FTX Collapse: Stakeholders Cope With Crypto Market Uncertainty

The Crypto market has been on a downward trend in the past months now made worse by the news of the FTX collapse last week. The depression in the market took a new turn after FTX's formal CEO resigned and filed for bankruptcy. These ugly trends in the crypto space have kept investors worried over the stability of the industry and the financial health of crypto exchanges and the industry generally. First, it was the Celsius, quickly followed by the Terra Luna debacle and the industry thinks that the worst had happened already, now another black swan event which has made the Terra saga of no consequence when put side by side in comparison. With over 500,000 traders liquidated to the tune of over a billion dollars, and over $600M lost in a hack, the FTX collapse has once again set the cryptocurrency space back many years.  With all that has happened, we are certain that the last has not been heard yet on the FTX matter as the authorities commence a criminal probe.  The FTX debacle has also rekindled the zeal for fresh regulatory attacks on exchanges and activities in and around the crypto market.

💬 Content 💨

• What Happened To The World’s Second Largest Crypto Exchange?
• FTX Tokenomics
• Cracks On FTX
• The Nail On The Coffin
• One Tweet That Was Bad For Business
• Why Changpeng Zhao Backed Out
• FAQs

A lot has happened in the past few days and the worse may not have been heard and seen. In the meantime, 137,650 traders liquidated their crypto assets valued at $241.37 million with the greatest single liquidation order, worth $3.76 million in BTCUSDT taking place on the Binance exchange.

What Happened To The World’s Second Largest Crypto Exchange?

Brief Background:

FTX and Alameda Research were both founded by Sam Bankman-Fried, popularly known as SBF. SBF hold a bachelor's in physics from MIT and had formally worked as a trader for one of the world’s largest market maker, gens Street. He founded Alameda Research in 2017 after he realized the huge opportunities in the crypto market, partnering with his friend Gary Wang, another MIT graduate from Google.  Alameda Research started off its crypto trading with across-the-border bitcoin arbitrage, buying BTC in the United States and selling the same in Japan for an immediate 10% profit.  FTX started in 2019 with SBF as its CEO and Gary Wang as its CTO and the CEO of Binance as one of the major investors in the project.  FTX capitalized on the huge demand for a better alternative for crypto derivate trading to launch the exchange and with the support of an incredibly specialized team from MIT and Berkeley and from firms like Google, Facebook,  Circle, FBG Capital, and True USD, it was easy for FTX to gain the trust and admiration of the crypto communities.  FTX soon separated itself from its competitors by offering innovative products with tons of liquidity. Some products offered by FTX include derivatives, options, and leveraged tokens. It also supports more than 300 digital assets in addition to the leverage trading on S&P500 stocks such as Tesla and Amazon, and NFTs 

FTX's astronomical popularity began in 2020 with project serum and the introduction of 100x leverage which was used to lure amateur traders who were looking for a quick profit from some odd coins and tokens to the platform.  This was in addition to the crypto bull market, which started at this time.

FTX Tokenomics

FFT, the native token of FTX started off as an ERC20 token on the Ethereum blockchain with a maximum supply of 350 million coins. Today FFT exists as an SPO token on the Solano blockchain and a BEP20 token on the BNB chain with the majority of its supply still on the Ethereum blockchain. 20% of the FFT was sold to private investors in 2019 while more than half was allocated to the company and the team which include Alameda.  The FTT was also used to lower trading fees on the FTX exchange making FTX one of the exchanges with the lowest trading fees.

Cracks On FTX

You will remember that Alameda Research, the parent company of FTX in our estimation was almost insolvent 2 years ago as a result of liquidations from a series of bad trades resulting from pandemic pressure on the market.  This shows that Alameda did not start its risky behaviours today and FTX may not be divulged from these risky behaviours of Alameda.  It is believed that FTX woes began with a November 2nd CoinDesk article that reveals that the majority of Alameda assets are held in FFT which was followed with speculations that FTX user’s funds were finding their way to Alameda and worse was the rumour that suggested that FTX may not have enough funds to process customers’ withdrawal requests which led customers to start withdrawing their cryptos from FTX out of caution.  Though SBF denied it at first, it became obvious when Alameda began withdrawing their stablecoins from other exchanges to send to FTX as a cushion.

The Nail On The Coffin

Binance CEO, Changpeng Zhao, CZ earlier last week had announced in a tweet that it would sell all of its FTT tokens and also suggested that FTX and SBF were engaged in foul play.

Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs.

CZ tweet quickly and profoundly confirmed three rumours about FTX; the first being that FTX had liquidity issues, and secondly,  that SBF was lobbying against other cryptocurrency industry players behind their backs for an advantage with the authorities and regulators.  And thirdly confirm the bitter rivalry between SBF and   Changpeng Zhao since 2015.

The accusation stemmed from SBF’s support for the DCCPA draft bill, which was outrightly rejected by the cryptocurrency community as the bill would stifle the growth of Decentralized Finance (Defi).  At least this FTX collapse has further strengthened the fact that the cryptocurrency will not achieve its original objectives with centralized platforms.  Not your keys, not your crypto is more true and real now to many.

One Tweet That Was Bad For Business

When customers and stakeholders began to show concerns after the CoinDesk report that reveals the FTX balance sheet and possible mismanagement  SBF responded with the one tweet that effectively brought FTX down and today the rest is near history.

The tweet

A bunch of unfounded rumours has been circulating… FTX keeps audited financials etc. And, though it slows us down sometimes on the product, we’re highly regulated. We’ve already processed billions of dollars of deposits/withdrawals today; we’ll keep going. (Taking up anti-spam checks to process more–sorry if you got those. We’re hitting node rate capacity, will keep going.)

SBF went on

Also, tons of USD  stablecoin conversions going on. And in the end, you should do what you want, and trade where you want. We’re grateful to those who stay; and when this blows over, we’ll welcome everyone else back. As always — a huge thank you to our supporters. And to everyone else, as well, as long as they keep building and keep moving the industry forward. We’ll keep building too.

Why Changpeng Zhao Backed Out

After FTX collapsed, CZ, in another tweet explained that FTX  officials reached out to him and they both had initially agreed to sign a non-binding LOI, to fully acquire FTX and help resolve the liquidity crunch.  SBF also released a confirmation statement confirming that they had reached out to Binance to help save the exchange.  Unfortunately, the next day, Binance’s official account tweeted:

As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.

Now, what is your thought on crypto? Are you still bullish and optimistic that the industry will survive this one too, and come out stronger?  Let’s hear what you think in the comment

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FAQs

What is FTT?

FFT is the native token of the FTX exchange. It started off as an ERC20 token on the Ethereum blockchain.

What is the maximum supply of FTT tokens?

According to data provided by Coin Market Cap, FTT has a maximum supply of over 352 million coins The asset's total supply amounts to 328 million coins, while its circulating supply stood at 133 million coins as of November 14.

Why did FTX collapse?

What caused FTX's collapse is still subject to speculation until the conclusion of the criminal inquiry into the activities of FTX and its founder, SBF, by the authorities.

Who are the founders of FTX?

FTX and Alameda Research were both founded by Sam Bankman-Fried and his co-founder, Gary Wang.

How much was lost in the FTX collapse?

Reports have it that FTX founder Sam Bankman-Fried secretly transferred $10 billion of customer funds from FTX to Bankman-Fried's trading company, Alameda Research, the people told Reuters. A large portion of that total, has since disappeared, they said. One source puts the missing amount at about $1.7 billion.

How did Sam Bankman-Fried make his money?

Sam only got rich after starting Alameda Research, and the report has it that Alameda started off its crypto trading with across-the-border bitcoin arbitrage, buying BTC in the United States and selling the same in Japan for an immediate 10% profit.