What Happened at FTX and What Does It Mean for Crypto?

"On Friday, November 11, FTX Trading Ltd. (FTX)—one of the world’s largest and most well-known cryptocurrency exchanges—announced that it had “commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code” in Delaware. Included in the proceedings were FTX US and Alameda Research, a crypto trading company closely affiliated with FTX. The collapse of FTX is the most recent and perhaps most consequential of a spate of crypto company failures this year. This Insight examines the collapse and its implications.

What Is FTX and What Happened?

FTX was an international cryptocurrency platform that offered trading in both the spot market and derivative contracts of cryptocurrencies and allowed customers to store their cryptocurrency holdings with FTX. At its most recent valuation in fall 2022, it was believed to be worth about $32 billion—a valuation that proved to be inaccurate.

According to one news report that had seen FTX investment materials from the day before the bankruptcy announcement, the company held $900 million in “easily sellable assets” compared to $9 billion in liabilities. According to the bankruptcy filing, it had over 100,000 creditors and between $10 billion and $50 billion in liabilities.

Exactly what FTX did internally to cause its failure is unclear. However, the chain of events leading to the public loss of confidence and bankruptcy began with the publication of a report on November 2 by CoinDesk, which reported that two of Alameda Research’s three largest assets (representing nearly 40% of its total assets) were the FTX-related token FTT. (FTX issued FTT tokens to provide discounts on trading fees. FTT had been worth $22 per token, fell precipitously throughout the FTX ordeal, and is currently trading at $1.29 as of the date of this Insight.) Soon after, on November 6, Changpeng Zhao, the CEO of rival exchange Binance, tweeted that his exchange would sell its roughly $2.1 billion of FTT, essentially sparking a run on FTX. According to one report, FTX experienced $5 billion of withdrawals on November 6. After FTX initially denied solvency issues, FTX and Binance tweeted days later that Binance signed a non-binding letter of intent to help FTX solve its “significant liquidity crunch.” By Wednesday, November 9, the deal was off

 For some, the vast quantity of FTT on the balance sheet of Alameda was suspect. Since CoinDesk’s initial report, various media outlets have reported that an Alameda Research executive said FTX had transferred customer funds to prop up Alameda. U.S. and Bahamian regulators are reportedly investigating FTX.."
FTX and Crypto .