New details of the collapse of the FTX exchange. Who will FTX pull with it? Theft of $ 1 billion of customer funds and what does the head of the US SEC have to do with it

On November 8, the entire cryptocurrency world was shocked by the news of the collapse of the FTX exchange. We recently wrote about this in detail.article. Since its release, a lot of dirty details have emerged, a lot of interesting facts have surfaced, and we have had more time to analyze all the events that have happened.

Today we will talk about a $600 million exchange hack., we will conduct an investigation that will answer the question: where did the $8 billion hole in the budget come from and where did $1 billion of client funds go? We will provide information about the connections of the head of FTX, Sam-Bankman Fried, with the head of the US Securities Commission, analyze which projects will undergo cascade liquidation and follow FTX, and speculate on what awaits the crypto market next, which sectors will be positively affected by what happened, and which will simply be killed. Go!

First, let me remind you that November 8th is a cryptocurrencythe market experienced a severe shock. The native token of the largest exchange, FTX, fell by more than 90%, which led to a fall in the quotes of absolutely all cryptocurrencies. The most famous NFT artist Beeple responded to the collapse of the crypto market due to FTX with the massive work Damn You sbf_ftx. in which he depicted a collapsing Bitcoin with a photograph of FTX head Sam-Bankman Fried (SBF).

1. Why did people carry money into FTX?

A few months before the collapse, FTX launched the seriesvery profitable products: USD deposit product with an interest rate of up to 8%, BTC deposit product with an interest rate of 5%, etc. Because of this, a large number of users deposited tokens, and some users even took out loans from banks to deposit.

The media estimated that between 500,000 and 600,000 people in Taiwan suffered losses as a result of the FTX collapse, with people even taking out loans from banks on FTX to get 8% interest.

Also, this situation greatly affected usersfrom Singapore. Singaporean retail investors cannot use Binance, Bybit and other well-known platforms, so they carried their funds to FTX. And here’s another delicious offer. In dollars at 8%.

Moreover, the reputation of the FTX exchange was on par, andsomewhere even higher than Binance. Its head, Sam-Bankman Fried, was the voice of the cryptocurrency community in the top offices of Washington and had great weight in the eyes of the SEC and other US regulators. US Treasury Secretary Janet Yellen claimed that"FTX had a lot of legitimacy in the eyes of users".

2. How to lose $8 billion overnight. Or not for one?

On November 2, Coindesk published an investigation,which immediately began to gain momentum in all crypto media. The investigation involved the FTX exchange and the Alameda Research fund, two companies that are considered friendly because Sam Benkman-Fried owns 50% of FTX and 100% of Alameda Research. Journalists gained access to internal documents of the second company and discovered a large number of FTT tokens on Alameda’s balance sheet.

FTT is a utility token of the FTX exchange that can be traded and conducted financial transactions.

According to the investigation, as of 30June, Alameda Research had $14.6 billion in assets: $3.66 billion of which were “unlocked FTT tokens,” and $2.15 billion were “collateralized FTT” or “collateral tokens.” It is the company's largest asset and third largest asset, respectively.

Experts concluded that most of the purecapital in the Alameda Research business is its own centrally controlled token. What does it mean? Well, imagine, SBF created its own token, raised its price to the skies, and used it to secure loans for its second company. And with the fall of the FTT token, loans naturally became unsecured, which caused a liquidity crisis and created a hole in the budget of more than $8 billion.

As for SBF’s personal wealth, today the Bloomberg Billionaire Index valued it at $1.

I see a lot of headlines screamingthat SBF lost everything overnight. But, friends. Was it just one night that he defrauded his users, was it that one night that he invested their funds in his second company, Alameda Research, the largest venture capital fund in the crypto world? This whole situation is not one fatal mistake by the CEO of the largest player in the market, it is systematically making bad decisions throughout the development of FTX and Alameda Research, as well as his greed and tendency to cheat. And all this on such a scale, of course, could not happen without serious patrons, which we will talk about a little later.

3. Where did user funds go? Anyone waiting for a refund?

Spoiler - they are not.

One of the analysts who participated ininvestigation, found that Alameda owed FTX $1.4 billion in BTC, that is, every time someone deposited BTC on the exchange, Alameda borrowed these funds and dumped users, so the crypt had a negative correlation and did not bounce every time when there were rallies in macro markets.

What's more, Skam Bankman's inner circle was aware of the use of FTX client funds to fund the hole in Alameda, exacerbating the situation for the SBF and its entire team.

As for the return of funds, I hasten to assure you that no one is going to return anything. And this is not just my opinion.

You can say goodbye to the money those who owe Alameda and FTX

Evgeny Gaevoy from Wintermute in an interview with The Block

FTX filed for bankruptcy under Chapter 11 of the US Federal Law, andSam Bankman Fried himself left the post of CEO of FTX, and John J Ray III became the new head of the exchange. lawyer previously hired by the oil company Enron during its scandalous bankruptcy.

After filing for bankruptcy, they began torumors that SBF, along with other exchange executives, jumped on their plane and flew from the Bahamas to Buenos Aires. But this information was denied and Cointelegraph reported that former FTX CEO Sam Bankman, co-founder Gary Wang and CTO Nishad Singh were detained by Bahamian authorities.

4. Chronology of a $600 million hack with proofs. Wallets and transactions.

It would seem that what else could surprise us, aftereverything that happened to FTX? Or maybe, in other ways. Late this Friday night, hundreds of millions of dollars began flowing out of FTX wallets, an unusual time for such rapid manipulation. Some withdrawals were directly transferred from Tether to DAI, since it is a decentralized asset that is safer for hackers. The recipient's wallet is here.

After exchanging USDT for DAI, the alleged hackerssimply exchanged stETH for $44 million. on ETH. Next, someone sent an on-chain message to the recipient's account “0x3d24a1ff” – this is a hash of the function name “Rug Pull All,” which in the crypto world means that the development team suddenly abandons the project and sells or removes all of its liquidity, in other words, SCAM.

Here is the DeBank profile where you can track all the received assets.

Also hit hard was Solana on FTX, $90 million.transferred to a new wallet. Afterwards, thousands of Wormhole ETH were transferred from Solana to an Ether wallet. Next, the hackers used a second address for shieldcoins.

At this time, FTX General Counsel– Miller claims he doesn't know why the funds are being moved. At the same moment, an application update is confirmed, probably maliciously, in order to gain access to additional private sources. Messages are appearing online advising you to remove the application as soon as possible and not use the FTX website. The developer's account is likely compromised.

Next, FTX pins a message in its main Telegram chat claiming that FTX has been hacked.
After some time, the funds are combined into a multi-signature at the address 0x97f991971a37D4Ca58064e6a98FC563F03A71E5c.

3 hours after his first tweet, chiefthe legal counsel states that all of these above actions were planned by them in advance, which is in direct contradiction to what he said a couple of hours earlier.

This whole murky story led to the loss of $650 million from FTX accounts.

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5. "I screwed up." Sam's New York Times interview.

For the first time after the incident, Sam refusedcommunicate with publications, but at the same time actively tweeted. The gist of this thread: “Today I filed with FTX, FTX US and Alameda for voluntary Chapter 11 proceedings in the US. I hope there is a way to recover. Ultimately, I'm optimistic. I'm going to clarify the situation as soon as possible in terms of user recovery."

In an interview with the New York Times, SBF repeatedlyexpressed regret about what happened and admitted that events could have developed in a more dramatic manner. The margin position, he said, “was significantly larger than he thought,” “in the billions of dollars.”

Sam Bankman-Fried declined to give details.collapse, talk about jail time, and reveal his location, citing security concerns, but agreed that he had expanded his business interests too quickly and missed signs of trouble.

The former billionaire also called criticism of Binance CEO Changpeng Zhao “a strategically wrong step” in his conversations with regulators.

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6. "Oh, I'm sorry" or 20 years in prison? What threatens the head of FTX?

The US Department of Justice has what it takes toinitiating a criminal case against the now former FTX CEO Sam Bankman-Fried and other leaders of the bankrupt exchange. The Bahamian authorities, the Manhattan District Attorney's Office, and many other structures have already begun their investigations.

 

Lawyer with many years of experience in the crypto industry inspeaking with Fortune, he cited federal law covering wire fraud. The provided maximum penalty is up to 20 years in prison.

He added that as evidence of intentlaw enforcement will be able to use the platform's terms of service, investor presentations, and public statements by Bankman-Fried. The crypto lawyer has no doubt that the business practices of the exchange and the behavior of its head demonstrated fraud.

Will the SBF get away with it?He has strong patrons, rumors about this have been filling the information space for a long time, but will they stand up for Sam or prefer to remain in the shadows, given the scale and scandal of the situation?

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7. Sam-Bankman Freed's connections with the Democratic Party and the head of the SEC.

FTX's bankruptcy deprived the US Democratic Party of a significant portion of its funding. Sam was the second largest donor after George Soros.

The former FTX CEO has endorsed 25 American Democrats, and so far 18 of them have won. He claimed to have donated $1 billion to the campaign.

Regarding the problems of FTX and AlamedaResearch has been known to some influential people in the industry (CZ, Gary Gansler) for quite a long time, but no steps have been taken to stop the bubble from inflating, Elon Musk also spoke out.

The SBF was a major donor to the Democratic Party so no investigations were carried out

Elon Musk

But who "covered" Sam? And, maybe, not only covered, but also directed, suggested how to turn your scams more competently?

A few days after the fall of FTX, a very interesting scheme was flooded on American social networks. See for yourself.

It's no secret that MIT professors Gary Gensler and Glenn Ellison taught Sam Backman-Fried finance and blockchain, but who is this still very young girl in the photo?

Yes, it was she who, at the age of 28, ruledbillions of dollars Alameda Research together with Sam. Well, by pure chance, she turned out to be the daughter of a close friend of Gary Gensler, who became the Head of the US Securities Commission.

This raises questions:who opened the doors to the offices of Washington for Sam Bankman? Who allowed him to become the shadow hand of the crypto market? Who stubbornly did not notice the bubble being so actively inflated? Who is Sam's patron in the ranks of regulators, whose influence was enough to cover up all his sins until they created such a collapse in the market?

This theory is also supported by the fact that Sam met with the head of the SEC a few months before the collapse of the exchange, and Gary Gensler, having re-examined the activities of FTX, could not notice any catch.

SEC chief helped FTX work through legal loopholes to gain a regulatory monopoly on the market

Congressman Tom Emmer

Yes, direct evidence of accusations asideHeads of the SEC, but a very interesting story awaits us. In the United States, a petition demanding an investigation into the alleged chain “the head of the SEC - SBF” is actively gaining votes.

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8. FTX is dead. Who is next?

With FTX and Alameda, everything is clear.No one bets on the restoration of companies. One need only look at their balance sheet gaps to understand that no investor will provide liquidity to save them. But Alameda Research was one of the largest venture funds in the blockchain space. What will be the projects they have invested in?

Nothing good. The market is waiting for a domino effect.Some will receive additional liquidity and be saved, while others will be forced to simply declare bankruptcy. By the way, in order to reduce the further cascading negative impact of FTX, Binance is forming an industry recovery fund. They want to help projects that are strong in their fundamentals but are experiencing a liquidity crisis. But the fund's volume of $100 million is clearly not enough to help all worthwhile startups. Here is a complete list of projects that included Alameda and FTX funds:

The impact of the crisis associated with the collapse of FTX is stillyet to be felt, so more companies could fail in the coming weeks. The current situation in cryptocurrency can be compared to the financial crash of 2008. Ultimately, the market will heal itself.

CZ, CEO of Binance

The first candidate for closure is a large onecryptocurrency lender BlockFi. They are already preparing to file for potential Chapter 11 bankruptcy, WSJ reports. This happened after the platform stopped withdrawing client funds and FTX declared bankruptcy.

Further, landing platform Salt stated thatis suspending deposits and withdrawals as FTX's collapse has impacted its business. The Australian crypto exchange Digital Surge also joined them, also citing the consequences of the collapse of FTX.

The lending arm of crypto investment bank Genesis Global Trading is temporarily suspending repurchases and issuance of new loans, CoinDesk reports.

Which funds have already suffered losses from the FTX bankruptcy:

Galaxy Digital &#8211; $77M;

Multicoin Capital&#8211; up to 10% of funds under management were stuck on FTX, they managed to drain FTT at $17 on news of the merger, and were able to pull out 24% of AUM shortly before withdrawals began to be blocked;

TrueFi DAO &#8211; $12M;

Sequoia Capital wrote its $150M investment to 0;

Paradigm was rumored to have up to $500M on FTX;

Genesis Trading lost $7M.

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9. Who benefited from the collapse of FTX?

Market maker Cumberland stated thatThe collapse of FTX will lead to significant structural changes in the markets and the crypto industry, namely a move away from centralization towards decentralization. Decentralized exchanges (DEX), as well as non-custodial wallets, turned out to be the main beneficiaries of this crisis.

To confirm his words, the decentralized wallet token Trust Wallet TWT has grown by 84% in a week. Not without the help of the head of Binance, of course, whose company owns this wallet.

Also, the collapse of FTX clearly benefited their maincompetitor Binance. The exchange has established itself as the most reliable exchange for users, has begun to provide support to projects affected by the fall of FTX, and has confirmed the assets in its accounts.

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10. Conclusions. What's next for the crypto market?

Asset hole $9 billion., left by FTX, will influence the crypto market for a long time, many companies that had close relationships with FTX are trying to sweep the losses under the rug, but one way or another, they will be forced to admit losses. Many market makers have lost significant capital on FTX, which means there will be more room in the market for small capital traders, more arbitrage opportunities between blockchains/exchanges.

Alameda Research, involved in 186 projects,as a venture fund, it will probably not be able to shed tokens on new unlocks if the current CEO can tightly control the actions of former employees. Otherwise, we will face “sudden” collapses in coin prices in the coming years after the malicious actions of Alameda/FTX.

The industry is also expecting more and more regulation. Since ordinary users should be protected from such situations. One of FTX's major co-investors said:“Institutional capital will no longer invest in the crypto industry until it is fully regulated”.

We will continue to monitor the development of events. We will keep you updated on all the news in our Telegram channel.

Thanks for reading and liking!