimated at $ 20B.

However, the CoinDesk report and the sale of FTT tokens by Binance's CEO were enough to profoundly shake investor confidence
After alarmed investors tried to withdraw their money in large quantities on Tuesday morning, FTX stopped allowing withdrawals from its platform. This further decreased investor confidence and further pressured FTX

The fate of FTX now remains unclear. Binance pulled away from the deal to take over the FTX.com activities, citing troubles at FTX and an ongoing investigation of the troubled broker.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Traxer on Unsplash.