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What Happened to FTX?



Update: FTX filed for bankruptcy on Friday and Sam Bankman-Fried resigned as C.E.O.

When the cryptocurrency market experienced a $2 trillion crash in May, the crypto company FTX offered financial lifelines to several collapsing firms.


But this week, FTX needed a bailout, which its rival Binance seemed on the cusp of delivering. Then Binance reversed itself, saying it was pulling out of a deal to acquire the company.

FTX and Binance are cryptocurrency exchanges, meaning they enable customers to trade digital currencies for other digital currencies or traditional money, and vice versa. The two exchanges process the majority of all crypto trades in the world, according to CoinMarketCap, an industry data tracker.

FTX, one of the world’s largest exchanges, is run by Sam Bankman-Fried and is headquartered in the Bahamas. It has spent millions of dollars lobbying American legislators to institute crypto-friendly regulation.

Binance, the largest exchange, is run by the billionaire Changpeng Zhao. The company, which has no official headquarters and largely functions outside of the United States, has been scrutinized for skirting regulatory rules. Binance was an early investor in FTX.

Both companies have built their businesses on risky trading options that are not legal in the United States. They each have smaller American arms, and, which are separate from their sister companies and are meant to comply with U.S. regulations.

The crypto industry has increasingly been the target of regulatory scrutiny on Capitol Hill and across the globe. Mr. Zhao, 45, and Mr. Bankman-Fried, 30, have publicly butted heads over how to regulate cryptocurrency — or whether to do so at all.

Sam Bankman-Fried looks to the right of the camera as he poses for a portrait,
Sam Bankman-Fried, the chief executive of FTX.Credit…Lam Yik Fei for The New York Times
Changpeng Zhao looks directly into the camera, wearing glasses and a graphic T-shirt under a blue blazer.
Changpeng Zhao, the chief executive of Binance.Credit…Ore Huiying for The New York Times

FTX has a native cryptocurrency token called FTT, which traders use for operations like paying transaction fees. Last year, Mr. Zhao sold his stake in FTX back to Mr. Bankman-Fried, who paid for it partially with FTT tokens.

On Nov. 2, the crypto publication CoinDesk reported on a leaked document that appeared to show that Alameda Research, a hedge fund run by Mr. Bankman-Fried, held an unusually large amount of FTT tokens. FTX and Alameda are meant to be separate businesses, but the report claimed that they had close financial ties.

Binance announced on Nov. 6 that it would sell its FTT tokens “due to recent revelations.” In response, FTT’s price plummeted and traders rushed to pull out of FTX, fearful that it would be yet another fallen crypto company.

FTX scrambled to process requests for withdrawals, which amounted to an estimated $6 billion over three days. It seemed to enter a liquidity crunch, meaning it lacked the money to fulfill requests.


On Tuesday, Binance said it had reached an agreement to bail out FTX by buying the company. But, Mr. Zhao added in the announcement, “Binance has the discretion to pull out from the deal at any time.”

In a concurrent announcement, Mr. Bankman-Fried said the deal would protect customers and allow FTX to finish processing their withdrawals. He attempted to dispel rumors of conflict between FTX and Binance, adding, “we are in the best of hands.”

On Wednesday, Binance announced it would no longer buy FTX, saying it had arrived at that decision “as a result of corporate due diligence.” It also cited regulatory investigations and reports of mishandled funds.


“Every time a major player in an industry fails, retail consumers will suffer,” Binance said in a statement. “We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.”

On Thursday, FTX announced it had reached an agreement with Tron, a blockchain platform, to swap certain tokens from FTX to other crypto wallets.

The cryptocurrency industry has long struggled to convince regulators, investors and ordinary customers that it is trustworthy. The fall of FTX, which seemed more stable than other companies, and the pullout by Binance have jolted the market.

FTT’s price has fallen about 80 percent since Tuesday. The prices of Bitcoin and Ether, some of the most valuable tokens, have both fluctuated widely since Tuesday, at one point dropping more than 20 percent.


Here’s a timeline of the events:

Nov. 2: CoinDesk publishes exclusive revealing key balance-sheet details of Sam Bankman-Fried’s Alameda Research trading firm, showing it’s heavily invested in the FTX exchange’s FTT token.

Nov. 6: Binance CEO Changpeng “CZ” Zhao says he’s selling his remaining holdings of FTT tokens. (Minutes later, Caroline Ellis, CEO of Alameda Research, tweets that Alameda will buy Zhao’s FTT tokens for $22 each.


Nov. 8: The FTT token price falls below $22.

Nov. 8: Binance announces non-binding letter of intent to buy FTX, subject to due diligence, easing the industry panic.

Nov. 9: CoinDesk is first to report Binance is strongly leaning against buying FTX after just a few hours of checking its books and loans.

Nov. 9: Binance officially walks away from the FTX deal.

Nov. 9: Without details, Justin Sun drops hints at saving FTX.

Nov. 10: Bankman-Fried says Alameda Research, the trading firm at the center of the drama, is being wound down.

Nov. 10: FTX assets frozen by Bahamian regulator.


Nov. 11: FTX files for bankruptcy protection in U.S.

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