FTX – What happened with it?

Introduction 

Cryptocurrency has become really popular for investing and making payments online. Unlike regular money, cryptocurrencies are encrypted and tracked using a technology called blockchain.

One way to get cryptocurrency is by signing up for an account on a digital trading website. This lets you buy and trade different coins. You can even turn your cryptocurrency back into regular money if you want.

Until late 2022, it was one of these trading sites. Sam Bankman-Fried founded it in the year 2019. People liked using FTX to trade and buy cryptocurrency, and even big investors put a lot of money into it. By January 2022, FTX was worth a whopping $32 billion!

But then, in November 2022, everything went downhill. What looked like a small mistake in the books turned out to be a huge scam, and lots of people lost billions of dollars, both customers and investors.

When big companies like FTX fail, regular folks like us end up paying for it. It turns out that instead of keeping customer money secure, Alameda Research, a Hong Kong-based company, was moving it to accounts under its control.

Alameda Research was a top cryptocurrency venture capital business in 2021. Market-making, trading, OTC, and cryptocurrency investing are their activities. However, they are in the Bahamas and Hong Kong. Global operations cover Alameda Research. They can contact great ideas that need help.

Once this came out, FTX started to fall apart. So, it was a big deal in the cryptocurrency world until it crashed because of some shady business practices.

Let’s understand in depth what actually was FTX & what happened with it!

What is FTX?

FTX used to be a popular cryptocurrency exchange. It was founded by Sam Bankman-Fried in 2019. It allowed people to buy, sell, and trade different cryptocurrencies. Sadly, things took a bad turn, and now the platform is no longer working because it went bankrupt.

Back when FTX was doing well, it spent a lot of money on fancy sponsorship deals. They got their name from the Miami Heat’s stadium, which became the FTX Arena. They also teamed up with the Mercedes-Benz Formula One team and sponsored a pro gaming group called Team SoloMid (TSM), which they called TSM FTX for a while. But all those partnerships are over now.

FTX had some big names backing it up too! People like Tom Brady and his wife, Gisele Bündchen, were part of the team, focusing on helping with environmental and social projects. Other famous faces, like NBA star Stephen Curry and tennis champ Naomi Osaka, were also on board. They even splurged on a Super Bowl ad featuring Larry David, where he played a character who missed out on big inventions like the wheel and electricity, and, you guessed it, crypto. 

But now, some of these celebrities are caught up in a lawsuit against FTX.

What is FTT?

Cryptocurrency websites make their own special coins to get more users interested. When lots of people want these coins, they become more valuable. So, the websites sometimes give out extra stuff to people who have these coins. 

Similarly, it made their own special coin called FTT in May 2019. If you had FTT, FTX gave you bonuses like discounts and special digital rewards called NFTs.

Why did FTX collapse?

In the world of cryptocurrency, FTX caused quite a stir, and it all came down because of FTT. Think of FTT like a special pass to join the FTX club. People thought it was cool because it meant they could share in FTX’s success. But then, some secret papers got out, showing that Alameda was using FTT in risky ways, almost like playing with pretend money.

This news freaked everyone out, especially big shots like Binance, who said they were getting rid of their FTT. That made everyone else panic and rush to take their money out of FTX.

Before all this, people used FTT for simple transactions like paying fees. Even the boss of Binance sold his FTX shares back because of the mess.

Then, CoinDesk spilled the beans about Alameda having a ton of FTT. That’s when things really went haywire. FTX couldn’t handle the sudden rush of people wanting their money back, and it turned out they didn’t have enough cash to cover it all.

But the problem wasn’t just about money now and then. FTX and Alameda had a big mix-up with handling people’s cash. It turned out a lot of money got lost along the way, and FTX didn’t even realize it until it was too late.

In the end, FTX fell apart because they were a hot mess. People couldn’t trust them to handle money right. It’s a lesson for all of us to be careful in the wild world of cryptocurrency. Without rules and unwatchful eyes, things can go south real quick.

Events of FTX Collapsed

November 2: CoinDesk disclosed to everyone that Alameda Research had a lot of FTX’s special token, FTT, in its bank account.

November 6: Another big exchange called Binance sold all its FTT tokens. This made lots of people want to take their money out of FTX.

November 7: FTX said it was running out of money and asked rich investors and Binance for help.

November 8: Binance said they’d buy FTX’s business outside the U.S.

November 9: But then Binance changed its mind after checking things out, and more people took their money out of FTX.

November 10: The government of the Bahamas stopped FTX’s local company from using its money. FTX said it didn’t have enough money outside the U.S., and Alameda Research said it was going to close.

November 11: The founder of FTX, Sam Bankman-Fried, quit, and someone picked by the court took over. FTX asked for protection from bankruptcy.

November 12: FTX said it might have been hacked and lost a bunch of money.

November 18: The Bahamas took control of FTX’s stuff there.

December 12: Bahamian police arrested Sam Bankman-Fried.

December 13: The U.S. government said they were charging Sam Bankman-Fried with breaking the law.

December 21: They sent Sam Bankman-Fried to the U.S. to face the charges.

December 22: Sam Bankman-Fried had to go to court in New York City, and they let him stay at his parents’ house as long as he paid $250 million.

Conclusion 

FTX shows how not to run a firm, especially in a nascent market like bitcoin. Its owners mismanaged company and took investor money for personal use and questionable business decisions.

The collapse of FTX and the big impact it had show how important it is to keep an eye on the cryptocurrency world. It’s become a big topic for looking at how businesses follow the rules and deal with money in the digital age.