The FTX scandal is one of the biggest in the cryptocurrency world. This scandal revolves around collapsed cryptocurrency exchange, FTX, and its celebrity-endorsed brand ambassador FTX Coin. This is a look at what happened at FTX, why it collapsed, and how celebrity-endorsed Crypto was used to prop up this failing company.
FTX had its own online currency, called FLETA. It traded on its platform at a premium over other cryptocurrencies and was endorsed by celebrities like DJ Steve Aoki and rapper Akon. And in the beginning, it seemed like FTX was here to stay. But in early March of this year, something started to happen with the exchange that caught investors off guard: people started buying huge amounts of FLETA tokens – immediately selling them back again for cash before buying another batch and selling it even faster. This is known as market manipulation, and it can seriously damage an exchange’s liquidity pools.
It was only a few months ago, FTX appeared to be a major success story in the cryptocurrency world.
What is cryptocurrency anyway?
It is money traded in a digital form. It is supposed to have “safeties” on it that keep it from being traded more than once, track it and secure it against duplication or hacking.
FTX is one of the biggest exchanges where trading digital assets took place and were touted by regulators and market watchers as one of the most transparent crypto operations.
What sparked the scandal?
Initially, the market believed the FTX implosion was the result of an old-fashioned bank run on the exchange’s reserves.
In a largely unregulated corner of the financial sector, much of the world is still learning how owning, trading and tracking cryptocurrencies will actually work for buyers, sellers and regulators.
However, as time has gone on and more facts have emerged, the story around the company has gotten much more complicated – and potentially criminal.
How big was the company?
It was one of the largest crypto exchanges and was valued at an estimated $32 billion in January. You could find its name attached to an NBA stadium or in commercials with celebrities like Tom Brady and Larry David.
Bankman-Fried resides in the Bahamas
That’s all gone. After filing for bankruptcy last week, the crypto exchange has lost value, its CEO and much of its credibility.
Experts say FTX’s implosion could have ripple effects on the cryptocurrency industry at large.
“If corporations are behaving like exchanges and banks, they should be regulated as exchanges and banks, regardless of the fact that whether they’re dealing with dollars or bitcoins,” said Omid Malekan, an adjunct professor at Columbia Business School and crypto industry veteran and author.
Explaining the FTX bankruptcy filing
It all started earlier this month when digital currency news site CoinDesk revealed Almeda Research – a trading firm also founded by 30-year-old FTX founder Sam Bankman-Fried that conducts trades on FTX – was heavily dependent on FTT, the token issued by FTX.
“When the balance sheet was leaked, it was sort of like someone pulled the curtain and realized that the Wizard of Oz was not what we had thought,” Malekan said. “It broke the illusion that this was this very high-flying, professional, very successful operation run by these young geniuses.”
After the report was published, the crypto exchange Binance said it would liquidate its FTT holding. That kickstarted a downward spiral with FTT and other cryptocurrencies as investors began to pull out their money.
The Wall Street Journal reported that FTX lent billions of dollars of customer assets to Alameda to help fund risky bets
Rival cryptocurrency exchange Binance agreed to take over FTX on Nov. 8 but pulled out of its offer the following day due to “corporate due diligence” and “news reports regarding mishandled customer funds and alleged US agency investigations,” according to a statement on Twitter.
What happens to FTX Arena in Miami?
The Miami Heat is currently searching for a new partnership after FTX, the company that served as their arena’s namesake sponsor since 2021, lost their naming rights agreement due to the company’s fallout and FTX facing bankruptcy. The county had previously stated it would continue its relationship with the NBA team in order to find new branding opportunities.
Miami Heat owner Micky Arison said on Wednesday that the team had terminated its naming rights deal with FTX and would look for a new partner.
Formula One team Mercedes has also suspended its sponsorship deal with FTX.
What is Sam Bankman-Fried’s net worth? Bankman-Fried, also referred to as SBF, is known for his wild hair, his large political contributions to Democrats, and – as of Friday – the collapse of FTX and his wealth.
In order to understand the plight of Sam Bankman-Fried, one needs to trace the origins of FTX (the abbreviation for Financial Technologies Exchange) and its controversial CEO.
Sam Bankman-Fried, who was worth an estimated $26 billion in March and $16 billion as recently as last week, has evaporated his fortune after the failure of his firm FTX
