Decoding SBF’s letter to FTX employees

SBF’s take on why FTX collapsed

Bankman-Fried claimed in the letter that FTX had approximately $60 billion in collateral against just about $2 billion in liabilities. But, due to the downturn in the crypto market, the assets dropped by 50% to $30 billion, with the liabilities remaining unchanged. In light of the first wave of credit crunch stirred by Terra, Voyager, and 3AC collapse, FTX’s assets declined to approx $25 billion, with liabilities increasing to $8 billion. 

From that point, the collateral dropped by another 50% due to a “concentrated, hyper-correlated crash” in early November, leaving the assets at $17 billion against $8 billion in liabilities, SBF added. FTX was later left with $9 billion in collateral following the “run on the bank,” which SBF said was caused by the same market factors in November. 

“As we frantically put everything together, it became clear that the position was larger than its display on admin/users, because of old fiat deposits before FTX had bank accounts,” Bankman-Fried wrote. “I never intended this to happen. I did not realize the full extent of the margin position.”

Meanwhile, this downplays previous concerns of user funds mismanagement at FTX, which many believed actually led to the “run on the bank” following the stunning events that unfolded regarding the exchange’s balance sheet. In a recent filing with the District of Delaware bankruptcy court, the newly-appointed CEO of FTX, John Ray, exclaimed about serious financial mismanagement at the exchange. 

Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.

John Ray

What were the loans to FTX used for?

Bankman-Fried added that loans to FTX and secondary sales were primarily reinvested in the business, and also deployed in “buying out Binance” – probably Binance‘s early investment in the company. He also claimed that the loans were “not for large amount of personal consumption.”

In contrast, Ray said that Bankman-Fried and other executives of the exchange collectively borrowed $1.6 billion from Alameda Research, with SBF alone receiving about $1 billion of the fund. Although the funds were not directly pulled from FTX, it leaves a question of which assets were the loans backed against. Was it on FTX assets or personal holdings, which seems highly unlikely?

Moreso, Ray filed that loans from Alameda to FTX were deployed in purchasing homes and other personal items for employees and advisors, details of which were not properly documented as company loans.

SBF regrets some actions, with bankruptcy declaration included

In addition to apologizing for failing in his duties as a CEO, Bankman-Fried said he regrets his oversight failure, and wishes to have done some things differently, such as:

“Being substantially more skeptical of large margin positions; examining stress test scenarios involving hyper-correlated crashes and simultaneous run on the bank; being more careful about the fiat processes at FTX; having a continuous monitor of total deliverable assets, total customer positions, and other core risk metrics; and putting in more controls around margin management.”

Filing for bankruptcy is one other action SBF regrets. He said potential interests in billions of dollars in funding came in minutes after signing the bankruptcy application and could have saved the company. SBF said he submitted to declaring bankruptcy due to an extreme amount of coordinated pressure coming, out of depression. 

I reluctantly gave in to that pressure, even though I should have known better; I wish I had listened to those of you who saw and still see value in the platform, which was and is my belief as well.

Sam Bankman-Fried