Ironically, the catastrophic demise of crypto prodigy Sam Bankman-Fried was predicted earlier this year by comedian Larry David of his FTX empire in his Super Bowl ad.
Bahamas-based Billionaire Exchange was one of the world's largest exchanges until earlier this month, positioning itself as an easy and secure way to get into cryptocurrencies. In the ad, David plays someone who is skeptical of every major technological advancement throughout history and is definitely anti-cryptocurrency. Ultimately, the message was: "Don't be like Larry...cryptocurrency, NFT, don't miss the next big thing."
Just nine months later, David's unpopular goofy character got the last laugh for once, though David himself sued the ad. Over the past two weeks, a series of revelations and Machiavellian moves by Binance, FTX's biggest competitor, led to FTX's downfall and dethroned Bankman-Fried as a leader not only in the cryptocurrency world, but also in the philanthropic niche. As true altruism.
As the story of this earthquake reverberates around the world, other cryptocurrency exchanges and protocols are on the brink of collapse amid aftershocks that shake their financial foundations. Every day, an ongoing investigation seems to reveal more chilling and exciting news, lawsuits and congressional hearings on the horizon. Here's a look at the characters and events behind a drama that will unfold for some time to come.
Main Actors:
Sam Bankman-Fried (often known as SBF): The son of two Stanford law professors, Bankman-Fried founded the trading firm Alameda Research in 2017, a few years after graduating from MIT. In 2019, he founded FTX, which fueled a cryptocurrency bull market to an $18 billion valuation in July 2021 and secured investment from the likes of SoftBank and Sequoia Capital. Before transitioning to full-time work with cryptocurrency, SBF spent some time working at the Philanthropic Center for Effective Altruism.
He became a leading voice of the EA movement and publicly pledged to give away most of his fortune. He has featured heavily on Capitol Hill in recent years as the second-largest contributor to Democratic politicians, testifying before Congress about cryptocurrencies and even proposing potential legislation for the industry last month.
FTX: Short for “Futures Exchange” , FTX was founded from the reputation that Alameda Research has built as one of the largest cryptocurrency traders by volume in the industry. His stated focus is on derivatives, leveraged trading and a professional approach aimed at "taking the derivatives space to an institutional level". A notable early investor is Binance founder and CEO Changpeng Zhao (often referred to as "CZ" - see below). FTX operates an international exchange from the Bahamas. A separate entity, FTX.us, was established in 2020 to legally serve US customers. In 2021, FTX became the second largest cryptocurrency exchange after Binance, valued at around $30 billion before things started unraveling.
Alameda Research: The trading company was founded in 2017 by SBF and Tara Mac Aulay, who at the time ran the Center for Effective Philanthropy. The company had early success in arbitrating bitcoin prices across various markets. As he got older, he ventured into other types of businesses and made dozens of investments in crypto projects. This includes Solana, a notable hold on blockchain created by ex-Qualcomm engineers to compete with Ethereum. The relationship between Alameda and FTX was a hot topic of speculation before it was leaked earlier this month.
Carolyn Ellison: CEO since the collapse of Alameda Research, met SBF while both worked at trading company Jane Street. Ellison joined Alameda in 2018 and became the sole general manager in August 2022. She was the daughter of two academics, like Bankman-Fried, and was in an on-off relationship with the SBF.
Binance/CZ: Founded by Changpeng Zhao (CZ), Binance is the world's largest cryptocurrency exchange since the FTX crash. CZ was an early investor in FTX, but his relationship apparently soured soon after and his interest in the company was sold in 2021. CZ's familiarity with FTX and SBF played a significant role in causing the current debacle.
Bankman-Fried, Ellison and representatives for Binance, FTX, FTX.us and Alameda did not immediately respond to requests for comment. FTX, FTX.us and media companies representing Alameda responded earlier this month that they were no longer involved with the companies Other contacts for FTX and FTX.us did not immediately respond
timeline
May-July 2022: A series of cryptocurrency crashes, led by Terra-Luna , trigger a wave of bankruptcies among cryptocurrency lenders such as Celsius, Blockfy, and Voyager. FTX plans to buy the New Jersey-based company and underwrite BlockFi with an option to acquire Voyager's assets. The investment seems to cement FTX as one of the strongest players in the volatile cryptocurrency world.
November 2, 2022: A financial leak from Alameda Research suggests that the alleged cozy relationship between the trading firm and FTX is closer than many believe, with a significant portion of the trading firm's assets held in ftt's FTT holding-token. Basically, Alameda's billion dollar valuation can be derived from a cryptocurrency created by subsidiary FTX. Each FTT token was then worth about $25.50.
November 6: CZ announced that Binance will sell its large stake in FTT. Fifteen minutes later, Ellison replied that Alameda wanted to buy Binance tokens for $22 each. The price of the token immediately began to fluctuate, dropping as much as 10% and falling below $22 on the same day.
This is the beginning of the end for FTX.
November 8: FTT crater price drops below $6 and CZ announces that Binance has reached a non-binding agreement to buy live FTX. Most importantly, the purchase will be subject to financial due diligence by FTX.
November 9 : Bloomberg reports that US federal agencies are investigating FTX A Binance spokesperson told reporters: "Based on the company's due diligence, as well as recent reports of mismanaged client funds and alleged investigations by US agents, we have decided not to pursue a potential acquisition of FTX.com."
November 10: SBF announces closure of Alameda Research. Bahamian regulator freezes FTX's assets. The entire staff of the effective altruism-inspired FTX Future Fund, which committed $160 million to the project, resigned.
November 11: FTX, FTX.us, Alameda and dozens of subsidiaries file for bankruptcy in the United States. SBF resigned as CEO and John J. succeeded Ray III, who famously oversaw the liquidation of Enron. By the end of the day, FTX was hacked and over $300 million was removed from the exchange. FTX advises users to delete their mobile app. SBF later blamed "malware on a former employee or ex-employee's computer" for the theft
November 13: Reuters reports that at least $1 billion in FTX client funds is unaccounted for.
November 15 : A class action lawsuit is filed in Florida against FTX and several prominent "brand ambassadors," including Larry David, Tom Brady, Gisele Bundchen, Kevin O'Leary, Naomi Osaka, Shaquille O'Neal and Stephen Curry. Consumer fraud.
November 16: The US House Financial Services Committee and Senate Banking Committee announce they will hold hearings on the FTX boom in December. SBF told Vox via Twitter DM that it regrets filing for bankruptcy and still hopes to raise $8 billion to keep all of FTX's customers intact.
November 17: In a bankruptcy filing, new FTX CEO Ray says: "I have never seen in my career such a complete failure of corporate control and lack of reliable financial information as has occurred here. System integrity and loopholes in foreign controls in the hands of a small group of inexperienced, inexperienced and potentially vulnerable individuals." Regulation of concentration of control, this situation is unprecedented."
November 21: A deeply fake video appears on Twitter with a blue tick under a fake SBF account showing Bankman-Fried influenced FTX users requesting to open a website to collect cryptocurrency compensation advances. The scheme is a textbook crypto scam, but with a convincing fake video as bait.
November 22: As bankruptcy proceedings unfold, the financial complexities behind the SBF empire begin to emerge. FTX officials said they found $1.4 billion in assets, but warned it could take weeks to compile a full balance sheet. The company announced that its top 50 creditors are owed a total of $3.1 billion, but did not name those creditors. Tax returns also show that FTX and Alameda Research lost a combined $3.7 billion between 2019 and 2021, well before the current debacle, suggesting that the SBF empire was never as good as it seemed.