📉 Collapse of FTX, Explained
How Sam Bankman-Fried's FTX collapsed in a span of a few days
Today's Highlights
- A classic case of mismanaging funds and losing your entire company
- Blockchain jobs - a listing of fresh jobs related to web3/blockchain/crypto.
- In Other News - a few interesting developments we're tracking.
A classic case of mismanaging funds and losing your entire company
For the last few weeks, one story has been dominating the crypto/web3 news cycle: FTX’s collapse. FTX was meant to be the next big thing in crypto, but in a matter of a few days, the entire operation became an utter disaster.
FTX is, or now more appropriately was, a digital currency exchange platform where consumers can buy and sell cryptocurrencies such as Bitcoin. It was founded in 2019, when crypto really started to blow up, and grew rapidly alongside it. Major venture capital groups invested in it too to capitalize on the growing web3 economy. Sam Bankman-Fried was the exchange’s founder and was considered by many to be the face of crypto as a whole.
The first signs of potential collapse started to show earlier this month, when a Coindesk published balance sheet of Alameda Research, a crypto investing firm owned by Bankman-Fried, was published. The sheet showed that the firm held large amounts of FTT coin, a digital token created by FTX, which means that they could lose a ton of money if the value of the coin were to drop.
After the sheet was leaked, Binance, another exchange that competes with FTX, announced that the platform would sell all of its FTT coins. The price of the token dropped sharply. Due to the price dropping, many FTX customers panicked and sold the coin, thus bringing down the price even more. Billions were lost from the platform. By Nov. 8, FTX stopped allowing customers to take money out from the platform.
By this point, the general public has not yet made the connection between Alameda and FTX and has not realized how bad the situation was for Bankman-Fried. In the following days after FTX stopped allowing them to take money out, many publications started doing research and figured out the connection between the two companies, and this further accelerated the collapse.
Also on Nov. 8, Binance announced that it would purchase FTX, but then they quickly backed out due to finding reports that FTX mismanaged user funds. This was the final nail on FTX’s coffin, as they filed for Chapter 11 bankruptcy on Nov. 11.
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