FTX cryptocurrency exchanges have faced a significant setback in the wake of investors liquidating their crypto assets. FTX is on the verge of bankruptcy.
How did it all happen? And what is FTX? What can be the possible working theory for the crash of the world’s most trusted crypto assets?
Getting To Know FTX:
FTX was founded in 2019 by Sam Brankman Fried. Within three years of its formation, it became the world’s second-fastest-growing cryptocurrency exchange. It soon came face-to-face with the world’s first largest cryptocurrency exchange, Binance. Hence, both are each other’s competitors.
FTX headquarters are in Chicago and Miami, while the U.S handles its official work.
But, FTX became the most trusted among its investors. The cryptocurrency exchange is when investors purchase crypto assets and then sell them. They do this crypto trading through cryptocurrency using “Bitcoin.”
What happened recently was a money glitch that risked the crypto assets of millions of people around the world.
How Did It Start?
It all starts with a revelation from a crypto-based news service, “CoinDesk.” CoinDesk featured a headline regarding FTX, which held,
“Divisions in Sam Bankman Fried’s crypto hazes on his trade balance sheet of Alameda.
As of June 30, $14.6 billion of assets were present in the Alamedas account, a private document of CoinDesk revealed. When further investigated, most of the assets were FTT tokens issued by FTX, another Bankman-Fried company”.
Alameda and FTT tokens mentioned above are both the companies of the same person and sister companies of FTX. FTX claimed to have $14 billion. Out of those $14 billion, $8 billion were printed in their own FTT token.
Meanwhile, the world’s largest trade cryptocurrency exchange, Binance, also decided to liquidate their crypto assets worth $500 million. In a tweet, the respective account clarified,
“As part of Binance’s exit from FTX impartiality, the previous year, Binance received approx. $2.1 billion comparable to BUSD and FTT. This step was taken in consideration of recent disclosure that has come to light, and we decided to liquidate any remaining FTT on our books.“
These news headlines propagated like fire in a jungle. People panicked and rushed to withdraw their crypto assets. FTX had few reserves to pay them back the investments all at once since the value of FTT fell. However, experts say that FTX did not have claimed funds. Hence, the sudden surge of withdrawals from FTX sparked a big crash in the market.
Consequently, pushing FTX into the crisis. FTX CEO Sam Bankman Fried reportedly said that the regular withdrawals would range from nine to ten million dollars. However, the amount increased to $6 bn dollars in just three days.
There is an $8 bn deficit that FTX is facing now that needs to be restored to save FTX from falling apart.
The tweet from the world’s most extensive crypto assets trade and a rival to FTX caused even more destruction. The value of the FTT token devalued further, and investors withdrew all of their assets.
FTX company crashed! In a hurry to recover their loss and pay their customers back, they needed extra reserves that they lacked and could not pay them. So, they asked the assistance of its competitor, Binance, to help them out. News broke out. On-chain reported, “FTX temporarily halts withdrawal.”
Binance agreed to save FTX from bankruptcy. Binance tweeted,
“This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to acquire FTX.com and help cover the liquidity crunch fully. We will be conducting a full D.D. in the coming days.”
Binance came to its rescue and decided to sign an LOI (Letter of Intent) buying FTX unofficially and take them out of this grave trouble.
The next, Binance CEO CZ had to say, was withdrawing from the deal. Announcing from Twitter, he said, “the issues are beyond our control or ability to help.”
What Can Be The Possible Theory Behind It?
Analysts say that the FTX has incorporated the customer’s funds with its sister company, Alameda Research. Here’s how it works in this case:
● They must have created an imaginary token, FTT.
● They printed the FTT token, gave it a synthetic price and utility, and purchased a bulk of the stock. It is called Inflate value.
● They eventually transferred it to Alameda research. The research company’s balance sheet gets high, reflecting the company’s high reserves. It ensures and elevates the confidence of the investors to invest more.
● Then, they borrow other assets like Bitcoins, Ethereum, and other stablecoins against it.
● And send them back to FTX for higher image-depiction of their company.
Wrapping Up:
If FTX wants to retain its reputation, it must gain customers’ trust again, convincing them the FTX that its investments are secure. One thing the company must do right away is to meet the demands of its investors and seek money to pay them back.
