How Binance's founder and former exchange co-founder was behind FTX's collapse

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How Binance's founder and former exchange co-founder was behind FTX's collapse

SBF's trial has started, this is how he and FTX got here.

FTX co-founded the cryptocurrency exchange in 2019, and within a few years, the once third-largest crypto exchange's valuation reached $32 billion at its peak. It is now trying to claw back any money owed to creditors, he said.

Bankman-Fried co-founded the cryptocurrency trading firm Alameda Research in 2017 before FTX. In 2019 FTX was co-founded by Alameda as a complement to Alameda, aimed at bringing in revenue and liquidity for the trading arm.

In just two years, Bankman-Fried's vision was transformed into a reality, with more than 80 investors giving about $2 billion in capital to FTX, enabling Bankman-Fried to propel his vision into a reality. In January 2022, the company raised $400 million in a Series C round, boosting its valuation to $32 billion. It was its last round of public funding, the ECB said in a statement.

Brand deals and partnerships have become a part of the company's mainstream recognition. In 2021, the NBA bought the naming rights for the Miami Heat's home arena. As of June 30, 2022, FTX's name was branded on Major League Baseball umpires' polos, and it collaborated with celebrities like Tom Brady and his ex-wife, Gisele Bündchen, as well as Steph Curry, Shaquille O's liquidity grew.

The report found Alameda's biggest assets were $3.66 billion of 'unlocked FTT' and $2.16 billion of FTT was the token behind FTX.

The balance sheet shows that Alameda's ownership of $5.82 billion in FTT tokens was 193% higher than the total FTT market cap, which was about $3 billion at the time. It also appears to be the first company to have more FTT tokens on its balance sheet than the world had ever seen.

Binance, the world's largest crypto exchange, started pulling out its $2.1 billion equivalent of cash in BUSD and FTT at the same time. This triggered a bank run on FTX.

Two companies, FTX and Alameda, filed for bankruptcy in the U.S. in late-November 2022. Bankman-Fried resigned and John J. Ray III, Enron's turnaround veteran, was appointed its new CEO.

Bankman-Fried, 27, was arrested in the Bahamas in December 2022, where FTX was based. He was extradited to the U.S. for a number of criminal charges. He was released by bail bond of $250 million, and remained under house arrest at his parents' home in Palo Alto. This was revoked in August after he was accused of embarrassing Alameda's former CEO, Caroline Ellison, by leaking her private diary.

Ray represented the firm during a hearing in the House Financial Services Committee on FTX. At the time, when asked whether the firm had significant risk management systems, Ray said there were virtually no internal controls and no separateness whatsoever and said he did not 'trust a single piece of paper' in the exchange's organization. U.S. Attorney Damian Williams called Bankman-Fried's alleged crimes one of the biggest financial frauds in American history.

The former co-founder and former CTO Gary Wang and Alameda Research's former CEO, Caroline Ellison, both pleaded guilty in December 2022 to federal charges related to the FTX collapse. The pair are also facing civil penalties from the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. Both Wang and Ellison will work together with prosecutors and will be major witnesses in the trial, given their close ties to Bankman-Fried, FTX and Alameda.

Bankman-Fried pleaded not guilty in January to all charges, including wire fraud, conspiracy to commit money laundering and conspiracy to misuse customer funds. He faces up to 115 years in prison if convicted of all charges.

The collapse of FTX, which was the first of many, had a significant impact on the crypto industry as a whole. BlockFi filed chapter 11 in November 2022, as did Genesis Global Trading in January.

Where we are today?

Bankman-Fried will be represented by Cohen & Gresser and Mark Cohen, a top defense lawyer and former federal prosecutor, will be the lead attorney. If that name sounds familiar, it is probably because he represented Ghislaine Maxwell in her sex trafficking trial related to Jeffrey Epstein. He asked for an early release for Bankman-Fried, but was denied.

With the trial beginning, we're witnessing how FTX's story ends. What happens to the investors and creditors affected by the collapse? What will happen to the billions of Cryptocurrency assets that are tied up in legal cases?