Is anyone looking at their portfolios? It has been a rough month. Even I was on adventurous sole trip when I heard the news on my birthday.I have laughed so much on the Twitter memes that the whole situation only makes me laugh and all the tears of people are coming out as memes. Okay time for the story now enough of the hype ,what exactly happened. Before moving forward this story is still on going so i don’t know what is yet to happen,but at the moment

a 30 billion dollar company was wiped out in 48 hours.

Part 1: The beginning

2019 - FTX was cryptocurrency exchange founded by Sam Bankman-Fried SBF(very important character in the story), who served as CEO. SBF was know to be very beloved and very trusted.

SBF was basically a genius, he started off his crypto career by buying Bitcoin in America and selling it in Japan and earning the price difference.This was called Kimchi Premium, eventually got very rich and started the exchange.

SBF also has a hedge fund called Alameda Research. This hedge fund was having a 5 billion dollar daily trade volume, they were at the top of the world and just printing money. So everything was going nicely and all the dreams of SBF are getting true. SBF was THE FACE of crypto. He followed “the effective altruist” to gain trust.

sbf Sleepingincouch

Part 2: The mistake (clash)

SBF and FTX made a small mistakes,to understand this,there is a new character called CZ.

CZ is the CEO of the biggest exchange called Binance and the world’s 19th richest person. Binance does next level trading volume compared to FTX. Reports say it was about 9 trillion dollars daily volume in 2021.CZ was also a trusted guy, and always supported consumer funds.

CZ was the SBF’s first investor, and in return FTX helped Binance in different like building the exchange. This is in 2018-19.

2021- But eventually, CZ cashes out the FTT. Exits the shareholding. CZ says the withdrawal was a part of “normal investment cycle”. But there was little a smell of trouble, what happened between the best friends. Unclear what happened between them.

Early 2022- FTX was getting big. FTX overtakes coinbase in May 2022, now the second largest crypto exchange. Binance still holds the majority of the market share (64%), and followed by FTX with 10%. Now the FTX peak daily trading volume is 60 billion dollars. CZ was not happy.

SBF went to DC, arguing for the bill DCCPA and wanted to bring new regulations which favours FTX and fucks every other crypto company. Now SBF brings 40 million dollars in cycle for democrats which is a huge deal, all these people bad mouth CZ in support for SBF. This whole situation is bad. After all this SBF starts shiting in public Twitter on CZ.

The rule he had to follow was do not fuck with CZ, CZ was the richest man probably in the crypto and you don’t want him in to hate you. CZ is known for being win at all costs guy (literally a shark).

Part 3: The Fall

Luna crash happened- Alameda Research are a cool company, and are known to be the best traders, so it is very unlikely that they just lost money like the rest of the people. The best theory is that they have a risk exchange on their platform which fucked up(poorly designed).

Now generally on any exchange there are liquidations, If somebody makes a 10x or a intense bet on a bitcoin and if the bitcoin falls too much, it gets liquidated which means your position just closes. So FTX didn’t do this, if any bet gets liquidated then it will not be sold right away in the market but position will be given to Alameda Research and its their responsibility to deal with it now. This gives the users very nice experience, instead of price continuously going down, the graph is little bit smoother.This worked super well until it didn’t.

When Luna crashed, the price was falling 50% every hour, and there were just too many liquidations that led Alameda to losing huge amount of money.

Now to cover up the whole thing FTX gives a multiple billion bailout to Alameda in FTT tokens. Which is very weird thing to do, not illegal but everyone believed it’s abnormal.

Illegal stuff was that FTX used customer deposits in loans to Alameda in exchange for FTT collateral. So what happened here was like metaphorically, you use Phonepe to transfer money and you use Phonepe wallet to be little secure with banks not working and all that thinking your money won’t be stolen by any means. But Phonepe gave your money to cover up their sister company’s mistakes. Here same thing happened with FTX and Alameda. Basically they were thinking they would trade off the money, make it even again and give it back to FTX. Spoiler alert, that didn’t not happen.

So in background, FTX has multiple companies. Alameda Research is a hedge fund which does trading. There is FTX US which is specifically for US and there is FTX.com which is for rest of the world. Now traditional if there are three seperate companies, there should be three seperate balance sheets and there should not be any kind of mixing the funds.

Now, coindesk reports ~42% of Alameda assets are in FTT. Which is very bad because FTT is very volatile and if anything happens to FTX all the collateral that Alameda has will go down to zero, and they can’t pay back their loans which is FTX’s customer money.

CZ sees the opportunity and jumps right in. He tweets that he is going to dump 500 million dollars of FTT. So this is very insane evil thing to happen to FTX, if a person is selling 500M dollars he/she won’t announce it and sell it, you first sell it and then announce it. He was fucking, and creating panic.

Now, the Alameda is acting cool, and pretending that nothing is wrong with the balance sheet which coindesk reported. Caroline who runs Alameda says to CZ at Binance “ok fine, if you want sell your FTT we will buy it and buy it today for 22 dollar.” Panic panic panic, why is she saying this in public. Everybody panics and rushes to FTX and pulls out their deposits. Later it was reported that 5$ Billion was withdrawn. FTT crashed.

Part 4: The end (katam tata goodbye)

The ultimate Chaos didn’t happen yet.

8th November:

  1. FTX announces Binance will acquire them.

  2. FTX halts withdrawals

Kwon Do-Hyung appears out of nowhere, he is South Korean and the CEO of Singapore-based Terraform Labs, the parent company of crashed stablecoin TerraUSD and cryptocurrency Luna. He appeared in uponly podcast which bunch of other very intersting group of people and are talking about how jail is not so bad.

9th November comes, (my birthday) Binance says fuck you and tweets they backed out.

Whole world was waiting for Binance to acquire FTX and they would withdraw their money which didn’t happen and there was news that majority of the FTX legal team quit. Katam, people knew something very bad is happening with FTX.

Many companies related to FTX were panicking. Solana hits a record low of $12.

November 10th, Sam accepts defeat.

November 11th, Sam announces all the companies under the umbrella 134 companies all them fills for bankruptcy. Which means nobody is getting their money back.

Unusual thing was noticed by some people that some withdraws are still going through. There was news that it was people who were in Bahamas, FTX was headquartered Bahamas, and according to their law, their citizens should first be able to withdraw. But turns out it wasnt this which was happening, when people were very angry, Bahamian govt itself announces that they didn’t say anything about their citizens. Actually many big figures were bribing and getting their money out, not only this but very insane stuff was happening.

The key was how did SBF move the customer money without them or anyone noticing. After some days it turns out that SBF created a custom back door which only he had access to, without the ledge moving. This news hit everyone on the face who trusted SBF.

So i short, not so innocent SBF stole 8-10 billion dollars from his own customers to bring back his company. And if one things falls many fall after that like Domino effect. Many funds shut down which led to projects shuting down. People don’t want to be in crypto anymore, it is a very bad condition as of now.

There was a forest fire, all the trees are burned to death but again crypto will be back trees will take some time grow back with maybe a stronger community.

Lesson: Defi is more important ever.

Update 2022-11-22

It’s still not clear what, exactly, FTX did with their customers deposits, but it’s turning out to be way more complicated than just buying some crypto which fell in value.

Update 2022-11-23:

“A substantial amount of assets have either been stolen or are missing,” said James Bromley, a Sullivan & Cromwell partner who is representing FTX, according to a New York Times report.

Update 2022-12-13

Sam Bankman-Fried (CEO of FTX until last month) was arrested and indicted for fraud.