All about FTX collapse


In this article, we’ll see how FTX (The second largest crypto exchange platform) went down.

Photo by Jievani Weerasinghe on Unsplash

On 11 November FTX filed for U.S bankruptcy court protection while saying that it owes $3.1 Billion to its top 50 investors($1.5 Billion to its top 10 investors). These numbers might give you an idea about how severe this matter is because millions of people are facing losses because of this decline.

Let’s go behind the scenes!

Sam Bankman-Fried (founder and CEO of FTX) started trading cryptocurrencies and made loads of money from it. Since he understood the pattern of cryptos and knew when to buy or sell them he thought of offering this skill to big firms and so he established Alameda Research in 2017 and then FTX in 2019. FTX is a crypto trading platform that finds a seller for a buyer and a buyer for a seller and makes money for every successful transaction.

But that’s not it

FTX introduced its own cryptocurrency token FTT which seems to be the main cause of this misfortune. Well, FTT holders were considered VIP kinda people on the platform and were able to trade at a discount, because of these benefits people started using these tokens, and then their prices went up. To seal the deal FTX started buying these tokens from the company’s revenue( generated from transaction fees). They were increasing prices for these tokens by buying more tokens themselves.

But can you guess who owned most of these tokens? It was none other than Alameda Research which seems to have a lot of these tokens at a very low price hence whenever prices for these tokens went up Alameda went high and it seems it was FTX who was buying these tokens from Alameda at inflated prices using the money they acquired from investors(just speculation from financial experts not confirmed).

A week before this incident, the balance sheet of FTX was leaked to CoinDesk and further spread among the investors. Someone said that Alameda had a loan of billions of dollars, sure they had their assets but they were in the form of FTT tokens which are highly volatile. After observing the overall condition of both of these companies and how they were working a lot of investors tried to withdraw their funds at the same time, which FTX was unable to return.

And this is not the only reason for this collapse, Binance (a global crypto exchange platform) was also involved in this and gave a finishing touch to this incident, here’s how

Binance had a considerable stake in FTX at the time of the establishment of the company. Reports mention that Sam feared the actions of Binance and to avoid future dealings with them he bought back that stake Binance owned which was a great deal for Binance. But some part of the payment to Binance was done in the form of FTT tokens which Binance hold on to up until now the balance sheet was leaked. After such an incident Binance announced that they are going to sell their FTT tokens (23 million tokens worth $529 million).

If someone is to dump that much amount of tokens at a time, their price sure is to drop. And this news caused a huge commotion among FTX investors and that’s how my friend FTX lost 90% of its value in just 72 hours. It was one of the biggest collapses any company has ever faced.

For Further details of FTX’s investors and their investments.

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