SBF: Bank Run, Market Crash and ‘Too Much Leverage’ wiped out FTX’s liquidity

SBF explains FTX crash in twitter thread; receives mixed reactions.
Alameda Research had used FTT as collateral to raise loans.
The FTX crash serves as another clarion call to lawmakers to act fast.

SBF stands for Sam Bankman Fried, the former CEO of now-insolvent cryptocurrency exchange FTX. The FTX implosion is one of the biggest shocks since the Terra Luna crash earlier this year.

SBF was tweeting letters of the word “HAPPENED” till 00:30 hours on November 15th, after which, he began tweeting proper sentences. Users on the micro-blogging platform criticized the unusual manner in which SBF tweeted.

The MIT graduate stated that though Alameda Research had more assets than liabilities, the assets were mostly illiquid; that Alameda Research had a margin position on FTX International and that FTX had enough to pay all customers.

SBF asserted that customers were his top priority and that he was doing everything possible to do them right. He added that he met regulatory authority officials in person “ and was “working with the teams to do what we can for customers.” He added that investors would be addressed after customers.

In the final tweet of a thread that he started on November 14th, SBF stated that current liquidity was at negative $8 billion; semi-liquidity stood at $3.5 billion while illiquidity was $5.5 billion. Referring to the sum of semi-liquid and illiquid funds, he stated

“Maybe that $9b illiquid M2M isn’t worth $9b (+$1b net). OTOH–a month ago it was worth $18b; +$10b net.” He added (“OTOH” stands for On The Other Hand)

The FTX debacle

Earlier this month, a balance sheet containing details of SBF-owned Alameda Research’s FTT holdings were exposed. The FTT was in fact used as collateral to obtain further loans. That FTT was actually owned by customers because an exchange has no funds of its own. When Binance CEO Chengpeng Zhao announced that Binance was dumping its FTT holdings, people started doing the same. Within days, FTT lost almost all of its value.

To make matters worse, Binance canceled the deal to buy out FTX a day before the agreement was to effectuate. Finally, on November 11, FTX announced that it had filed for chapter 11 proceedings. In other words, the once third-largest crypto exchange had filed for bankruptcy.

The industry and market watchers had already predicted a crypto winter, however, the FTX crash took a lot by surprise. SBF tweeted his apology and stated his goals – ‘clean up’ and ‘transparency’ however, it does not look like anyone is buying what he says.

People are exasperated and want justice. Amid calls for SBF’s imprisonment and payback, several users pointed out that regulatory authorities failed to protect consumers from such crises and were going after the wrong targets.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing