While the crypto industry has a reputation for bad behavior and scams, FTX stood out as one of the adults. That held down for more effective government regulation of crypto and offered to bail out other companies when they went bankrupt.
Who is the owner?
The company was founded in 2019 by Sam Bankman-Fried, better known as SBF, and former Gary Yang, Google employee.
Bankman-Fried, who was CEO, is the 30-year-old son of two Stanford law professors. He graduated from the Massachusetts Institute of Technology with a degree in physics and spent time as a trader before starting FTX.
He soon became one of the richest men in crypto, at one point worth about 26,500 million dollars. Known for his tousled hair and cargo shorts, he courted the press and was acclaimed as the “golden boy” of cryptocurrencies. He challenged typical CEO behavior, playing League of Legends during business calls And supposedly living in a polyamorous group with 10 colleagues in the Bahamas.
Bankman-Fried was known as an adherent of the “effective altruism” movement, which calls on adherents to choose their careers and actions for the best advancement of humanity, and to establish a Foundation to give away his wealth. He, too, was a major Democratic donor, vowing to donate $1 billion in the 2022 midterms, though he later I was walking back that commitment.
While FTX’s leaders were American, including co-CEO and Republican donor Ryan Salame, the company was based in the Bahamas. A well-known tax haven, the island country has lighter financial regulation, meaning FTX was able to transact and sell products to customers it couldn’t in the US.
What went wrong?
In short, FTX ran out of money. More specifically, he ran out of his clients’ money.
In addition to FTX, Bankman-Fried owned a crypto hedge fund called Alameda Research. The two businesses are supposed to be separate. This is especially important because FTX managed funds belonging to clients.
However, on November 2, crypto news site CoinDesk reported that Alameda owned billions of dollars of a cryptocurrency created by FTX. This led people to wonder how much money was actually in Alameda and if the money kept in FTX was safe.
Bankman-Fried initially denied the report, saying in since-deleted tweets that “FTX is fine” and was the victim of rumors spread by a competitor. However, clients were quick to withdraw their funds from their FTX accounts. The next day, Bankman-Fried announced that the company was suffering from a “liquidity crisis”, which meant that people were asking for more money than FTX had available.
Could FTX have been saved?
When Bankman-Fried announced the crisis, it said that the largest cryptocurrency exchange Binance had expressed interest in buying FTX. This would mean that client funds would be protected.
However, Binance owner Changpeng Zhao saying that the deal was subject to due diligence. In the end, Binance backed out of the deal. The company tweeted that due to “reports of mishandling of client funds and alleged investigations by US agencies,” it would not bail out FTX.
On Thursday, Bankman-Fried tweeted an apology:
