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Allegedly, FTX used $10 billion in client funds to support its owner's trading company.
Allegedly, FTX used $10 billion in client funds to support its owner's trading company.
/According to the information, Sam Bankman-Fried approved the loan without consulting anyone at FTX.
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According to the Wall Street Journal , Sam Bankman-Fried trading firm Alameda Research owes $10 billion to the FTX cryptocurrency exchange after receiving loans funded from FTX client deposits.
As economist Francis Coppola told the magazine, customers shouldn't be investing money in exchanges like FTX. “He should not do anything with this wealth. They literally have to sit there for people to use," says Coppola. This is especially true in a volatile market like cryptocurrency, where the value of the collateral can fluctuate from day to day.
However, FTX reportedly lent more than half of its clients' funds to Alameda, which then used it to share other cryptocurrencies and help other cryptocurrency companies struggling with the overall market downturn.
FTX's troubles began with a CoinDesk article questioning Almeida's balance sheet, which is mostly made up of the exchange's FTT tokens. This became a real problem when Binance founder Changpeng Zhao announced his intention to sell billions of FTTs, causing an irreversible drop in the value of the cryptocurrency. Since then, FTX has struggled to stay afloat as clients have struggled to withdraw their funds due to fears of such risky financial deals between FTX and Alameda. Data watchers like Nansen saw successful withdrawals processed by FTX on Thursday, but it's still unclear who was able to cash them and why.
Both Alameda and FTX are directed by Sam Bankman-Freed, who apologized to viewers this morning, saying he "came out and should have done better". Although Alameda did not specifically say whether FTX was using client funds, it said the company "went out of business" and said it "hasn't done any of the weird stuff I've seen on Twitter."
Even if things don't look great, FTX's future is up in the air right now. Binance, the largest cryptocurrency exchange, announced earlier this week that it plans to acquire the company to ensure clients can get their funds back. The next day he quickly accepted the offer, saying that due diligence had revealed "problems beyond our control or ability to help." According to Reuters , Bankman-Fried is seeking to raise $9.4 billion from various investors to bail out FTX. Bankman-Fried said on Twitter that "every penny" of the money raised will be given to customers until the company does "the right thing".
Bankman-Fried also promised that FTX.us users are doing well (the national exchange operates as a separate entity) and that whatever happens will happen on the FTX.com international exchange. However, the FTX.us website now warns that "FTX trading in the US may be suspended for several days" and advises investors to "close all positions you wish to close". It still says "output is open and will remain open".
According to Bloomberg , FTX USA employees are looking to sell some of the company's assets. That includes naming rights to a stadium in Miami, home of the Miami Heat, and a clearing company it acquired earlier this year. The report notes that Bankman-Fried is not necessarily involved in all negotiations.
Update November 10, 4:50 pm ET: Added information about FTX asset sale discussions in the US
