What is FTX?
FTX is a cryptocurrency derivatives exchange that was founded in 2019 by Sam Bankman-Fried, a former quant trader at Jane Street and Alameda Research, and Gary Wang, a software engineer who previously worked at Google. It is headquartered in Antigua and Barbuda, but has offices around the world, including in Hong Kong and the United States. The platform offers a wide range of crypto-related products, including futures, options, leveraged tokens, and spot trading.
FTX has quickly gained popularity in the cryptocurrency community, largely due to its innovative products and user-friendly interface. The platform has attracted both individual traders and institutional investors, and has partnerships with a number of high-profile companies and organizations, including the Miami Heat basketball team and the Major League Baseball Players Association.
FTX has also made headlines for its philanthropic efforts, donating millions of dollars to various causes, including COVID-19 relief and climate change initiatives.
In terms of its security, FTX claims to use a combination of cold storage, multi-signature wallets, and third-party custody providers to protect users’ funds. The platform also offers two-factor authentication and other security features to help prevent hacking and fraud.
Overall, FTX has become a major player in the cryptocurrency space, and its innovative products and strong security measures have helped it to stand out from the competition.
FTX At Its Peak
FTX has received significant investments from prominent venture capital firms such as Sequoia Capital, Coinbase Ventures, and Paradigm. In 2021, FTX raised $900 million in a funding round that valued the company at $18 billion. The round was led by several prominent investors, including SoftBank, Sequoia Capital, and Third Point.
In addition to these investments, FTX has also made strategic acquisitions to expand its offerings, including acquiring Blockfolio, a popular cryptocurrency portfolio tracking app, and LedgerX, a regulated cryptocurrency derivatives exchange.
Sam Bankman-Fried has co-founded another business called Project Serum. It is a decentralized exchange built on the Solana blockchain that allows for fast and cheap trading of cryptocurrencies. The exchange aims to solve some of the scalability and speed issues associated with traditional decentralized exchanges by leveraging the high throughput capabilities of the Solana blockchain. Project Serum has gained popularity in the crypto space and has attracted significant investment and partnerships.
Alameda and it’s connection with FTX:
Alameda Research is a quantitative trading firm that specializes in cryptocurrency trading. The company was founded in 2017 by Sam Bankman-Fried, Gary Wang, and Hongming Lyu.
Alameda Research uses proprietary trading algorithms and statistical models to analyze large volumes of cryptocurrency trading data and identify profitable trading opportunities. The company’s trading strategies are focused on market making, arbitrage, and other quantitative trading techniques.
In addition to its trading operations, Alameda Research is also actively involved in the development of cryptocurrency-related technology and infrastructure. The company has invested in several blockchain and cryptocurrency projects, including Serum, a decentralized exchange built on the Solana blockchain.
Alameda Research has quickly become one of the most prominent and successful trading firms in the cryptocurrency industry. The company’s trading volume often ranks among the highest on major cryptocurrency exchanges, and it has been involved in several high-profile trades and market events.
Sam Bankman-Fried resigned as CEO to promote Caroline Ellison, a former classmate who would become his girlfriend for a brief moment. Although Sam Bankman-Fried has been the head of FTX mainly, he was still somehow involved in Alameda’s trading activities. In fact, it was revealed that Alameda always managed to be the first in buying trading FTT (FTX native coin) and dumping it always at the right time as well. In the end, Caroline will be known for losing over $ 9 billion of FTX customer funds.
What caused the FTX Fall?
By the end of Spring 2022, some crypto currency companies were struggling, so FTX offered them a lifeline. BlockiFi and Genesis are some examples of crypto companies that had to pause their businesses. Meanwhile Changpeng Zhao (CZ) CEO of Binance has announced he would sell his stake in FTX back to Bankman-Fried. As a result., traders rushed to pull out of FTX.
On November 2, 2022, Coindesk reported a leaked document that showed that Alameda Research (run by Bankman-Fried) held an unusually large amount of FTT. FTX was created with the simple purpose of providing liquidity to Alameda. Therefore, their success or failures are interconnected. Based on these findings, CZ decided to sell Binance’s FTT tokens. By doing so, it created fear toward the token; leading traders to rush to withdraw their funds.
FTX scrambled to return an estimated amount of $6 billion over three days to traders, until it ran out of cash. On November 8, CZ announced Binance had reached an agreement to bail out FTX. After review of FTX books, Binance withdrew their offer due to mishandling of funds by FTX. This retraction hurt FTX more than anything as it led it to being unsolvable and therefore filing for bankruptcy. Bankman-Fried was arrested and on trial; Caroline Ellison and Gary Wang plead guilty and accepted to cooperate.
