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Anyone here able to do a tl;dr; for us? The FTX story is super confusing. Why are they screwed? What happened?

benjaminwootton 4y ago
FTX the exchange appear to have lent client funds to Alameda research. The loans had very poor collateral behind them, meaning that FTX were exposed. It is not currently clear if or how Alameda lost the $billions of client assets, or if they are just illiquid. There is noise that the client assets were spent on things like the summer bailouts of defunct crypto firms, but I think we are just speculating at that point.
gvb 4y ago
"The FTX-Alameda nexus" https://www.coppolacomment.com/2022/11/the-ftx-alameda-nexus.html https://www.coppolacomment.com/2022/11/the-ftx-alameda-nexus... Excellent explanation. Appears to be confirmed by the WSG "FTX Tapped Into Customer Accounts to Fund Risky Bets, Setting Up Its Downfall" https://archive.ph/nZNmw https://archive.ph/nZNmw Original: https://www.wsj.com/amp/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732 https://www.wsj.com/amp/articles/ftx-tapped-into-customer-ac...
- camjohnson26 4y ago
  From the marketwatch article it sounds like this was essentially a hostile attack from Binance, first dumping the token to collapse the price, then pretending to be interested in an acquisition to keep FTX from looking at other emergency measures, then pulling out at the last minute. Compare this to traditional finance with events like the collapse of Lehman, then Bear Stearns, with Morgan Stanley next in line to fall. Their competitors stepped in, with a major push from the Fed, to prevent the collapse because they knew it would trigger a domino effect that would crash prices and bring them all down. Binance seems to be doing the exact opposite.
  - gvb 4y ago
    Binance triggered the collapse, but the stage was set by FTX/Alameda by "creating its own token" (per "The FTX-Alameda nexus") and "loaning" $10bn to Alameda using their "own created token" as the backing collateral. Of course, there's a risk that the hedge fund could lose some or all of the customers' funds. And the exchange promises that customers can have their assets back on demand, which could be a trifle problematic if they are locked up in leveraged positions held by the hedge fund. But this is crypto. There's an easy solution. The exchange can issue its own token to replace the customer assets transferred to the hedge fund. The exchange will report customer balances in terms of the assets they have deposited, but what it will actually hold will be its own token. If customers request to withdraw their balances, the exchange will sell its own tokens to obtain the necessary assets - after all, crypto assets, like dollars, are fungible. ["The FTX-Alameda nexus" - emphasis mine]
element77 4y ago
This is a good read on the story: https://www.marketwatch.com/story/the-26-billion-rise-and-fall-of-crypto-king-sam-bankman-fried-11668102039 https://www.marketwatch.com/story/the-26-billion-rise-and-fa...
purple_ferret 4y ago
here's the way I understand it: -SBF's other pet project Alameda Research suffered huge loses after Luna blew up. -Alameda Research, a 'backer' of FTX was given billions of FTT tokens that they 'owned' by FTX because they participated in its 'ICO', transferred it FTX, and then used it as collateral to 'borrow' FTX user assets, hoping they could gamble with it and make back their money. CZ, of Binance, got wind of this somehow, and holding billions of FTT on Binance, decided to tank the price by saying it will all be sold immediately -SBF gets caught with his pants down
- bogomipz 4y ago
  I'm curious what was the intended utility of their FTT token and ICO? Was the token meant to be a type of equity in the FTX exchange then?

FTX the exchange appear to have lent client funds to Alameda research. The loans had very poor collateral behind them, meaning that FTX were exposed. It is not currently clear if or how Alameda lost the $billions of client assets, or if they are just illiquid. There is noise that the client assets were spent on things like the summer bailouts of defunct crypto firms, but I think we are just speculating at that point.

gvb 4y ago

"The FTX-Alameda nexus" https://www.coppolacomment.com/2022/11/the-ftx-alameda-nexus.html https://www.coppolacomment.com/2022/11/the-ftx-alameda-nexus... Excellent explanation. Appears to be confirmed by the WSG "FTX Tapped Into Customer Accounts to Fund Risky Bets, Setting Up Its Downfall" https://archive.ph/nZNmw https://archive.ph/nZNmw Original: https://www.wsj.com/amp/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732 https://www.wsj.com/amp/articles/ftx-tapped-into-customer-ac...

camjohnson26 4y ago
From the marketwatch article it sounds like this was essentially a hostile attack from Binance, first dumping the token to collapse the price, then pretending to be interested in an acquisition to keep FTX from looking at other emergency measures, then pulling out at the last minute. Compare this to traditional finance with events like the collapse of Lehman, then Bear Stearns, with Morgan Stanley next in line to fall. Their competitors stepped in, with a major push from the Fed, to prevent the collapse because they knew it would trigger a domino effect that would crash prices and bring them all down. Binance seems to be doing the exact opposite.
- gvb 4y ago
  Binance triggered the collapse, but the stage was set by FTX/Alameda by "creating its own token" (per "The FTX-Alameda nexus") and "loaning" $10bn to Alameda using their "own created token" as the backing collateral. Of course, there's a risk that the hedge fund could lose some or all of the customers' funds. And the exchange promises that customers can have their assets back on demand, which could be a trifle problematic if they are locked up in leveraged positions held by the hedge fund. But this is crypto. There's an easy solution. The exchange can issue its own token to replace the customer assets transferred to the hedge fund. The exchange will report customer balances in terms of the assets they have deposited, but what it will actually hold will be its own token. If customers request to withdraw their balances, the exchange will sell its own tokens to obtain the necessary assets - after all, crypto assets, like dollars, are fungible. ["The FTX-Alameda nexus" - emphasis mine]

element77 4y ago

This is a good read on the story: https://www.marketwatch.com/story/the-26-billion-rise-and-fall-of-crypto-king-sam-bankman-fried-11668102039 https://www.marketwatch.com/story/the-26-billion-rise-and-fa...

purple_ferret 4y ago

here's the way I understand it: -SBF's other pet project Alameda Research suffered huge loses after Luna blew up. -Alameda Research, a 'backer' of FTX was given billions of FTT tokens that they 'owned' by FTX because they participated in its 'ICO', transferred it FTX, and then used it as collateral to 'borrow' FTX user assets, hoping they could gamble with it and make back their money. CZ, of Binance, got wind of this somehow, and holding billions of FTT on Binance, decided to tank the price by saying it will all be sold immediately -SBF gets caught with his pants down

bogomipz 4y ago
I'm curious what was the intended utility of their FTT token and ICO? Was the token meant to be a type of equity in the FTX exchange then?