FTX was known to the world as a leading crypto exchange platform with over a million registered users. The platform offered derivatives, options, tokenized stocks, leveraged tokens and an NFT marketplace.
They offered their own utility token known as FTT, which had its market value increase by over 850% over the year of 2021 to 2022. The also acquired Blockfolio in 2020 Aug, for $150 million.
When Sam Bankman-Fried founded the platform in 2019, everybody hailed him as a young entrepreneur and considered him to be ambitious and visionary destined to save the world. His name was widely praised on the major media outlets as though he was the next Steve Jobs.
Driven by personal goals, media hype and mainstream endorsements, Bankman joined the bandwagon of famous billionaires like Bill Gates and Warren Buffett who have promised to donate much of their wealth to solve world problems.
From playboy billionaire, to slumdog not so millionaire, he would see his networth drastically reduce from $17.2 billion to zero overnight. A period of his life with a dark undertone.
The play by play of what happened
On 9 November 2022, Coindesk revealed that Bankman's company, Alameda Research, had most of their assets in the FTT token holding.
On finding out the news, the rival competitor, Binance, decided that they would sell off their FTT token holdings. This news sent an earthquake-like shockwave to the FTX platform as users hurried to flee, so they could save themselves from a "bank run" situation.
In less than 72 hours, over $6 billion was withdrawn from the platform by users. This led to the massive liquidity crisis, and the FTT token became worthless because nobody was willing to retain it anymore as an asset. It also meant that depositors were not in position to withdraw their funds from the platform.
In the following days, Binance expressed interest to acquire the FTX platform. But they later withdrew their offer to purchase after discovering massive Balance Sheet inconsistencies from the company. It was clear that the FTX's problem was bigger than expected. So, Binance had to pull back to avoid entangling itself in such a risky deal with more liabilities than assets.
At this point, FTX woes kept increasing and the window to save themselves increasingly narrowed. No investor was in persuaded moods to inject in money, so they could gain the badly-needed capitalization at the time.
They had to take the only option they had on the table, which was to file for bankruptcy protection as things continued to be tough.
Now, many people have lost their money as a result of this scandal. According to various mainstream news sources, over a billion dollars of people's funds went missing. U.S. authorities are investigating what really transpired, including tracing the company executives' involvement in creating this mess.
Undoubtedly, bad experiences like this are sowing doubt in people's hearts regarding the viability of cryptocurrency. Many thought cryptocurrency would democratize the global financial industry through decentralization, but the great risks involved seem to be much bigger than the benefits at the moment. And this incident has hurt the entire crypto market.