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FTX
IndustryCryptocurrency
FoundedMay 2019; 5 years ago (2019-05)
FoundersSam Bankman-Fried
Gary Wang[1]
FateChapter 11 bankruptcy (Nov. 2022)
Headquarters
Nassau, New Providence
,
The Bahamas
Key people
John J. Ray, III, CEO (Nov. 2022 – present)[2]
Products
RevenueIncrease US$1.02 billion (2021)[3]
Increase US$272 million (2021)[3]
Increase US$388 million (2021)[3]
Number of employees
c. 300 (2022)[4]

FTX is a Bahamas-based cryptocurrency exchange.[5][6] The exchange was founded in 2019 and, at its peak in 2021, had over one million users and was the third largest crypto exchange by volume.[7][8] As of 11 November 2022, FTX has been in bankruptcy proceedings in the US court system following a liquidity crisis.[9][10][11][12]

While details of the crisis are still being revealed, the public concerns began when a 9 November 2022 CoinDesk article stated that FTX's partner firm Alameda Research had a significant portion of its assets in FTX's native token FTT.[13] Following this revelation, rival exchange Binance's CEO Changpeng Zhao announced that Binance would sell its holdings of the token, which was quickly followed by a bank run, collapsing the value of the token. This left FTX in a liquidity crisis in which depositors could not withdraw their funds, and Binance signed a letter of intent to acquire the firm with due diligence to follow, but Binance withdrew its offer the next day. FTX filed for Chapter 11 bankruptcy protection on 11 November 2022.[10]

FTX is incorporated in Antigua and Barbuda and headquartered in The Bahamas.[14] FTX is closely associated with FTX.US, a separate exchange available to US residents.[15]

History

Sam Bankman-Fried and Gary Wang founded FTX in May 2019.[16] FTX began within Alameda Research, a trading firm founded by Bankman-Fried and others in 2017 in Berkeley, California.[17][18][19] FTX is an abbrevation of "Futures Exchange".[17] Changpeng Zhao of Binance purchased a 20% stake in FTX for approximately $100 million, six months after Bankman-Fried and Wang started the firm.[20]

In August 2020, FTX acquired Blockfolio, a cryptocurrency portfolio tracking app, for $150 million.[21]

In July 2021, FTX raised $900 million at an $18 billion valuation from over 60 investors, including Softbank, Sequoia Capital, and other firms.[22][23] Bankman-Fried bought out Zhao's stake for approximately $2 billion.[20]

In September 2021, FTX moved its headquarters from Hong Kong to The Bahamas.[24]

On January 14, 2022, FTX announced a $2 billion venture fund named FTX Ventures.[25] In November 2022, FTX Ventures' website went offline.[26]

In January 2022, FTX raised $400 million in Series C funding at a $32 billion valuation.[27]

On February 11, 2022, FTX.US announced that the company would soon begin offering stock trading to its US customers.[28]

In February 2022, it was reported that FTX was reportedly creating a gaming division that would help video game developers add cryptocurrency, NFTs, and other blockchain-related features into video games.[29]

In July 2022, it was announced that FTX made a deal with an option to buy BlockFi for up to $240 Million. The deal included a $400 million credit facility for BlockFi.[30][31]

In August 2022, the Federal Deposit Insurance Corporation (FDIC) published a cease-and-desist letter accusing FTX of making "false and misleading representations" about FDIC insurance following FTX president Brett Harrison's tweet implying otherwise.[32] Following the letter, Harrison deleted the tweet and Bankman-Fried clarified in a tweet that FTX does not have FDIC insurance.[33]

On September 26, 2022, FTX.US was announced as the winner of the auction for the digital assets of bankrupt crypto brokerage Voyager Digital. The value of the deal was approximately $1.42 billion, including $1.31 billion in Voyager-held cryptocurrency and $111 million in additional consideration. The deal was subject to approval by bankruptcy courts and Voyager's creditors.[34][needs update]

On September 27, 2022, FTX.US President Brett Harrison announced he would be stepping down from an active role at the exchange but would stay on in an advisory capacity. The company did not immediately announce a replacement for Harrison, who had been FTX.US president since May 2021.[35]

In October 2022, it was reported that FTX was under investigation in Texas for allegedly selling unregistered securities.[36]

November 2022 crisis and bankruptcy

FTX Token
Denominations
CodeFTT
Development
White paperFTT Whitepaper
Initial release5 May 2019 (5 years ago) (2019-05-05)
Ledger
Circulating supply134,454,978.27 FTT (est. August 2022)

Background: FTX and Alameda, Binance, and CoinDesk report

Bloomberg reported, in September 2022, on the close relationship between Alameda Research and FTX. Bloomberg noted that Alameda had functioned as a market maker on FTX early in the exchange's history, and that the trading firm remained, in June and July 2022, the biggest known depositor of stablecoins on FTX.[37] Bloomberg further stated that the regulatory oversight which applies to companies operating in traditional equities markets would have prohibited the relationship between the two firms were it applicable.[37] Alameda's trading on FTX meant the trading firm was occasionally in a position to gain financially when others lost money on the exchange.[38] Bankman-Fried, at points, defended Alameda's use of FTX, as it created liquidity.[38]

Several months later, on 2 November 2022, CoinDesk reported that a significant portion of Alameda Research's assets were held in FTT, the exchange token issued by FTX. It said that there were $5.1 billion worth of FTT tokens in circulation, and that Alameda's balance sheet held $3.66 billion of "unlocked FTT", $2.16 billion of "FTT collateral", and $292 million of "locked FTT".[13] In the weeks immediately preceding the publication of the story by CoinDesk, Bankman-Fried was, as characterized anonymous sources cited by Bloomberg, "desperately" attempting to raise money for FTX.[39] Additionally, Bankman-Fried had been "dueling" with Changpeng Zhao on Twitter in the months preceding the CoinDesk article.[40]

Crisis begins: Binance FTT sale, bankrun, and withdrawn rescue bid

Several days after the publication of the CoinDesk article, on 7 November, Binance CEO Changpeng Zhao said on Twitter that his firm intended to sell all its holdings of FTT.[41] Binance had received FTT from FTX in 2021 during a transaction in which FTX bought back Binance's equity stake in FTX.[42] Zhao cited "recent revelations that came to light" as the motivation for selling FTT.[42] Bloomberg and TechCrunch reported that any sale by Binance would likely have an outsized impact on FTT's price, given the token's low trading volume.[43][44] The announcement by Zhao of the pending sale and disputes between Zhao and Bankman-Fried on Twitter led to a decline in the price of FTT and other cryptocurrencies,[45] resulting in a three-day bank run of an estimated $6 billion that sent FTX into crisis.[46] On 8 November, Zhao announced Binance had entered into a non-binding agreement to purchase FTX due to what he referred to as a "liquidity crisis" at FTX.[47][48] The deal did not include the sale of FTX.US.[47] Zhao announced on Twitter that the company would complete due diligence soon, adding that all crypto exchanges should avoid using tokens as collateral.[49][50] He also wrote that he expected FTT to be "highly volatile in the coming days as things develop". On the day of that announcement, FTT lost 80 percent of its value.[51]

On 9 November, Bloomberg called the acquisition of FTX by Binance "unlikely" due to the poor state of FTX's finances.[52] Bloomberg also reported that the United States Securities and Exchange Commission and Commodity Futures Trading Commission were investigating the nature of FTX's connections to Bankman-Fried's other holdings and its handling of client funds.[53] Later that day, the Wall Street Journal reported that Binance would not move forward with the deal to acquire FTX.[54] Binance cited FTX's reported mishandling of customer funds and pending investigations of FTX as the reasons for not pursuing the deal.[55] Bankman-Fried said in a Slack message that FTX had learned through the press about Binance’s concern and decision.[56]

On 9 November, FTX's website said that it was not processing withdrawals at that time.[46] Bankman-Fried said that although the firm's assets were worth more than its clients' deposits, it would need funds from outside to meet demand for withdrawals due to a lack of liquidity.[57][58] Bankman-Fried stated on 9 November that FTX.US, as a separate company, was "not currently impacted" by the crisis.[59]

Worsening crisis: bankruptcy and unauthorized transactions

On 10 November, Axios reported that FTX approached Kraken for a potential rescue deal.[60] Bankman-Fried made several statements on 10 November, taking responsibility for FTX's failure and indicating that FTX was still seeking capital to remain solvent.[61] Bankman-Fried also announced that Alameda Research would cease trading and end operations.[62] FTX's in-house legal and compliance teams had, for the most part, resigned by 10 November.[63][64] Anonymous sources cited by the Wall Street Journal on 10 November said that Alameda Research owed FTX some $10 billion, as FTX had lent funds placed on the exchange for trading to Alameda so that Alameda could make investments with the money.[65] On 12 November, anonymous sources cited by the Wall Street Journal said Alameda CEO Caroline Ellison disclosed to other Alameda employees that she, Sam Bankman-Fried, Gary Wang, and Nishad Singh knew that client deposits were transferred from FTX to Alameda.[66] An anonymous source cited by the New York Times on 14 November said the same.[67] The funds were used in part to pay back loans Alameda had taken to make investments.[66]

Though Bankman-Fried said that FTX.US customers did not have reason to worry on Twitter on 10 November, employees began attempting to sell assets belonging to the firm on the same day.[68] These assets include stock-clearing company Embed Financial Technologies and the naming rights to FTX Arena.[68]

On 10 November, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries, FTX Digital Markets Ltd, "and related parties", and provisionally appointed an attorney as liquidator.[69][70] Japan's Financial Services Agency ordered FTX Japan to suspend some operations.[71][72] The company's Australian subsidiary was placed under administration.[73]

On 10 November, the team running the FTX Future Fund, a charitable group bankrolled by Bankman-Fried, announced that they had resigned earlier that day.[9] Future Fund had committed $160 million in charitable grants and investments by 1 September of that year.[74]

On 11 November, FTX, FTX US, Alameda Research, and more than 100 affiliates filed for bankruptcy in Delaware.[11][9][12] Anonymous sources cited by the New York Times said that the exchange owes as much as $8 billion.[9] The crypto lender BlockFi, which was affiliated with FTX, announced on 10 November that it was suspending operations as a result of FTX’s collapse.[9] Bankman-Fried resigned as CEO and was replaced by John J. Ray III, a corporate restructuring specialist who previously oversaw the liquidation of Enron.[11][12][75] As of 12 November, Bankman-Fried told Reuters that he was still in the Bahamas,[76] though other high-ranking FTX employees had begun leaving for Hong Kong, the location of the company's former headquarters, or other locations.[77] Authorities in the Bahamas, including the Royal Bahamas Police Force, questioned Bankman-Fried on 12 November.[78] Despite FTX's bankruptcy, Bankman-Fried continued to attempt to raise money for the firm during the weekend of 12 and 13 November.[79]

Late on 11 November, some $473 million in funds were removed from FTX through what Ryne Miller, FTX US's general counsel, characterized as "unauthorized transactions".[80] Miller further announced that FTX and FTX US intended to move remaining funds denominated in cryptocurrency to offline "cold storage".[80] The funds taken from FTX were mostly stablecoins such as Tether, and were quickly exchanged for Ether, a method used by cryptocurrency thieves to thwart attempts to retrieve stolen funds.[81] A person speaking on behalf of FTX in a Telegram chat referred to the "unauthorized transactions" as a "hack" and encouraged users to delete FTX mobile apps as they were compromised.[77] Kraken has since announced its assistance in identifying the perpetrator.[82] On 14 November, Kraken's chief security officer said on Twitter that the firm knew "the identity" of a user who paid transaction fees associated with moving the stolen money through their Kraken account.[83] In an interview with Kelsey Piper published 16 November by Vox, Bankman-Fried blamed an "ex-employee" or malware on a device owned by an ex-employee for the theft.[84]

Between $1 billion and $2 billion in customer funds reportedly could not be accounted for as of 12 November.[85] The Financial Times reported that FTX's balance sheet shortly before the bankruptcy showed $9 billion in liabilities, with assets comprising $900 million in liquid assets, $5 billion in "less liquid" assets, and $3.2 billion in illiquid private equity investments.[86]

Bankman-Fried began publishing "cryptic" messages in sequence on Twitter on 14 November.[87] As of 15 November, the messages read "What HAPPENED".[87]

On 15 November, FTX sought to raise $10 billion in liquidity from investors.[88]

Widening impact: Contagion fears

The exchange token of Crypto.com, Cronos, lost approximately $1 billion in value in November,[89] a decline attributed in part due to the collapse of FTX and in part due to reporting that Crypto.com had accidentally sent $400 million of Ether to another exchange.[90][66] On 14 November, Crypto.com's CEO assured users that the exchange was functioning as normal.[89] Commenters and customers remained fearful that Crypto.com could experience a collapse similar to FTX.[91]

BlockFi, a cryptocurrency lender, was reportedly taking steps to file for bankruptcy as of 15 November.[92] The firm had earlier begun preventing withdrawals.[92] The company disclosed "significant exposure" to FTX on 14 November.[92]

Responses and effects

Institutional investors that stand to lose money due to their stakes in FTX include Tiger Global Management, the Ontario Teachers' Pension Plan, SoftBank Group, BlackRock, Lightspeed Venture Partners, Temasek, and Sequoia Capital.[93][94][95][96][97] Sequoia Capital wrote down its equity in FTX to $0 on 9 November, losing some $214 million.[98] Sequoia released a notice to investors, also published on Twitter, assuring them the firm's stake in FTX represented a small amount of its overall portfolio,[99] and replaced a profile of Bankman-Fried published on the firm's website with a link to the same notice.[100][101][102] The Ontario Teachers' Pension Plan released a similar statement.[103] Cryptocurrency investment firms with holdings still held on FTX after its bankruptcy include Galois Capital and Galaxy Digital.[104] Several public figures also invested in FTX or received compensation for promoting the company.[105] These include former couple Tom Brady and Gisele Bundchen, as well as Shaquille O’Neal, Stephen Curry, and Kevin O’Leary.[105] According to anonymous sources cited by The Information, some venture capital firms are considering suing Bankman-Fried.[106]

Anthony Scaramucci, founder of SkyBridge Capital, announced the firm was attempting to buy back a 30% stake in the business owned by FTX.[107]

Jim Chanos predicted the collapse of FTX would lead to increased scrutiny and regulation of cryptocurrencies. Chanos further criticized the cryptocurrency sector as "designed to extract fees from really unsuspecting investors".[108] Richard Handler, CEO of American financial firm Jefferies Group, tweeted on 10 November that he had attempted to meet with Bankman-Fried in July and again in September as he perceived he was "in over his head".[109] Handler stated that Bankman-Fried did not respond to the emails sent from Jefferies staff sent on Handler's behalf.[109] The sudden collapse of FTX has been compared to bankruptcy of Lehman Brothers by writers in publications including The New York Times and the Financial Times.[110][111] Lawrence Summers acknowledged the comparisons to Lehman and further compared the collapse to the Enron scandal, caused by fraud perpetrated by Enron executives.[112] Rostin Behnam, the Chairman of the Commodity Futures Trading Commission, called for Congress to grant the organization more power to regulate cryptocurrencies.[113]

Other cryptocurrencies experienced swings and declines in value: Tether dropped below its peg price of $1.00 to $0.97[114] and Bitcoin sank to its lowest price in two years.[12] Share prices for publicly traded cryptocurrency companies declined.[115] The price of Solana, which was affiliated with Bankman-Fried, declined as well.[116] The crisis at FTX has inspired an increase in withdrawals from other exchanges.[117] A decline in the value of Cronos, the token of exchange Crypto.com triggered fears of the potential for a collapse similar to that of FTX and spurred withdrawals from the platform.[118] CEO Kris Marszalek provided assurances that the firm was liquid and that it did not use Cronos in a manner similar to the way FTX used FTT.[118] Bloomberg reported that the collapse of FTX exacerbated institutional skepticism of cryptocurrencies as an asset class.[119]

Following the collapse of FTX, the Royal Bahamas Police Force launched a criminal investigation into the company.[120][121]

Anonymous sources cited by Bloomberg said that the office of the United States Attorney for the Southern District of New York had begun an investigation into FTX's collapse as of 14 November.[122]

The United States House Committee on Financial Services plans to conduct hearings in December on the collapse of FTX, and committee leaders said they would seek testimony from Bankman-Fried.[123]

Sponsorships

The FTX Arena in Miami, Florida

FTX sponsored a number of sports teams and organizations. Deals included the naming rights to the Miami Heat’s basketball stadium, renaming it FTX Arena,[124][125] a partnership with Major League Baseball to place the FTX logo on the uniforms of umpires,[126] and a deal with the Mercedes-AMG Petronas F1 Team to add the FTX logo to the cars and uniforms of both Lewis Hamilton and George Russell.[127]

Other sponsorships included the title sponsorships of the first season of MLB Home Run Derby X,[128] and the title sponsorship of the tournaments FTX Road to Miami and FTX Crypto Cup as part of the Champions Chess Tour 2022.[129]

Following the bankruptcy of FTX in November 2022, both the Mercedes—AMG Petronas F1 Team and the Miami Heat cut ties with the company, with the latter also announcing that they would be seeking a new naming rights partner for the FTX Arena.[130][131]

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