What the FTX?! 🤯
Over this past week, there have been two stories that have hit the headlines hard.
First, we’ve seen the crash and fall of FTX, one of the largest and most prominent crypto exchanges in the world, which has practically gone from a $32 billion company to bankruptcy overnight. Second, we witnessed the marriages of our problematic and unproblematic faves, followed by a spicy (citrusy?) reunion on Love is Blind.
What do these two stories have in common? A little more than you think.
We promised that we’d always break down web3 topics in a fun and culturally relevant way, so what better way to explain the FTX fiasco (fiasco may be an understatement tbh) than with a little Love is Blind analogy? Let’s get into it.
Meet the contestants.
Like every good season of Love is Blind, the journey to find love begins in the pods. But before that, we obviously need to meet our contestants! To understand the chaos that is FTX, context is important, so get that popcorn ready.
Meet Sam Bankman-Fried (also known as SBF):
Our first contestant is 30-year-old, founder and CEO of FTX, a recently bankrupt, former leading America crypto exchange, and its affiliate hedge fund, Alameda Research. You can now find him at the center of the collapse of FTX, wondering how quickly he not only lost ~$15B of his ~$15B net worth, but also the money of many employees, investors, companies, and customers he convinced to store their worth in his exchange.
Our next contestant is Changpeng Zhao (also known as CZ - crypto bros love to abbreviate a name):
A Chinese-Canadian business executive who serves as founder and CEO of Binance, the world’s largest crypto exchange, yes just like FTX.
Got a good grasp of these two? Great! To the pods!
Like many contestants on Love is Blind, the fairytale stories we hear of shared values and dreams, paints the idea that there may be potential here. And it’s safe to say the same thing happened to CZ.
In reading our contestants’ bios, you might have thought “Wait, wouldn’t these two companies compete against each other?” Yes, you’re right, but it wasn’t always like that. CZ and SBF have actually known each other for a while. SBF founded FTX in Q2 2019, and within a mere 6 months, CZ bought into the promise of this new crypto exchange and made a strategic equity investment in the business. CZ even held a good amount of FTT, FTX’s utility token (*write this one down* - we’ll circle back to it in a bit).
SBF and CZ enter the real world… well, a quick honeymoon first
Now to say the honeymoon period for our newfound couple was sweet would be an understatement. FTX and Binance were BIG BALLING. Even while it was a pandemic for many of us, crypto was on a meteoric rise, and FTX and Binance were riding that wave.
FTX: Grew from less than $90 million in revenue in 2020 to more than $1 billion last year. On top of that, the US business was less than 5% of the top line revenue
Binance: Revenues also took off from $5.5B in 2020 to $20B in 2021
But as the honeymoon phase started coming to an end, Binance started to scratch its head as its early investment partner started to emerge as a threat.
Our couple enters the real world (for real this time) and it gets ugly…
As viewers, we love a good reality TV show fight scene (or at least we do). But as a couple, you gotta keep your problems off the streets so it’s not everyone else’s problem too. And safe to say SBF and CZ did not do that. Instead they let the world know they had beef. On twitter.
One thing that makes the world of web3, particularly crypto, different from the regular world is it’s not backed by a physical asset. So regulators (read: the feds), aren’t really big supporters because well... They’re tryna regulate and they can’t.
And SBF knew this and used it to his advantage. He willingly testified before Congress and gave suggestions for regulations. Now he becomes this credible figure, acting like he was doing the damn thing. And instead of sitting quiet and eating his food, he flexed.. And flexed on CZ.
In October, he @’d CZ in a series of tweets (since deleted) sharing the following “excited to see him repping the industry in DC going forward! uh, he is still allowed to go to DC, right?”
CZ wasn’t having it, and he fired back by putting money where his mouth was. CZ then announced that Binance was selling its ENTIRE holding of FTT tokens (told y’all to write this down), due to “recent revelations.”
Meet the family: CZ learns the truth about SBF and its sister organization, Alameda.
“Recent revelations” means who knows what at the time, but in the past couple weeks we learned exactly what CZ might have been alluding to…
Sure, some relationships have their secrets. But this one right here was next level. Last week, SBF got exposed for using FTX customer funds for trading without their knowledge.
He was able to get away with this because he was secretly transferring these customer funds ($10 billion to be exact!) to Alameda Research, a quant trading firm that he founded, without raising any red flags to investors, auditors, or employees.
How did that happen? Well first, he had Alameda Research borrow billions from FTX. One of the biggest problems here is that FTX severely underestimated how much they would need on hand if any of their customers wanted to access their funds. We know that regulation in the crypto space is kinda janky, but at the end of the day they’re still required by regulators to have enough money on hand to match what customers deposit and to have funds available if a user needs money for a trade. The problem is that FTX absolutely did not abide by this, and certainly didn't have enough funds on hand. Not only that, but at least $1-2 billion worth of cryptocurrency has disappeared… a whole mess!
So what does this mean for FTX and Alameda?
A HUGE liquidity crisis for both companies.
SBF stepped down as CEO of FTX & files for bankruptcy.
Alameda Research is shutting down.
And this, ladies and gentlemen, is why it’s important to do your due diligence. After the honeymoon phase fades and you meet the family & friends, you start peeling back the layers and finding out that the person you thought you knew wasn’t quite what they presented themselves to be. In the case of the FTX fiasco, Pod SBF ≠ Real Life SBF, and you truly hate to see it.
So, what does this mean for you?
Breathe in, Breathe out.
We know there’s a lot to process here but there’s also a lot to be learned from the situation too. Here are a few key takeaways from us:
SBF is the villain: like Zanab or even Bartise from Love is Blind S3, many of us like CZ (who is honestly our Nancy here) were led astray into thinking there was hope after all. But SBF had us all hoodwinked and bamboozled, and he’s hurt many of his former employees, investors, and the industry with his immaturity.
Crypto isn’t dead: yes, it’s easy to say that we can’t trust crypto anymore, but from our view this wasn’t a crypto problem - it was a fundamental business problem. Almost Ponzi scheme level, honestly, and some really really really bad accounting decisions. Cryptocurrency is just one of the many use cases for blockchain, and we’re still at the forefront of innovations we can’t even imagine. So don’t let SBF ruin your view here - summer always comes after winter.
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