FTX was the second-largest cryptocurrency exchange in the world, once upon a time. Its user-friendly platform and Sam Bankman Fried's magic made it as big as it was. But it all collapsed due to the fraudulent practices they followed, most importantly using customer funds deposited on their platform.
The collapse of FTX started with a single tweet from Changpeng Zhao, CZ, aka CEO of Binance. Binance is the number one competitor of FTX. They held 20% of shares of the FTX exchange at that time.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 BNB (@cz_binance) November 6, 2022
As CZ mentioned, they held FTT tokens as a part of their share in the FTX exchange. The FTT had a market cap of $3 billion at the time of this tweet. And it crashed 80% after two days of this tweet. We will discuss in this article, what really happened and what the current status of FTX is.
The Unravelling of FTX
FTX is one of the powerhouses in the cryptocurrency market valued at over $32 billion. The collapse was triggered by a series of events that exposed the company's risky practices and financial instability. The founder of FTX, Sam Bankman Fried was also the founder of a hedge fund, Alameda Research. After all, it wasn't able to hedge his bad trades. Sam borrowed billions of dollars from FTX to Alameda research. Sam literally used customer funds to transfer to Alameda research.
Alameda Research made some bad investments that led to the collapse and bankruptcy of FTX. As the news spread among investors, a rush to withdraw funds led to a liquidity crisis, and FTX was unable to meet the demands. It wiped out millions of dollars as the market didn't react well to that situation.
This was not just a case of misplaced funds but a deliberate siphoning of billions, which he used for political donations, luxury real estate, and risky investments. Imagine if you could just take your neighbor's money to buy a spaceship because why not?
The Downfall of Sam Bankman-Fried
Following the collapse, Sam Bankman-Fried became the central figure in multiple investigations and legal proceedings. He was charged with a series of serious offenses, including fraud and embezzlement. The jury found him guilty on all charges, including securities fraud, and money laundering. He was sentenced on March 28, 2024, to 25 years in prison.
Even behind the bars, Sam Bankman gets to enjoy luxuries. Sam's been giving financial advice to guards, suggesting they invest in Solana. There was chatter about him being moved from his Brooklyn jail to a new facility, possibly near his parents' home in California.
The Recovery and Settlement
Efforts have been ongoing to recover and distribute the remaining assets to the creditors and victims of FTX. In August 2024, a U.S. District Court ordered FTX and Alameda Research to pay $12.7 billion to victims. This settlement, negotiated with the Commodity Futures Trading Commission (CFTC), included $8.7 billion for restitution and $4 billion for disgorgement.
As part of the settlement, FTX and Alameda are permanently barred from trading digital assets, effectively ending their operations. The settlement also includes provisions for repaying smaller creditors, with a proposal to repay 118% of claims for those with claims under $50,000.
This is what a user mentioned regarding his share of distribution from FTX,
Got my portfolio valuation back from @FTX_Official
— MACHO 💥 (@MachoXV) July 15, 2024
> Initial portfolio 6 figs
> FTX valuing it at $2.5k
Fvck Sam Bankman Fried @SBF_FTX in the arsehole. Hope that autistic 🆖 drops the soap in jail a thousand times
Implications for the Cryptocurrency Market
The FTX scandal has had far-reaching implications beyond the immediate financial losses. It has raised serious questions about the regulation and oversight of the cryptocurrency industry, which remains largely unregulated compared to traditional financial markets.
Efforts to rebuild trust in the cryptocurrency industry are also underway. Regulatory bodies around the world are scrutinizing the sector more closely, and industry players are working to enhance transparency and security.
This case has not only rocked the crypto world but also served as a stark reminder of the risks in unregulated financial sectors. It's like watching someone try to juggle chainsaws and then being surprised when they end up in the hospital.
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