Sam Bankman-Fried, founder of the FTX and Alameda crypto empire, lost a $16B fortune over the course of a week. The FTX exchange collapsed because SBF allegedly stole funds from its depositors to fund his insolvent hedge fund, Alameda Research. Alameda appears to have gone broke over the summer along with 3AC and the rest of the leveraged funds, but SBF stole billions from FTX's customers to keep Alameda running.
Changpeng Zhao, known as "CZ'' online, owns Binance, the world's largest exchange and the issuer of the BNB token and operator of the Binance Smart Chain. SBF and CZ are feuding, likely because SBF was actively lobbying in the US to make DeFi illegal or effectively useless. CZ was FTX's initial investor and Binance held at least $500M in FTX's exchange token, FTT.
Following CoinDesk's article about Alameda's balance sheet being filled with funny money from projects run by SBF, like FTX's FTT token, CZ took his shot. Here’s a replay of crypto’s most exciting week since May 2022.
Sunday: FUD Day
CZ tweets that he will be dumping Binance's FTT tokens over the next couple months in light of the revelations that Alameda's balance sheets are bad, and therefore FTX is probably insolvent. This kicks off a bank run on FTX deposits. Over the next three days, $6B will be withdrawn from FTX.
Monday: SBF Lies
SBF claims everything is fine and that CZ is spreading “false rumors” and that the customers' “assets are fine.” This isn't the first time we've seen a FUD attack on an exchange: KuCoin faced similar FUD leading up to the Merge–likely by arbitrageurs who wanted to buy KuCoin's liquid staked ETH token at a discount during ETH's pre-Merge run-up.
There's a rumor that Alameda has significant leveraged positions in FTT that start to get liquidated at $22. FTT holds on at $22 until Monday evening, when it plunges to $15.
Tuesday: SBF Lies, CZ to the Rescue?
FTX pauses withdrawals. SBF continues to claim that FTX is solvent: “Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1.”
On the same day, SBF and CZ both tweet that Binance signed a deal to acquire FTX.
CZ tweets his two big lessons, which he clearly stole from Biggie's “10 Crack Commandments”:
1: Never use a token you created as collateral.
Never get high on your own supply.
2: Don’t borrow if you run a crypto business. Don't use capital “efficiently”. Have a large reserve.
That credit? Dead it. You think a crackhead paying you back? Forget it!
FTT is trading around $4. Traders short everything SBF is involved in: FTT, SOL, Alameda's Solana ecosystem tokens, and even Robinhood, in which SBF heavily invested when people still believed he had money. All suffer major losses in the following days.
Wednesday: SBF Lies, CZ Isn’t Bailing Anyone Out
CZ tweets that Binance will not buy FTX: “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 http://FTX.com.”
SBF claims FTX is shopping for other buyers. By this point, the FTT token is worth about $3, and it's unclear if Alameda has any money left.
Thursday: SBF Lies, Justin Sun Enters the Chat
SBF admits that FTX is insolvent, but he claims that FTX.US is “100% liquid” and that “every user could fully withdraw.”
Tether freezes $46M in USDT held by FTX, claiming “law enforcement” asked them to do it but declining to say which country's law enforcement requested it.
Tron founder Justin Sun steps in to “help out” with FTX's liquidity issues. How it worked was FTX allowed customers with locked funds to withdraw the Tron ecosystem tokens TRX, BTT, JST, SUN, and HT to external wallets. Since this was the only way to get locked up money off FTX, customers bid the price of these tokens up 10-40x their market rate in order to get their money off the exchange. Sun made some serious cash for doing almost nothing, and FTX customers got screwed again.
Friday: Bankruptcy, Hack
FTX, FTX.US, and Alameda file for Chapter 11 bankruptcy. SBF resigns.
Allegations surface that SBF was doing backroom deals with SEC Chair Gary Gensler. SBF and Gensler were apparently working together to draft laws that would grandfather in FTX's actions while shutting the door behind them.
FTX is “hacked,” and over $600M leaves the platform. It's not yet known which customer funds were stolen by the hacker and which were moved to prevent theft, but tens of millions are known to have been stolen from FTX and sold on DEXs. Customers with locked up funds begin to report $0 balances. Guess they won't have to wait 10 years to get their money back following the bankruptcy proceedings.
Saturday: SBF’s Flight to Dubai Gets Delayed
The FTX and FTX.US websites and mobile apps are declared malware, and FTX users begin to report the hackers draining their connected bank accounts as well.
We learn that SBF had secret back doors in FTX's accounting software, so basically anyone at FTX could've stolen the money.
SBF and other top brass at FTX and Alameda are believed to have been caught trying to flee the Bahamas for Dubai. They're said to be detained by Bahamian authorities at this time.
Sunday: Who’s Next?
SBF is nearly broke after being worth over $16B eight days prior.
FTT is trading around $1.40.
FTT deposits are suspended on Binance and Huobi following the release of 192M new FTT tokens that are believed to have been released illicitly by an FTT insider.
CEXs with tokens face their own FUD, with Crypto.com leading the way. Crypto.com's CRO token is down almost 30% in the last 24 hours, and users are reporting slow withdrawals. It’s tough to call it now, but it seems like Crypto.com may be in the early stages of its own bank run.