In recent events, we all discovered the scheme behind FTX which used to be one of the largest cryptocurrency exchange. The fall was epic and embarrassing for investors and the platform users as well.
On November 2nd, 2022,Coindesk published an article containing information about ALAMEDA's balance sheet and led to question about FTX. Many of these questions related to whether funds from FTX were finding their way to ALAMEDA, given that both companies were funded and operated by the same people, SBF(Sam Bankman-Fried) and his friend Gary Wang.
To explain what happened exactly, let's just start with the CEO SBF(Sam Bankman-Fried).
Sam created two companies: Alameda Research, a hedge fund and a cryptocurrency exchange called FTX. A crypto exchange is a website or platform where users can buy and sell cryptocurrencies. Not only that , but exchanges can and do create their own cryptocurrencies which is like printing money out of thin air.
FTX like many other exchanges printed out a lot of FTT(FTX own crytpocurrency token for it own ecosystem) and those tokens were sent out to Alameda Research without letting users know about the transactions.
Alameda Research is a cryptocurrency trading firm which rose to prominence in 2018 for making huge profit from buying cheap Bitcoin in the US and selling it in Japan where the price was much higher. Alameda became actively involved in the trading of almost every crytptos on all the exchanges consequently rose as a market maker , meaning they were able to provide crytocurrencies to exchanges for their users to trade.
Alameda quickly became one of the largest market maker in Crypto and was also the largest recipient of all the USDT ever printed by Tether.
Changpeng Zhao(CZ), the CEO of BINANCE made a tweet which was the catalyst that led to FTX fallout which mentioned they will be dumping all their FTT holdings which is the token that FTX customers can use to get perks and discounts on the platform.CZ explained that dumping FTT was a matter of risk mitigation alluding to the leaked balance sheet that clearly showed Alameda Research(FTX sister company) to hold a large position in FTT. In substance, he said:"Liquitdating our FTT is just post-exit risk management, learning from Luna"
For those of you who do not know about Luna,this crypto crashed during the spring of 2022 (we can talk about the infamous event in a near future).
When FTX’s customers found out, they panicked and tried to withdraw their money. They were in for an even bigger surprise: It looked like Bankman-Fried had secretly shifted $10 billion of their funds to Alameda.
FTX used funds from the exchange to prop up ALAMEDA.
Cont'd...
