FTX vs Binance: analysis of the main crypto-phiasco of 2022

January 19, 2023

One of the main cryptocurrency of the world has become bankrupt for weekends - how is it possible?


The FTX scandal has become the most discussed topic in the world of digital currencies during the past year. And though we would like to focus on the victories (khm-Merge-khm), we need to understand how the "crypto-king" became "crypto- buffoon", and what the consequences were.


Before the beginning of the analysis, we will denote the main persons:


The chronology of FTX collapse

02.11.2022 - Alameda Research's financial statements were leaked, the analysis of which was published by CoinDesk. Documents indicated that Alameda tied its assets, which is millions of dollars to FTT (FTX Token). In fact, it made the company hostage to this cryptocurrency. At the same time, Sam Bankman-Fried previously stated that these two companies were independent units. It turned out that he lied to everyone, and his children are strongly related to each other, which is illegally (hello, conflict of interest).


06.11.2022 - Changpeng Zhao in his Twitter announced that Binance is selling all his FTT because of the latest news. To which, Alomeda’s CEO, Caroline Ellison (remember this name, we will return to her later), suggested buying all the tokens for $22 each, but received a refusal. The market reacted immediately, FTT began to fall, and its price from $25.50 dropped to $20.


08.11.2022 - FTT price - $8. CZ reports that Binance has concluded an optional FTX Full Purchase Agreement, but it all depends on the company's financial performance.


09.11.2022 - US Federal Agencies have launched an investigation into FTX's activities. Binance refused to buy them. If Zhao's tweet about the sale was the lid of the coffin, then the refusal to buy is the last nail driven in.


10.11.2022 - Sam announced the closure of Alameda Research. Bahamas regulators froze FTX assets.


11.11.2022 - FTX, FTX.us and several subsidiaries declared themselves bankrupt. After that, the unknown broke into the exchange and withdrew more than $300 million.


13.11.2022 - at least $ 1 billion in customer funds disappeared from the FTX accounts - Reuters.


End of November - During the progress of the bankruptcy procedure, new facts were appearing: FTX owes about three billion dollars to the main creditors, and tax declarations showed that Alameda and FTX have been losing money for a long time, and they were not as profitable as the world could think.


Who is Sam Bankman-Fried?

As we can see, there is one person in the center of the whole chaos - Sam Bankman-Fried. By November 2022, a 30-year-old billionaire, who could close millions of deals online, while playing League of Legends. He scored his huge capital in just a few years, causing the great respect for colleagues and potential investors.


A little background: Sam was born in the Stanford Professor family, and he himself entered MIT. The first place of work for him was the Jane Street Capital trading company. Subsequently, when Sam founded his first business, Alameda Research, his team mostly consisted of his former colleagues and friends from the university.


Remember, we have previously mentioned Alameda CEO, Caroline Alison? Bankman met her at Jane Street Capital, where she worked (now pay attention) as a Junior Trader. After that, in 2021, she received a proposal to become a co-CEO in Alameda Research. Here is a jump in a career ladder.


Other former FTX and AR staff began to give interviews regarding their work experience in various publications. That's what one of them said to Forbes:

“People in FTX did not understand what was happening in Alameda. There was a kind of small group. After all, it's just a bunch of degenerates.”


How did his person bribe people?

Sam had a clear image: he is a simple guy; he drives Toyota, deals with charity. A kind of "good billionaire". It worked with some people, but someone still doubted his honesty. But the only public "scandal" in which he was involved before November - his donation of the Democrats Party.


He was second in the list of the amount of money transferred to the election campaign of Biden. Some saw corruption in this. Interestingly, with the heated discussion of these donations, no one noticed the $23 million that FTX co-CEO Ryan Salame gave to Republicans. We will not speculate on the purpose of transferring all these millions, time will tell if it was really a "repurchase" for the future.


What does Binance have to do with it?

Well, if everything is as you write, it turns out that FTX and Almeda dug their own grave without Changpeng Zhao? The answer is ambiguous. Taking into account the disclosure of financial statements and other facts, we can conclude that these companies are more like pyramids than profitable businesses. However, without the CZ, the fall would hardly have been so quick and painful.


Ironically, Zhao was one of the first investors in FTX and unknowingly helped create its main competitor. Until November 2022, there was a conditional division: FTX was mainly used by Americans, and Binance by the Chinese. Both markets are sweet, and everyone wants a piece.


Consequences of the FTX collapse

In the short term, we have already felt the pain of the giants falling. Not only FTT fell in price, but almost all digital assets: from Bitcoin to stablecoins.


It is also necessary to understand how much Sam influenced other companies of the crypto market and more.

The bankruptcy of other companies and the temporary drop of cryptocurrency is not all that awaits us. Sam Bankman-Fried has advocated for stronger regulation of digital assets, and it looks like he'll get it. Just not as he wanted.


The problem of regulation has loomed over the industry, and such financial crimes have only pushed it closer. It remains to be seen how things will unfold in the USA, because other countries can take an example from them.


Let's not forget the hundreds of thousands of unsatisfied FTX users who didn't get their money back. The position "not your keys - not your money" can gain popularity, because if you can't trust the top 3 exchanges in the world, then who can you trust?