02 Nov 2022: Cracks appeared when CoinDesk reported on a leaked balance sheet from Alameda Research that showed a sizable portion of the firm’s assets were FTT, the token of FTX. The intermingling between Alameda and FTX raised questions from the community and a possible systemic risk.
06 Nov 2022: The revelations triggered Binance, an early investor in FTX, to announce its intention to liquidate its FTT payout from its exit last year.
09 Nov 2022: After days of speculation, FTX announced that they entered into a non-binding Letter of Intent (LOI) with Binance for the full acquisition of FTX.com to ease liquidity issues. However, antitrust concerns were also raised relating to the acquisition.
10 Nov 2022: Binance announced that it would not go through with the acquisition “as a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations.” Bloomberg reports that if FTX.com does not receive a cash injection, the company will need to file for bankruptcy as it faced a shortfall of up to $8 billion and needed $4 billion to remain solvent.
11 Nov 2022: FTX Group and its approximately 130 affiliated companies, filed for bankruptcy and Sam Bankman-Fried resigned as CEO. Contagion begins with BlockFi halting withdrawals as they are “not able to operate business as usual”.
Our View: The situation continues to develop and we will be closely monitoring any new developments. Expect to see greater fallout across the industry given FTX’s relationships with other industry participants – Huobi Research has done an initial impact analysis for tokens invested by Alameda Research. As we highlighted in our October Newsletter, a silver lining from an event such as this is the removal of undesirable practices that will allow the system to build back stronger. It is a painful process, but one that is necessary for the broader acceptance and advancement of the industry. As an example, this event has prompted many exchanges to release a proof-of-reserves leading to greater transparency.
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