Sam Bankman-Fried cofounded FTX in 2019 and is its CEO. Photo FTX
FTX, the crypto exchange owned by Sam Bankman-Fried, has crashed. Sam Bankman-Fried has himself lost 94% of his total wealth, or about $14.6 billion and he must now sell whatever is left of FTX to chief rival Binance. That is if all things work out.
Based in the Bahamas, FTX is a cryptocurrency exchange that says it was built by traders, for traders. FTX offers industry-first derivatives, options, volatility products and leveraged tokens. FTX has more than one million traders using its services.
So, what happened here? Well, FTX, it seems, was nothing more than a house of cards built upon its own assets. The company’s net worth was based on ownership of its own tokens. This means that FTX claimed to be wealthy because it owned the same crypto tokens the company issued. And these tokens had no tangible net worth.
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This is confusing, to say the least. In short, FTX seems to have repeated what Enron did 20 years ago. Enron used its own stock – including executives’ stock options – as assets for holding companies that it owned in order to inflate the company’s net worth on paper.
The worst part of all of this is that other firms used FTX tokens as collateral, as assets on their own books in order to borrow money. Now that FTX has crashed these firms will all be in big trouble.
Rival Chinese firm Binance is now coming to the rescue, so it seems, and might be interested in buying out some of FTX’s operations. Binance CEO Changpeng Zhao tweeted, “FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI (letter of intent), intending to fully acquire FTX and help cover the liquidity crunch. We will be conducting a full DD in the coming days.”
This came after Zhao himself was in part responsible for FTZ’s crash. He tweeted on Sunday, “Due to recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books.” FTT is the digital token sold by FTX. FTT lost 80% of its value.
Sam Bankman-Fried tweeted, “Things have come full circle, and FTX first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.” And he went on to promise his American customers that the American FTX is “not currently impacted by this,” it is just the company’s international operations that are in trouble.
