While the crypto industry has a reputation for bad behavior and scams, FTX held itself up as one of the grown-ups. It lobbied for more effective government regulation of crypto and offered to bail out other firms when they went bust.
Who owns it?
The company was founded in 2019 by Sam Bankman-Fried, better known as SBF, and former Google staffer Gary Yang.
Bankman-Fried, who was CEO, is the 30-year-old son of two Stanford law professors. He graduated from the Massachusetts Institute of Technology with a physics degree and spent time as a trader before starting up FTX.
He soon became one of the richest men in crypto, at one point worth some $26.5 billion. Known for his tousled hair and cargo shorts, he courted the press and was hailed as crypto’s “golden boy.” He defied typical CEO behavior, playing League of Legends during business calls and allegedly living in a polyamorous group with 10 colleagues in the Bahamas.
Bankman-Fried was known as an adherent of the “effective altruism” movement — which asks adherents to choose their careers and actions to best advance humanity — and set up a foundation to give his wealth away. He was also a major Democratic donor, promising to give away $1 billion in the 2022 midterms, though he later walked back that commitment.
While FTX’s leaders were Americans, including co-CEO and Republican donor Ryan Salame, the company was based in the Bahamas. A well-known tax haven, the island country has lighter financial regulation, meaning that FTX was able to do trades and sell products to clients that it couldn’t in the US.
What went wrong?
In short, FTX ran out of money. More specifically, it ran out of its clients’ money.
In addition to FTX, Bankman-Fried owned a crypto hedge fund called Alameda Research. The two businesses are supposed to be separate. This is especially important because FTX managed funds belonging to customers.
However, on Nov. 2, crypto news site CoinDesk reported that Alameda held billions of dollars of a cryptocurrency created by FTX. This led people to question how much money was really in Alameda, and whether money held in FTX was safe.
Bankman-Fried initially denied the report, saying in since-deleted tweets that “FTX is fine” and was the victim of rumors spread by a competitor. Nevertheless, clients rushed to remove their funds from their FTX accounts. The very next day, Bankman-Fried announced that the company was suffering from a “liquidity crisis,” meaning that people were asking for more money than FTX had available.
Could FTX have been saved?
When Bankman-Fried announced the crisis, he said that the largest crypto exchange, Binance, had expressed interest in buying FTX. This would mean that clients’ funds would have been protected.
However, Binance’s owner, Changpeng Zhao, said that the deal was subject to due diligence. In the end, Binance withdrew from the deal. The company tweeted that owing to “reports regarding mishandled customer funds and alleged US agency investigations,” it would not rescue FTX.
On Thursday, Bankman-Fried tweeted out an apology: