What is FTX?
By Roman Davidson August 17, 2023
- Founded in 2019 by Sam Bankman-Fried (SBF) and Gary Wang, FTX was once among the largest exchanges with 2 million users
- FTX's value dropped after a suspected hack, with up to $662 million in tokens leaked.
- SBF faces additional charges of using customer funds for political donations, with a trial set for October
- FTX 2.0's relaunch is uncertain; its success relies on bankruptcy outcomes and regulatory approval
Founded in 2019 by Sam Bankman-Fried (SBF) and Gary Wang, FTX was once among the largest exchanges with 2 million users. FTX, an international cryptocurrency exchange, is set to relaunch after filing for bankruptcy in November 2022. The company's founder, Sam Bankman-Fried (SBF), faced legal challenges, but the exchange is now undergoing restructuring under new ownership.
What is FTX?
FTX is a cryptocurrency exchange that was founded in 2019 by Sam Bankman-Fried and Gary Wang. The exchange is headquartered in the Bahamas and offered a variety of trading products, including spot trading, futures trading,and margin trading.
FTX was one of the largest cryptocurrency exchanges in the world, with over 2 million users. However, the exchange filed for bankruptcy protection in November 2022 after it was revealed that the company had been mismanaging customer funds.
Collapse of FTX
Here's the simplified timeline of the events:
- November 2022: FTX declares bankruptcy due to liquidity issues; the U.S. Department of Justice and SEC accuse Sam Bankman-Fried (SBF) of fraud.
- December 2022: SBF is detained in the Bahamas and sent to the U.S.
- January 2023: In court, SBF denies all charges.
- February 2023: SBF gets bail.
- March 2023: FTX undergoes restructuring with new owners.
- May 2023: FTX initiates discussions for an exchange relaunch, known as
Once, the fourth largest crypto exchange, FTX was going through a tough time and needed liquidity to keep afloat. Binance, one of its rivals, considered buying parts of the company but pulled out eventually.
On November 11, 2023, FTX announced its bankruptcy, leaving its clients basically with no money. FTX's CEO, Sam Bankman-Fried, stepped down. The more intriguing fact is that the Bahamas police previously examined Sam Bankman-Fried. As a crypto tycoon, SBF was one of the richest entrepreneurs under 30.
After the incident, FTX was left with a possible hack in which hundreds of millions worth of tokens were stolen. The company lost billions in value; the first signs of suspicious activity showed that almost $477 million were stolen during illegal transactions, subsequently converting platform tokens to ether (ETH) on the decentralized exchange markets.
Nansen , a blockchain analytics platform, claims that approximately $662 million in tokens were leaked from the FTX exchange. On the 16th of November, the Florida federal court stated that the industry ‘guru' Bankman-Fried eventually was involved in he and his close teammates implementing a ‘backdoor' in software code to withdraw clients' money. The Kraken cryptocurrency exchange representatives said they know who the attacker is since they moved the funds from Kraken's accounts to the wallet used to store stolen tokens.
This event caused some crypto platforms to suffer from a liquidity crisis. As it turned out, not all companies could provide 100% liquidity to the stored clients' funds. Some crypto companies filed their bankruptcy days after. For example, crypto lender BlockFi halted its activity by asking for protection from courts for settling debts and recovering money for investors.
What happened to SBF?
Sam Bankman-Fried has been charged with fraud for allegedly stealing $100 million from customers to make campaign donations.
An indictment filed August 14 2023 by federal prosecutors in Manhattan alleges Bankman-Fried used customer funds to make donations to both Democrats and Republicans in the 2022 midterm elections. The donations were allegedly made in an attempt to influence cryptocurrency regulation. Bankman-Fried has denied the allegations. He is scheduled to go to trial in October 2023.
This indictment includes more serious charges than the previous indictment, which alleged wire fraud and money laundering. It also alleges that Bankman-Fried committed a crime that is specifically related to cryptocurrency regulation.
FTX 2.0: Relaunch?
The future of FTX is uncertain. The exchange filed for bankruptcy protection in November 2022 after it was revealed that the company had been mismanaging customer funds. However, FTX has made commendable progress toward financial recovery. Notably, the company has managed to recoup over $7 billion in assets. In a report from the Wall Street Journal, new FTX CEO John J. Ray III announced FTX's current initiative to rejuvenate its exchange platform, FTX.com. This reboot is part of a multifaceted strategy to pay back the company's creditors and revitalize its operations.
The relaunch of FTX 2.0 will depend on a number of factors, including the outcome of the bankruptcy proceedings and the regulatory environment. If the exchange is able to successfully restructure its finances and obtain regulatory approval, it could be a major player in the cryptocurrency industry once again.
To fund this relaunch, FTX is not only looking into the prospect of rebranding but also actively raising additional capital. Their repayment plan is anchored on a combination of methods. Firstly, by liquidating their diverse portfolio of assets, FTX hopes to generate considerable cash flow. This liquidation will be pivotal in compensating the creditors, ensuring that obligations are met.
However, there are also risks associated with the relaunch of FTX 2.0. The exchange will need to rebuild trust with its customers and investors, and it will need to address the concerns that led to its collapse in the first place. If the exchange is not able to do this, it could face further challenges in the future.
FTX's complicated journey, from being a leading cryptocurrency exchange to facing bankruptcy, legal challenges and a potential relaunch, underscores the volatile nature of the crypto industry. The founder, Sam Bankman-Fried, once a celebrated crypto figure, now faces serious allegations which, if proven, could further jeopardize the future of the platform.
The announcement of FTX 2.0 offers a glimmer of hope, but the platform must address past issues and rebuild trust. Investors, users, and regulators will be closely watching the next moves of FTX and its leadership. The upcoming months will be critical in determining the exchange's viability and position in the industry.