red 
This week, FTX – one of the largest centralized exchanges in the crypto industry – crashed. Crypto markets responded accordingly, resulting in multi-year lows for many digital assets.
To wrap our heads around the FTX debacle and the aftermath, which continues to unravel at the time of writing, let’s take a closer look at the two companies most central to the story; FTX and its trading arm, Alameda Research.
Both FTX and Alameda Research were founded by Sam Bankman-Fried (aka SBF), an MIT physics graduate who spent his early career as a trader. While trading in traditional markets, SBF identifies the opportunities that cryptocurrencies provide. In an effort to capitalize on these opportunities, he and his friend Gary Wang founded Alameda Research.
Alameda Research has been known to take advantage of the “kimchi premium” by making cross-border BTC trades between the United States and the Republic of Korea, where BTC was trading approximately 10% higher. After taking advantage of this arbitrage on South Korean Bitcoin pricing, Alameda soon began trading a wide range of digital assets and became one of the largest market makers in crypto.
At the time, Alameda was building relationships with many major crypto exchanges, including helping Binance with large over-the-counter (OTC) trades. When FTX was founded by Sam and Gary in 2019, Binance was quick to invest.
The private sale and listing of FTX’s FTT token attracted traders and investors, and FTX’s relationship with Alameda Research and Binance fueled the narrative that FTX would be a huge success. In 2020, FTX’s popularity exploded, coinciding with the “Summer of DeFi” in 2020, when many DeFi protocols experienced a huge surge and the overall crypto bull market began to develop. It wasn’t long before FTX became one of the biggest crypto exchanges in the world and SBF was one of the richest people in crypto as more and more people started buying cryptocurrency on the platform.
This brings us to what happened with FTX and Alameda in the last week. FTX’s decline appears to have started with a Coindesk article published on November 2 that revealed a significant portion of Alameda’s assets were held in FTT. In fact, over a third of Alameda’s $14 billion balance sheet is in DFTs.
Rumors began to circulate that FTX client funds were finding their way to Alameda, and concerns that FTX did not have enough crypto to cover all user withdrawals began to grow. This in turn led to withdrawals from FTX, which accelerated as users discovered that FTX’s cryptocurrency reserves were rapidly dwindling. When Alameda started withdrawing coins from other exchanges to send to FTX, it effectively confirmed that FTX was under serious pressure.
Enter Binance. Binance has announced that it will sell its FTT. The fear created by this announcement was enough to crash the price of the token. A rumor has spread that FTX has started to stop withdrawals. Then it happened. It was announced that Binance has signed a letter of intent to acquire FTX to “help cover the liquidity crisis”. This confirmed – if confirmation was needed – that FTX is in dire straits. There was speculation that FTX could be saved, but after reviewing FTX’s financials and revealing an $8 billion hole, Binance withdrew its bid. Alameda’s website is also now offline.
Last week, no one suspected that FTX was in danger. This week the whole house of cards came crashing down.
What impact will this have on the crypto industry? Well, so far the market has reacted as you might expect. It was a sea of red. Another centralized crypto platform collapsed thanks to corruption, incompetence and greed. But crypto will survive this. The Bitcoin network continues to produce blocks and amazing projects continue to be built.
These are dark days for crypto – no doubt – but the underlying technology remains the same. Satoshi Nakamoto’s vision was to fix a broken system. Greed has caused that vision to blur. Centralized institutions, misuse of client funds and criminal activity are the things that crypto should allow us to escape. Instead, the industry is riddled with corruption.
The events of 2022 left scars that will be visible for years to come in the crypto industry. Changes must be implemented to prevent future disasters like this and build a cleaner and brighter future.
For those who have funds locked up in FTX, we hope they deal with you properly.
At Coinmama, we’ve always advocated keeping control of your private keys. This recent blow-up is another reminder of how important this is. Not your keys, not your cryptocurrency. Trade, sell and buy bitcoins and other digital assets safely, securely and conveniently with Coinmama.
