Chapter 4: FTX
Trading as FTX (Futures Exchange), FTX Trading Ltd. is a company that has gone bankrupt. In the past, the company was responsible for operating a cryptocurrency exchange as well as a crypto hedge fund. Sam Bankman-Fried and Gary Wang first established the exchange in 2019, but it went out of business in 2022 as a result of significant fraud committed by Bankman-Fried and his companion Caroline Ellison. This fraud caused the company to be compelled to file for bankruptcy under Chapter 11 of the United States Code.
- An exchange for cryptocurrencies
cryptographic currencies
Additionally, the company was the third-largest cryptocurrency exchange in terms of volume when it reached its height in July 2021, when it had more than one million members. With an active trading volume of ten billion United States dollars and a valuation of thirty-two billion dollars, FTX was the third-largest digital currency exchange as of the first month of November 2022. The company FTX was established in Antigua & Barbuda, although its headquarters are located in the Bahamas. FTX is closely connected to FTX.US, which is a different exchange that is accessible to those living in the United States.
Since the 11th of November in 2022, FTX has been involved in the proceedings of Chapter 11 bankruptcy in the United States court system. There were rumors that unethical and fraudulent transfers of customer monies were being made between companies, which sparked public alarm. Furthermore, in November 2022, CoinDesk expressed its concern by claiming that FTX's partner company, Alameda Research, retained a sizeable chunk of its assets in FTX's native token, which was denoted by the symbol FTT. As a result of this disclosure, the CEO of the competing exchange Binance, Changpeng Zhao, made the announcement that Binance would liquidate its holdings in the token. This announcement was immediately followed by an increase in the number of customers withdrawing their funds from FTX.
It was not possible for FTX to satisfy the demand for withdrawals from customers. Binance signed a letter of intent to acquire the company, with due diligence to follow, in order to guarantee that consumers would be able to retrieve their money from FTX in a timely way. However, Binance retracted its offer the following day, citing reports of mismanaged user cash and investigations by the United States government. At the request of the United States government, Sam Bankman-Fried, the creator of the company, was taken into custody by the police in the Bahamas on December 12, 2022, for committing financial offenses. Currently serving as the Chief Executive Officer of FTX is John J. Ray III, who specializes in the recovery of funds from companies that have collapsed.
In May of 2019, Sam Bankman-Fried and Zixiao "Gary" Wang established FTX under their names. The establishment of FTX took place within Alameda Research, a trading company that was established in Berkeley, California, in 2017 by Bankman-Fried, Caroline Ellison, and other individuals who had previously worked with Jane Street. "Futures Exchange" is what "FTX" stands for during shortening. The purchase of a twenty percent share in FTX by Changpeng Zhao of Binance for around one hundred million dollars took place six months after Bankman-Fried and Wang established the company.
In August of 2020, FTX paid $150 million to acquire Blockfolio, an application that allowed users to track their cryptocurrency portfolios. In July of 2021, the initiative was successful in raising $900 million at a valuation of $18 billion from more than sixty investors. These investors included Sequoia Capital, Softbank, and other individuals and companies. For around two billion dollars, Bankman-Fried purchased Zhao's interest in the company. It was in September of that year that FTX relocated its headquarters from Hong Kong to The Bahamas.
The announcement of FTX Ventures, a venture capital firm with a $2 billion value, was made on January 14, 2022. During that same month, FTX Ventures raised $400 million in Series C fundraising with a valuation of $32 billion. The website for FTX Ventures was taken offline in the month of November 2022. On the 11th of February, 2022, FTX.US made the announcement that the company would shortly start providing stock trading services to its consumers in the United States.
A gaming branch that would assist creators in incorporating bitcoin, non-fungible tokens (NFTs), and other blockchain-related assets into video games was reportedly being established by FTX in February of 2022, according to a report. A transaction that gave FTX the option to purchase BlockFi for around $240 million was closed in July of 2022. A credit facility for BlockFi in the amount of $400 million was included in the purchase.
After FTX president Brett Harrison put out a tweet that gave the impression that deposits were not insured by FDIC insurance, the Federal Deposit Insurance Corporation (FDIC) issued a cease-and-desist order to FTX in August 2022. The order stated that FTX had made "false and misleading representations" about the coverage of deposits by FDIC insurance. In response to the regulatory action, Harrison removed the tweet, and Bankman-Fried emphasized in a subsequent tweet that the FDIC does not provide insurance for deposits made through FTX Financial.
When the auction for the digital assets of the defunct cryptocurrency brokerage Voyager Digital took place on September 26, 2022, FTX.US emerged victorious with its bid. The total value of the transaction was about $1.42 billion, which included $1.31 billion in cryptocurrencies held by Voyager as well as $111 million in additional consideration. The agreement was contingent upon the approval of the bankruptcy courts as well as the creditors of Voyager. As a result of the bankruptcy of FTX, the United States subsidiary of Binance was successful in winning the bid to purchase the assets of Voyager for about one billion dollars in December of 2022.
The announcement that FTX.US President Brett Harrison will be stepping down from an active role at the exchange was made on September 27, 2022. However, Harrison stated that he would continue to serve in an advising capacity to the exchange. Harrison, who had served as president of FTX.US since May 2021, was not immediately replaced by a new individual, according to the company's announcement. According to a report that was published in October 2022, FTX was being investigated in the state of Texas for allegedly selling securities that were not registered. It was reported in August 2023 that the company intends to resume providing services related to trading cryptocurrencies after the restructuring of the corporation that had gone bankrupt has been finished.
Bloomberg published an article in September 2022 that discussed the close cooperation that existed between Alameda Research and FTX. Bloomberg reported that Alameda had served as a market maker for FTX at an early stage in the history of the exchange. Furthermore, the trading business continued to be the largest known depositor of stable coins on FTX during the months of June and July 2022. In addition, Bloomberg claimed that the regulatory scrutiny that is applicable to corporations that operate in traditional equity markets would have banned the link between the two companies if it had been applicable. As a result of Alameda's participation in the FTX trading platform, the trading firm had the opportunity to make a profit when other companies on the exchange suffered financial losses. The use of Alameda by FTX as a liquidity source was vigorously supported by Bankman-Fried.
John J. Ray III asserts that Alameda was granted a "secret exemption" from the auto-liquidation procedure that was implemented by FTX. Ray, the new CEO of FTX, later described the presence of such a hidden advantageous relationship as a "complete failure of corporate controls" and indicated gross mismanagement. He also stated that the relationship was beneficial to both parties. Alameda Research accumulated cryptocurrency tokens between the beginning of 2021 and March 2022, before to the announcement made by FTX regarding their intention to issue them for trading.
As stated by unidentified sources that were reported by The Wall Street Journal, FTX has lent ten billion dollars worth of assets belonging to its customers to Alameda Research in the year 2022. Caroline Ellison, the Chief Executive Officer of Alameda, revealed to other employees of the company that she, Sam Bankman-Fried, Gary Wang, and Nishad Singh were aware of that choice prior to its announcement. The New York Times claimed the same thing, citing a person who wished to remain unnamed. According to the sources that were referenced by The Wall Street Journal, Ellison stated that the monies were utilized in part to repay loans that Alameda had taken out in order to make investments. Ray stated that for the purpose of concealing the misuse of customer funds, FTX utilized software.
A considerable amount of Alameda Research's assets were held in FTT, the exchange token issued by FTX, according to a report that was published by CoinDesk on November 2, 2022. This information came several months after the initial article that Bloomberg had published on the relationship between the two companies. It was stated that there were FTT tokens worth a total of $5.1 billion in circulation, and that the balance sheet of Alameda had $3.66 billion of "unlocked FTT," $2.16 billion of "FTT collateral," and $292 million of "locked FTT." Bankman-Fried was...
