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TABLE OF CONTENTS

Intro

In the most unexpected turn of events, FTX, the #3 exchange in traded volume, went from one of the most solid and promising pillars of crypto to a worthless platform and a suspicious business. Founder Sam Bankman-Fried had turned FTX into a household name through notorious sponsorships and became the face of crypto in Washington and the world himself.

Nobody expected that FTX would go from being the savior of troubled crypto companies to a company in urgent need of a savior in a few days. Unfortunately, FTX's fall reveals some capital sins of crypto and leaves a trail of frozen capital, lost funds, and massive amounts of mistrust and despair. The industry will take long to recover.

Key Concepts

Binance. Binance was founded in 2017 by Changpeng Zhao and is currently the #1 exchange by trading volume. During its initial years, Binance thrived thanks to its ability to avoid regulation (especially Chinese and American) through HQ relocations and an intricate corporate structure. Binance offers virtually all possible services in the crypto industry: spot and derivatives trading, venture capital investment, NFT marketplace, stablecoin issuance (BUSD), and even runs its own blockchain BNB.

FTX is a centralized exchange founded in 2019 by Sam Bankman-Fried, designed mainly for the needs of professional traders. Before its collapse, it was the third-largest exchange. Investors valued the company at $32B after raising $1B in July 2021, $420.7M in October 2021, and $400M in January 2022. FTX was a very active VC investor itself (with strong positions in projects like Solana or Aptos) and a household crypto name, thanks to notorious sponsorships (like the FTX Arena in Miami, home of the NBA team Miami Heat) and their role as the potential savior of troubled CeFi companies like Voyager and Celsius.

Sam Bankman-Fried, born in 1992, is an American entrepreneur and investor. After studying math and physics at MIT, he worked at investment firm Jane Street as a quantitative investor before founding Alameda Research and then FTX. He was one of the most prominent crypto billionaires (not a billionaire anymore), a self-defined “effective altruist,” and was crypto's most famous political donor in US politics.

Changpeng Zhao, also known as CZ, is a Chinese-Canadian developer and entrepreneur. Before founding Binance, he had worked for the Tokyo Stock Exchange and Bloomberg Tradebook as a software developer and led several crypto startups. In July 2017, he raised $17M for Binance in an ICO and quickly rose it to the #1 crypto exchange, where it remains today. CZ is considered one of the wealthiest men alive.

Alameda Research, owned 90% by Sam Bankman-Fried, was founded as a quantitative cryptocurrency firm in 2017, it calls itself a leading principal trading firm in its official channels, but unofficially it is a hedge fund and venture capital firm investing in crypto projects and tokens. In short, it was SBF's “left hand,” and the exact extent to which it is tied to FTX is unknown

$FTT was FTX's native token. It was used to provide fee discounts and rewards to traders on the platform and to give owners a premium status inside of FTX. One-third of the commissions charged by FTX were used to buy and burn FTT

The facts

On November 2nd, crypto media outlet Coindesk published an article covering Alameda's leaked balance sheet. According to the report, Alameda's treasury was mainly composed of FTX's native token, FTT, and other illiquid holdings. In addition, the article revealed that Alameda Research, SBF's first company, was potentially illiquid.

While there is nothing per se untoward or wrong about that, it shows Bankman-Fried's trading giant Alameda rests on a foundation primarily made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto. Moreover, the situation adds to evidence that the ties between FTX and Alameda are unusually close. Divisions in Sam Bankman-Fried's Crypto Empire Blur on His Trading Titan Alameda's Balance Sheet.

Besides the FTT mentioned above, a significant portion of Alameda's holdings was locked (like ~$800M in SOL) or worthless (like its position in SRM, MAPS, OXY, and FIDA, all minor projects.

<aside> 💡 The following breakdown is based on the rough data from media outlets (mainly the Conindesk article) and is probably incomplete. We've updated it according to the current prices of FTT and SOL to show what the reported balance would look like now.

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