All the world's money and markets in one visualization (2022)

All the world’s money and markets in one visualization (2022)

View FTX balance sheet before bankruptcy

In a difficult year for the crypto space that has been full of hacks, failing funds and decentralized stablecoins going to zero, nothing has compared to the rapid implosion of FTX and Sam Bankman-Fried (SBF).

After an astronomical rise in the crypto space over the past three years, crypto exchange FTX and its founder and CEO SBF have returned to earth, largely unraveled by their misuse of client funds and illicit relationship with the commercial company Alameda Research.

This chart visualizes FTX’s disclosed balance sheet dated November 10 and published by the Financial Times on November 12. The spreadsheet shows nearly $9 billion in liabilities and not enough illiquid cryptocurrency assets to cover the hole.

How did FTX end up in this position?

How the FTX bankruptcy unfolded

FTX’s eventual bankruptcy was triggered by a Nov. 2 report from CoinDesk citing Alameda Research’s track record. The article reported that Alameda’s assets amounted to $14.6 billion, including $3.66 billion in unlocked TTFs and $2.16 billion in collateral TTFs.

With more than a third of Alameda’s assets tied to FTX’s FTX exchange token (including loans secured by the token), eyebrows have been raised within the crypto community.

Four days later, on November 6, Alameda Research CEO Caroline Ellison and Sam Bankman-Fried address CoinDesk history as unfounded rumors. However, on the same day, Binance CEO Changpeng Zhao (CZ) announcement that Binance had decided to liquidate all remaining FTT on their books, triggering a -7.6% drop in the FTT token that day.

Back and forth with Binance CZ

While Ellison publicly offered to buy CZ’s FTT directly “OTC” to avoid further price declines and SBF claimed in a now-deleted tweet that “FTX is doing well. Assets are doing well. “, FTX users were withdrawing their funds from the exchange.

Less than 24 hours later, on November 7, the two SBF and CZ tweeted that Binance had signed a non-binding letter of intent to acquire FTX, pending due diligence.

The next day, the acquisition collapsed as Binance cited due diligence of companies, leaving SBF to face a multi-directional liquidity crisis of users withdrawing funds and a rapid decline in the prices of tokens that constituted large amounts of assets and loan collateral from FTX and Alameda.

FTX Largely Illiquid Assets and Liabilities

In the final days before declaring bankruptcy, FTX CEO Sam Bankman-Fried attempted one last fundraiser to restore stability as billions in user funds were withdrawn from his exchange.

The balance sheet he sent to potential investors was leaked by the Financial Times and reveals that the exchange had nearly $9 billion in liabilities while having just over $1 billion in assets. liquids. Alongside liquid assets were $5.4 billion in assets labeled as “less liquid” and $3.2 billion labeled as “illiquid”.

When examining the listed assets, FTX’s accounting appears to be poorly done at best and fraudulently misleading at worst.

Among these “less liquid” assets, many of the largest sums were in assets such as FTX’s own exchange token and Solana ecosystem cryptocurrencies, which were heavily backed by FTX and Sam Bankman-Fried. . On top of that, for many of these coins, the liquidity simply wouldn’t have been there had FTX attempted to redeem these cryptocurrencies for US dollars or stablecoin equivalents.

While liquid and less liquid assets on the balance sheet totaled $6.3 billion (still insufficient to match the $8.9 billion in liabilities), many of these “less liquid” assets could just as well be completely illiquid.

Relationship with Alameda Research

When looking at FTX’s finances in isolation, it is impossible to understand how one of the largest crypto exchanges ended up with such an unbalanced and illiquid balance sheet. Many of the details still unresolved lie in the exchange’s relationship with SBF’s previous venture he founded, trading firm Alameda Research.

Founded by SBF in 2017, Alameda Research operated primarily as a delta-neutral trading firm (a term that describes trading strategies such as market making and arbitrage that attempt to avoid taking on directional risk). In the summer of 2021, SBF left Alameda Research to focus on FTX, but his influence and connection to the business still ran deep.

A Wall Street Journal report cites how Alameda was able to amass crypto tokens ahead of their announced public FTX announcements, which have often been catalysts for price spikes. Along with this, a Reuters story revealed how SBF secretly transferred $10 billion in funds to Alameda, using “backdoor” accounting to avoid internal scrutiny at FTX.

While SBF responded to the Reuters story by saying they “had confusing internal labeling and misread it,” there is no doubt that this murky relationship between Alameda Research and FTX was fatal to the company. empire of the former billionaire.

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