updated @ November 15th @ 3:21pm MT
Serum
nov 14 summary
FTX balance sheet, revealed [the sheet]
FTX’s Balance Sheet Was Bad
What happened at Alameda Research
-
It was about betting big - Every major decision they have made is related to acquiring more leverage - via deceptive fundraises, financial engineering, and ultimately, outright fraud
What happened?
- CZ [Chanpeng Zhao (CZ), speculated to be the richest man in crypto, the founder and CEO of Binance] helped incubate FTX [founded by Sam Bankman-Fried (SBF): the CEO of FTX, an 'effective altruist' who has spent much of the last few years getting cozy with lobbyists and politicians in the US]
- FTX was a powerhouse in the industry - bailed out BlockFi, bid for Voyager, and was involved with Celsius. FTX makes a lot of money from Alameda, who executes pretty aggressive trading strategies. Alarm bells were ringing with resignations from Brett Harrison, former FTX president and Sam Trabucco, Alameda CEO both stepping down; FTX CEO Sam Bankman-Fried sold equity in the firm at a 50% discount to employees in the spring. Sam also became an unpopular figure because his focus on regulation seemed to benefit FTX - and not DeFi.
- FTX and Alameda: Alameda’s balance sheet was leaked. Over $2b of Alameda's borrower collateral is denominated in $FTT, a crypto token that FTX launched to raise funds for the exchange.
- Per CoinDesk, Alameda research has $14.6 billion of assets, against $8b of liabilities. For assets: $3.66b FTT, $2.16b “FTT collateral”, $3.37b crypto ($292m SOL, $863m “locked SOL”), $134m USD & $2b “equity securities. Most net equity tied in completely illiquid altcoins. For those unaware, FTT is the token issued by FTX for discounts of exchange fees. The total market cap of FTT is $3.35b, & the fully diluted market cap is $8.8b. You couldn’t sell $1m of this thing without pushing the market significantly lower
- FTX lent $10b of client funds to Alameda, which used it for leveraged crypto speculation. Alameda blew up when 3AC blew up and couldn’t pay. SBF bailed them out with customer funds secured by FTT and HOOD equity. FTX had $16 billion in customer assets, so FTX lent more than half of its customer funds to Alameda.
- "Alameda CEO Caroline Ellison said that she, Mr. Bankman-Fried, and two other FTX executives, Nishad Singh and Gary Wang, were aware of the decision to send customer funds to Alameda.”
- Alameda degen: Stumbled across this thread that shows EXACTLY where and when it started to go wrong for Alameda. This is an AMAZING insight into the mentality of people who think they're doing way better than they are
- Alameda accumulated a large margin position and let it run until both went bust.
- Getting too aggressive on the VC side & stealing customer funds to make the payments
- Alameda pledging illiquid collateral to borrow money to finance bets, which get margin called as markets went down this year, leading to theft of FTX user funds to put out fires.
- SBF had a “backdoor” built into FTX’s accounting system, allowing him to alter the company’s financials without alerting executives and auditors
- The system - which Alameda/SBF used for years - effectively allowed Alameda to borrow from FTX an unlimited amount. Basically, if a user deposited $1m, then Alameda could draw a $1m line of credit from FTX.
- SBF chatting with Matt Levine about buying up other companies, suggesting some of them will dip into customer funds
- Binance and FTX: CZ starves FTX of revenue with 0% trading fees on Binance attracting volume from FTX, the guys didn’t vibe super well. Binance decides to sell it's stake in FTX a year or so ago. As part of the buyout, they agreed to take $2B of it in "FTT" -- a token that FTX created that it uses for trading fees. FTX lobbies against Binance. CZ saw that FTT might not be that valuable (similar to LUNA) and wanted to sell out. A bankrun happened, fueled by CZ from Binance. Alameda offered to buy all of it for $22 because if Binance sells it all, FTX will nuke.
- Binance then says that they can save FTX as FTX flails. Binance backs out of the deal citing “regarding mishandled customer funds and alleged US agency investigations”.
- FTX was “fine”. Telling everyone how fine you are is the first red flag you are not. FTX appears to have stopped processing withdrawals, on-chain data show. Bankman-Fried seeks more than $9 billion for exchange rescue
- FTX and Alameda unravel: Alameda appeared to try to short USDT and Tether has just frozen FTX's USDT [Tether has frozen 46 million of USDT owned by crypto exchange FTX at the request of law enforcement].
- FTX’s head of institutional sales resigns, says team was 'completely in the dark' about insolvency.
- Bahamas securities regulator freezes FTX assets
- FTX allowed withdrawals for Bahamian users, saying it was required by regulators — this created a black market for Bahamian user accounts
- FTX files for Chapter 11 bankruptcy - all 134 firms involved
- FTX said that CEO Sam Bankman-Fried has resigned. John J. Ray III, the Chicago-based attorney known for overseeing the liquidation of Enron**,**
has been appointed to take the position.
- Collectively, the firms have claimed more than 100,000 creditors and between $10 billion and $50 billion in both assets and liabilities.
- Legal action: Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) are working together to investigate FTX’s U.S. subsidiary.
