The "King Of Crypto" company has filed for bankruptcy and seen the CEO stepping down as chief executive, potentially facing federal investigations into how he handled the company's finances.
Crypto exchange FTX lent billions of dollars worth of customer assets to fund risky bets by its affiliated trading firm, Alameda Research, setting the stage for the exchange’s implosion, a person familiar with the matter said.
FTX Chief Executive Sam Bankman-Fried said in investor meetings this week that Alameda owes FTX about $10 billion, people familiar with the matter said. FTX extended loans to Alameda using money that customers had deposited on the exchange for trading purposes, a decision that Mr. Bankman-Fried described as a poor judgment call, one of the people said.
All in all, FTX had $16 billion in customer assets, the people said, so FTX lent more than half of its customer funds to its sister company Alameda.
What is FTX?
Officially headquartered in the Bahamas, FTX is managed from the US, with its biggest offices in Chicago and Miami.
It is a cryptocurrency exchange, helping people buy and sell crypto assets. Cryptocurrencies are all based on the same basic structure as their star asset, bitcoin: a publicly available “blockchain” that records ownership without having any central authority in control. FTX is big and important because, along with its rival, Binance, it processes the majority of cryptocurrency trades around the world.
Over the last few years, the internet has been flooded with long interviews with him, speaking over video chat from his office desk in the Bahamas.
As his interviewees listen intently to his incredible story of how he became a multibillionaire in five years, the sound is persistent and clearly coming from the American entrepreneur's mouse.
"I'm (in)famous for playing League of Legends while on phone calls,"
he tweeted in February 2021.
Mr Bankman-Fried - the former boss of embattled cryptocurrency exchange FTX - is an avid gamer. And in a series of tweets to his nearly one million followers, he explained why. Playing the team fantasy battle game was his way to get his mind to switch off from running two companies trading billions of dollars a day.
"Some people drink too much; some gamble. I play League,"
he said.
What happened to FTX this week?
On Wednesday last week, an article appeared in CoinDesk, a crypto industry news service, that triggered a crisis. It claimed that the balance sheet of Alameda, a crypto hedge fund owned by FTX’s founder, Sam Bankman-Fried, held billions of dollars worth of FTX’s own cryptocurrency, FTT, and had been using it as collateral in further loans. If this were the case, then a fall in FTT’s value could damage both businesses, given their shared ownership. But FTT itself had no value beyond FTX’s longstanding promise to buy any tokens at $22, prompting fears that the whole institution was a castle built on sand.
According to a blog post from venture capital giant Sequoia Capital, Mr Bankman-Fried played an intense League of Legends battle during a high-level video call with their investment team.
It didn't seem to put off them off at all, though. The group proceeded to invest $210m in Mr Bankman-Fried's company FTX.
This week, Sequoia Capital deleted that gushing blog post and announced it is now writing off their FTX investment as a loss.