The Spectacular Collapse of FTX and the Fall of Sam Bankman-Fried

<p>In the world of cryptocurrency, where fortunes rise and fall like
digital tides, the story of Sam Bankman-Fried and FTX is a gripping tale of
ambition, controversy, and a spectacular downfall.</p><p>Unconventional Beginnings</p><p>In the world of digital currencies, <a href="https://www.financemagnates.com/tag/sam-bankman-fried/">crypto king</a> Sam
Bankman-Fried was a serious player. In 2017, he co-founded Alameda Research, a
crypto trading firm that would later take the industry by storm. However, Bankman-Fried’s
bright idea, and ultimately his undoing, was to create a crypto exchange in
2019. He birthed FTX, an exchange that was intended to fuel Alameda's
activities. As if founding the two wasn't enough, he assumed the role of CEO
for both entities and held the title until 2021.</p><p>FTX and Alameda's Relationship</p><p>The relationship between FTX and Alameda raised eyebrows across the
cryptocurrency industry. The mingling of Alameda and FTX gave birth to
potential conflicts of interest. Alameda, once FTX's largest trader, brought
liquidity to the exchange, but the closeness of the two entities drew sharp
scrutiny. Between 1 June 2022 and 22 July 2022, Alameda's known wallets accounted
for the largest <a href="https://www.financemagnates.com/terms/s/stablecoin/">stablecoin</a> deposits and sources of liquidity to all
of FTX's known wallet addresses, accounting for 10% of Tether transfers
and 30% of USD Coin transfers on the exchange. Speculation was rife
about Alameda's <a href="https://finance.yahoo.com/news/alameda-had-secret-exemption-ftx-151857524.html" target="_blank" rel="nofollow">"secret exemption"</a> from FTX's auto-liquidation
protocol, further fueling the intrigue.</p><blockquote><p lang="en" dir="ltr">One seriously dubious element in the whole <a href="https://twitter.com/FTX_Official?ref_src=twsrc%5Etfw">@FTX_Official</a> affair is ”the secret exemption of Alameda from certain aspects of <a href="https://t.co/n3hge2CrmT">https://t.co/n3hge2CrmT</a>’s auto-liquidation protocol.”</p>— Patrick L Young (@FrontierFinance) <a href="https://twitter.com/FrontierFinance/status/1600838659510398977?ref_src=twsrc%5Etfw">December 8, 2022</a></blockquote><p>The Great FTX Unraveling</p><p>The downfall began with Alameda suffering a cascade of losses in May
and June 2022, with FTX reportedly lending over half of its customer funds to the
firm. This ill-advised move, in stark violation of FTX's own terms of service,
was described by Sam Bankman-Fried as a 'poor judgment call' in a serious
understatement. On 12 November 2022, <a href="https://en.wikipedia.org/wiki/The_Wall_Street_Journal">The Wall Street Journal</a> reported that
anonymous sources had said that Alameda CEO <a href="https://www.financemagnates.com/tag/caroline-ellison/" target="_blank" rel="follow">Caroline
Ellison</a> said that she, Bankman-Fried, Gary Wang, and Nishad Singh were
aware of that decision. Worse still, FTX used software to cloak the
misappropriation of these customer assets, igniting a firestorm of controversy.</p><p>Binance's Bombshell and FTX's
Plummeting Fortunes</p><p>Things only got worse following Binance's revelation on November 7,
2022, of its intention to divest its FTT holdings. This bombshell, coupled with
FTT's languishing trading volume and the simmering feud between CEO Zhao
Changpeng and Bankman-Fried, sent FTT's value into a nosedive. Binance claimed
that this abrupt move was caused by "<a href="https://www.bloomberg.com/news/articles/2022-11-06/binance-to-sell-529-million-of-ftt-token-amids-revelations#xj4y7vzkg">recent
revelations</a>", but would say no more at the time. It was a blow that
reverberated across the entire crypto landscape, resulting in a massive exodus
of $6 billion from FTX, leaving it unable to meet the clamor for withdrawals.</p><blockquote><p lang="en" dir="ltr">As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4</p>— CZ