Summary of SBF's letter to employees | Where did the debt come from, forced to declare bankruptcy to avoid certain jurisdictions
An employee letter from SBF has been leaked once again, in which SBF briefly described the significant debt incurred due to the continuous reduction in collateral value this year, and expressed confidence in the profitability of FTX or related entities, such as the relaunch of the derivatives exchange "FTX US Derivatives."
Table of Contents
I'm Sorry, Couldn't Handle the Pressure
SBF expressed deep apologies to everyone, including colleagues, staff, and users at FTX:
When the incident occurred, my communication with all parties was quite a failure. Faced with pressure, data leaks, and Binance's intent letter, I was stunned and remained silent. In the rapid development of FTX, I forgot that you all are the most important; you were my family, and I am truly sorry.
How Did the $8 Billion Debt Occur?
SBF mentioned that he currently does not have complete data access, but he attempted to infer the reasons that led to the collapse of FTX:
1. Market Crash in Q2 Resulting in a 50% Reduction in Collateral Value:
This caused the value of $60 billion in collateral and $2 billion in debt to plummet to $30 billion in collateral and $2 billion in debt.
2. Tightening in the Crypto Lending Sector
$25 billion in collateral and $8 billion in debt.
3. Collateral Flash Crash in November
$17 billion in collateral and $8 billion in debt.
4. Similar Attack in November Triggered a Run on the Bank
$9 billion in collateral and $8 billion in debt.
SBF stated:
I did not anticipate this happening, was not aware of the overall leverage scale, and the risks associated with the related crashes. All of FTX's loans were usually used for business investments, including reclaiming Binance's equity, rather than for large personal consumption.
If I Could Turn Back Time, What Would I Do Right?
SBF stated in an internal memo that if the following had been supervised well from the beginning, the tragedy would not have occurred.
Maintain a skeptical attitude towards high margin positions
Examine various stress test scenarios, including highly correlated market crashes and ongoing run scenarios
Handle fiat processing on FTX more cautiously
Continuously monitor overall deliverable assets, all user positions, and other core parameters
Exercise more control over margin management
SBF mentioned that these actions are now of no help, and he is deeply sorry. He will do his best to compensate employees and users for the rest of his life, but he is worried that even this may not be enough.
Belief in the Profitable FTX and Its Value
SBF stated that FTX was once a thriving, profitable, and innovative company, indicating that it still holds value and hopes that it can compensate everyone. "We may be able to raise a large sum of money," he said in the memo. "After I signed the bankruptcy restructuring document, within eight minutes, there were potential investments of several billion dollars." He believes that with those funds, along with the company's remaining billions, they may be able to repay user assets and save the company.
Necessity for Changes in Corporate Governance, Forced Bankruptcy Declaration
SBF mentioned that there should be more transparency, more appropriate controls, including overseeing himself. He stated that the employees were not at fault and recalled various moments of solidarity they shared. Ultimately, under various pressures, he submitted a bankruptcy restructuring. He believes that under immense pressure, people make irrational decisions. SBF admitted he reluctantly succumbed to pressure, and he should have listened more to the opinions of employees who still believed in the company at the time.
He pointed out that after the liquidity crisis erupted, enormous coordination pressure followed, requiring all FTX entities to apply for bankruptcy, even companies with solvency also had to declare bankruptcy, thus excluding claims from other jurisdictions.
SBF emphasized that there is still a chance for redemption:
Perhaps there is still a chance to save the company. I cannot guarantee anything, as what follows is not my choice, but I am pleased to see some positive developments, such as the relaunch of LedgerX. Thank you for everything you have done for FTX over the years; I will never forget this.