The collapse of FTX has been rapid. In a matter of days, FTX, recently valued at over $30 billion, went from being one of the leading crypto exchanges to bankruptcy.
Till then hailed as one of crypto’s success stories, with its founder and CEO, Sam Bankman-Fried (SBF) celebrated as the self-made billionaire poster child by the crypto sphere, FTX’s goodwill flushed down the drain soon after it emerged the company had misused client funds to prop up its sister trading firm, Alameda Research.
“FTX is fine. Assets are fine” and “we don’t invest client assets (even in Treasurys),” SBF had said in a now-deleted tweet in November, just days before FTX filed for bankruptcy. The disgraced former CEO was arrested in the Bahamas earlier this month and faces serious criminal charges for financial irregularities.
SBF’s empire, including FTX, has been described as a house of cards not dissimilar to TerraUSD, the algorithmic stablecoin that caved in earlier this year. Ironically, SBF had emerged as a messiah of sorts with offers of liquidity to help crypto companies catch up in the wake of TessaUSD’s implosion, and stay afloat.
Things unraveled for FTX when its native token FTT was gutted in a huge bank run sell-off. FTX attempted to wriggle through by trying to sell a majority stake to rival Binance. But that option evaporated soon after Binance withdrew its rescue offer, citing reports of “mishandled customer funds and alleged US agency investigations.”
Read more: The FTX fiasco could reshape crypto forever
SBF stepped down as CEO the same day FTX filed for bankruptcy. Soon after, the company hired a new CEO, veteran insolvency overseer John J. Ray III, to help untangle the mess and see if there was anything that can be salvaged to help repay the company’s debtors.
In his bankruptcy filing, Ray said he has never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”
New lay of the land
With FTX gone, Binance has emerged as the world’s biggest cryptocurrency exchange. But Binance’s accent to the throne comes at a time when investor trust in centralized exchanges (CEX) is at an all-time low.
Earlier in December came reports that US authorities are planning to train their guns on Binance. The exchange didn’t help matters by temporarily halting withdrawals of the stablecoin USD Coin (USDC). While it resumed USDC withdrawals after about 8 hours, the damage had been done.
In the aftermath, Binance customers withdrew funds from the exchange at an alarmingly high rate. In fact, according to blockchain analytics firm Nansen, in a 24-hour period last week, $3 billion in net withdrawals flowed out of Binance.
And despite Binance CEO Changpeng Zhao trying to reassure investors, things have been going downhill.
The exchange got another red card when its auditor Mazars ceased its proof-of-reserves work for all its crypto clients including Binance. Again the timing of the move raised eyebrows; Mazars had just delivered its proof-of-reserves report certifying that Binance’s bitcoin reserves were fully collateralized. The report has since been removed from Mazars’ website.
While it’ll take some time before the drowning FTX ship fully sinks, the collapse has already started redrawing the crypto landscape. But it’s a work in progress with several major strokes from important stakeholders, still to come.
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