Reuters reveals details of FTX collapse: provided $4 billion support to Alameda, yet executives were unaware
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Reuters reveals details of FTX collapse: provided $4 billion support to Alameda, yet executives were unaware
On Tuesday morning (November 8 in Beijing time), Sam Bankman-Fried (SBF), founder of the cryptocurrency exchange FTX, caught his employees off guard with a grim message.
Navigating Web3 tides with focused insightsBy Angus Berwick and Tom Wilson
Translation: SHL, PANews
On Tuesday morning (Beijing time, November 8), Sam Bankman-Fried (SBF), founder of cryptocurrency exchange FTX, stunned his employees with a grim message.
"Sorry, I messed up."
The crisis erupted just half an hour earlier when he announced that Binance, FTX’s main rival, planned to acquire it to rescue the company from a "liquidity crunch." The billionaire who had previously accused Binance's founder, Changpeng Zhao (CZ), of sabotage was now relying on him as a white knight.
According to interviews with several people close to SBF and previously unreported details from both companies, the seeds of FTX’s collapse were sown months earlier—mainly due to mistakes SBF made after stepping in to rescue other crypto firms.
These interviews and documents shed new light on the intense rivalry between the two billionaires, who have been competing fiercely for market share in recent months and publicly accusing each other of trying to harm one another’s businesses. Their conflict escalated further on Wednesday when Binance backed out of the acquisition deal, leaving FTX’s future uncertain.
According to three sources familiar with the matter, certain trades involving SBF’s trading firm Alameda Research triggered a series of losses that ultimately led to his downfall.
The sources said SBF found himself trapped without buyers and is now seeking alternative support. After Binance withdrew, SBF told staff that Binance hadn’t previously disclosed any reservations about the deal and that he was “exploring all options.”
Neither Binance nor FTX responded to requests for further comment. SBF told Reuters on Tuesday, “I may be too busy to do interviews.” Earlier, Binance stated it decided to exit the deal due to findings from its due diligence on FTX and media reports about a U.S. investigation into the company.
CZ’s decision to abandon the acquisition marks a dramatic reversal for SBF, the 30-year-old who founded FTX in the Bahamas in 2019 and built it into one of the largest exchanges, amassing nearly $17 billion in wealth in just a few years.
In January, news of FTX’s liquidity crunch drew attention from investors including SoftBank and BlackRock, triggering reactions across the crypto world.
Mainstream cryptocurrencies subsequently plunged further, with Bitcoin falling to its lowest level in nearly two years. Meanwhile, tighter credit policies by central banks caused the entire industry’s value to drop by about two-thirds in 2022.
Financial regulators around the world have issued warnings to Binance over operating without licenses or violating anti-money laundering laws. The U.S. Department of Justice is investigating possible money laundering and criminal sanctions related to Binance. By walking away from the FTX deal, CZ avoided potential regulatory scrutiny that could have come with the acquisition. Reuters reported last month that despite U.S. sanctions, Binance helped Iranian companies trade $8 billion worth of assets since 2018.
Deteriorating Relations
A source said CZ and SBF’s relationship began in 2019. Six months after FTX launched, CZ bought a 20% stake in the company for about $100 million. At the time, Binance said the investment was aimed at “jointly developing the cryptocurrency economy.”
However, within 18 months, their relationship soured. A former Binance employee said FTX grew rapidly, and CZ began viewing it as a genuine global competitor.
According to communications and emails seen by Reuters, in May 2021, when FTX applied for a license in Gibraltar for its subsidiary, it needed to submit information about its major shareholders—but Binance ignored FTX’s requests.
Records show that between May and July, FTX’s lawyers and advisors wrote to Binance at least 20 times, asking for details about CZ’s wealth sources, banking relationships, and ownership of Binance.
But in June 2021, an FTX lawyer told Binance’s CFO that Binance’s failure to “engage with us appropriately” could “seriously disrupt our key initiatives.” Binance’s legal team responded that they were trying to get answers from CZ’s personal assistant but that the requested information was “too broad,” and they might not provide everything.
By July this year, SBF had grown tired of waiting. Sources said he repurchased CZ’s stake in FTX for about $2 billion. Two months later, with Binance no longer involved, Gibraltar’s regulators granted FTX the license.
Regarding the funds used to acquire FTT, CZ said on Sunday that the payment to Binance was made in FTT and stablecoins. He later ordered Binance to sell this holding, which further intensified FTX’s crisis.
"Trying to take us down"
According to three people familiar with the matter, in May and June this year, SBF’s trading firm Alameda Research suffered a series of losses from trading activities. Two of them said these included a $500 million loan agreement with failed crypto lender Voyager Digital, which filed for bankruptcy protection the following month. FTX’s U.S. arm paid $1.4 billion for Voyager in an auction in September. Reuters has not been able to determine the full extent of Alameda Research’s losses.
To help Alameda Research, which held nearly $15 billion in assets, SBF transferred at least $4 billion in FTX assets, secured by FTX’s platform token FTT and shares in trading platform Robinhood Markets Inc. Alameda Research disclosed in May this year that it held a 7.6% stake in Robinhood.
Sources added that part of these funds came from FTX customer deposits. Fearing leaks, SBF did not inform other FTX executives about the support provided to Alameda Research.
Then, on November 2, a CoinDesk report detailed a balance sheet that FTX had hoped to keep private. It reportedly showed that FTT made up a large portion of Alameda’s $14.6 billion in assets. Alameda Research CEO Caroline Ellison tweeted that the balance sheet represented only “some of our corporate entities,” with over $10 billion in assets still unreported. But the statement failed to ease concerns about Alameda Research’s financial health and speculation about FTX.
Shortly afterward, CZ tweeted that due to recent financial disclosures about FTX, Binance would sell its entire FTT holdings—worth at least $580 million. Blockchain data showed FTT’s price plummeted 80% over the next two days, with massive withdrawals from the exchange accelerating the decline.
Withdrawal Surge
In a message to staff this week, SBF said FTX faced a “massive withdrawal wave” as users rushed to withdraw $6 billion in cryptocurrency from the platform within just 72 hours. He told employees that prior to this, daily withdrawals typically totaled only tens of millions of dollars.
After CZ tweeted that Binance would sell its FTT holdings, SBF initially expected FTX to withstand the attack. He told employees on Slack, “Withdrawals are not seeing shocking growth—we can handle these requests.”
“We’re fighting,” he wrote. “Clearly Binance is trying to take us down. So be it.”
But by Monday, the situation had worsened. Unable to quickly find backers or sell other illiquid assets in time, SBF reached out to CZ, according to sources. CZ later confirmed on Twitter that SBF had called him.
After talks with CZ, SBF signed a non-binding letter of intent for Binance to purchase FTX’s non-U.S. assets. The deal, valued at several billion dollars, would have been enough to cover all withdrawal requests but represented only a fraction of FTX’s valuation in January, sources said.
Hours later, CZ announced the potential deal. SBF tweeted, “Thank you so much, CZ.”
On Slack, SBF told employees: “Let’s survive another day. Let’s fight.”
Employees were shocked. Two people who worked with SBF said even executives were unaware of Alameda Research’s losses and the acquisition plan—they didn’t realize the scale of withdrawals until it was too late.
Later, on Wednesday, Binance announced it was canceling the acquisition. “These issues are beyond our control and ability to assist,” Binance said. CZ tweeted, “Sad day, but we tried,” along with a crying emoji.
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@Reuters
