FTX Anniversary: Unveiling the Global Hell-Level Scam

Table of Contents

"FTX One Year Anniversary - Fall"

This series of articles was jointly completed by media partners: Zombit, Cryptowesearch, Cryptocity, Grenade

The Origin of the Struggle between FTX and Binance

The catalyst behind FTX's collapse is whether it was "Coindesk exposing undisclosed assets" or "Binance adding fuel to the fire", there are various opinions, but it is certain that FTX had unpleasant interactions with Binance prior to the incident.

In addition to Binance CEO Zhao Changpeng CZ hinting through tweets that FTX had secretly attacked Binance from behind using U.S. regulatory relationships, the feud between these two major exchanges must be traced back to the FTX investment case from 2 years ago.

In July 2021, FTX completed a $900 million Series B financing round, with a valuation of up to $18 billion, which shocked the crypto industry as it broke the record for the highest funding amount in the history of the cryptocurrency industry. Following the news release, $FTT surged nearly 30% within 12 hours, briefly surpassing $30, also pushing FTX founder SBF's net worth over $16 billion.

When FTX announced the successful completion of its fundraising, Binance almost simultaneously announced its withdrawal from the FTX equity investment. This investment was a strategic investment by Binance in FTX in 2019, and it was revealed that as early as 2017, Binance had already crossed paths with Sequoia Capital. Binance was sued by Sequoia Capital due to "exclusive clauses" in the Series A financing, causing a rift between them. Possibly recommended by Paradigm co-founder Matt Huang, a former partner at Sequoia Capital, the addition of Sequoia Capital to the FTX financing clearly divided the camps.

As competitors in the exchange space and given their history, the relationship between FTX and Binance planted a dark seed. Subsequently, the two exchanges continued to have public and private conflicts, with "Binance" becoming the target of criticism for FTX's downfall.

CoinDesk's First Shot: The Key Alameda Financial Suspicions

A series of FTX collapse events was triggered by a report from Coindesk. On November 3, CoinDesk reported that Alameda Research, founded by SBF, was facing a crisis of insolvency with opaque finances, sparking discussions.

The report alleged that on the balance sheet of market maker and investment firm Alameda Research, the majority of assets were the platform token $FTT issued by FTX Exchange itself, rather than mainstream coins such as Bitcoin and Ethereum.

Of Alameda's $14.6 billion in assets, 40% consisted of $FTT, FTX's native token, with $3.66 billion in "unlocked FTT" and $2.16 billion in "FTT collateral," along with other collateral including SOL and tokens issued by projects invested in by Alameda. With Alameda's total assets and liabilities amounting to $8 billion, there was no clear solution to address this funding gap, sparking discussions.

As the price of $FTT fell, the implied risk further expanded, leading to the insolvency crisis of Alameda.

On November 7, Binance CEO Zhao Changpeng announced on Twitter that, citing "risk management" reasons, they planned to gradually sell Binance's holdings of $FTT on the public market over the next 1-2 months. This incident also evolved into the "straw that broke the camel's back," causing significant market fluctuations and leading to a crisis of $FTT collapse.

FTX Exchange, once the leader in contract trading volume, became a ticking time bomb of uncertainty.

From Denial to Withdrawal Inability at FTX

SBF's First Statement to Address Rumors

FTX founder SBF expressed his views on the liquidity crisis in the early stages of the incident. In the early hours of November 9, SBF posted on his social media account stating:

"After going through a circle, we have reached a strategic trading agreement with our first and last investor in FTX: Binance, and are awaiting due diligence. Our team is handling accumulated withdrawal requests as usual to eliminate liquidity constraints; all assets can be repaid 1:1. This is one of the main reasons we asked Binance to join. This may take some time to resolve completely, and we apologize for that.

Thank you very much to CZ, Binance, and all our supporters. This is a user-centric development that benefits the entire industry. CZ has made incredible efforts in building a global crypto ecosystem and creating a freer economic world, and will continue to do so in the future."

Binance CEO Zhao Changpeng CZ subsequently stated on social media:

"FTX sought our help due to severe liquidity constraints. To protect users, we signed a non-binding letter of intent, and Binance planned to fully acquire FTX. We will conduct a full investigation in the next few days. There is a lot to handle, and it will take some time. This is a highly dynamic situation, and we are evaluating it in real-time. Binance reserves the right to withdraw from the transaction at any time. As the situation develops, we expect significant fluctuations in the price of $FTT in the coming days."

A Turn of Events, Acquisition Plan Fails

On November 10, just when the entire industry believed that the two exchanges were finally reaching a resolution and the incident could be resolved smoothly, the next significant news directly sentenced FTX to death. Binance announced on Twitter that, due to the company's due diligence, along with news reports about FTX manipulating client funds and being investigated by U.S. authorities, Binance decided not to pursue the acquisition of FTX.

The failure of this acquisition deal exacerbated market instability. SBF publicly admitted his mistakes, acknowledging that his negligence and ignorance caused FTX's liquidity issues, and promised to return money to users. Since then, SBF went from a successful entrepreneur to a fraudster. His past achievements with FTX were shattered overnight.

Financial Difficulties Lead to Bankruptcy Declaration

The liquidity crisis worsened by the day, forcing FTX to suspend withdrawals. SBF stated that FTX faced a shortfall of up to $8 billion and urgently needed funds.

Ultimately, unable to resolve the liquidity issue, FTX, FTX US, Alameda Research, and approximately 130 other affiliated companies (referred to as the FTX Group) filed for Chapter 11 bankruptcy reorganization in Delaware on November 11.

This incident not only revealed the financial risks exchanges face in a liquidity crisis but also sounded an alarm for the cryptocurrency market, highlighting its vulnerability and uncertainty. Additionally, even seemingly successful platforms could quickly encounter liquidity storms, emphasizing the need for higher risk awareness and responsibility among industry players and investors in this market.

Chaos After FTX Bankruptcy

Chaos After FTX Bankruptcy: Simple Timeline

November 11, 2022, may have been the darkest day for FTX users, as they were unable to withdraw funds, witnessed FTX officially filing for bankruptcy reorganization, CEO SBF resigning, and a series of bizarre chaotic events that left users at a loss.

To help understand, we have compiled a timeline in an attempt to reconstruct that chaotic period:

November 11, 2022	FTX filed for bankruptcy reorganization, CEO SBF resigned
	FTX exchange's hot wallet reported "strange transfers," leading users to mistakenly believe they could withdraw funds. Industry insiders speculated that internal employees may have covertly enabled withdrawal functionality
	FTX partnered with Tron in a move where users could withdraw TRX, BTT, and other Sun Yuchen-related coins, but at a significant premium, resulting in a substantial devaluation post-withdrawal
	FTX officially stated they were processing withdrawals for Bahamian users
	SBF emphasized that FTX.US was unaffected, yet users still complained of delayed withdrawals
	The Securities Commission of the Bahamas ordered the freezing of assets of FTX's Bahamian subsidiary
November 12, 2022	Developers discovered millions of dollars in assets flowing out of FTX wallets, highly irregular
	FTX's official Telegram admins stated the system was hacked, community urged to delete the app quickly
	FTX's Chief Legal Officer Ryne Miller stated that some FTX assets experienced "unauthorized access"
November 13, 2022	The Securities Commission of the Bahamas refuted claims and stated they never ordered FTX to allow local users to withdraw funds

After the FTX bankruptcy incident escalated, it gradually gained attention from mainstream media in Taiwan. Media initially claimed that Taiwan had up to 500,000 affected users, and more victims were interviewed by the media. However, according to sources from FTX, approximately 120,000 users were from Taiwan.

A Parallel Universe Far East: FTX Japan's Possible Restart?

Following regulatory intervention in Japan, FTX Japan continued to publicly disclose user asset balances and developed an independent system that allowed users to withdraw funds. In February 2023, FTX Japan users were finally able to withdraw fiat and cryptocurrency assets.

Additionally, FTX's bankruptcy documents revealed that current CEO John Ray conducted discussions and planning for the restart of FTX Japan in March 2023.

While FTX.com was in turmoil, FTX Japan in Japan seemed like a "parallel world," not only quickly allowing users to withdraw funds but also potentially having the possibility of "restarting operations." We have compiled a simple timeline:

November 10, 2022	Japan's Financial Services Agency ordered FTX Japan to cease operations and requested a business improvement plan within a deadline, explaining how to protect user assets
November 11, 2022	FTX Japan allowed users to withdraw fiat currency
February 2023	FTX Japan fully opened user withdrawals (fiat, crypto assets, etc.)
April 2023	FTX Japan plans to restart

FTX Japan's Safe Escape Highlights the Importance of Regulation?

FTX Japan's users were not affected by FTX's bankruptcy, which is related to compliance operations and clear regulation.

Experts later analyzed that this was due to the Financial Services Agency of Japan creating strict regulatory frameworks like CAESP after the Mt.GOX hack and collapse incident, requiring Japanese exchanges to ensure asset segregation, entrusting customer fiat assets to third parties, etc., to safeguard customer assets by law.

After the FTX bankruptcy, global cryptocurrency regulation saw new actions. In 2023, the EU, South Korea, Hong Kong, and others further regulated cryptocurrencies through specialized laws or licenses. Taiwan's Financial Supervisory Commission also introduced the "VASP Guidance Principles" in September 2023, providing guidance for virtual asset trading operators, and hoped to observe the need for additional cryptocurrency-specific laws after establishing an industry association half a year later.

FTX's one-year anniversary leaves a painful and scarred future outlook

FTX's one-year anniversary starts from the brilliant days before November 3, 2022.