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Crypto King Sam Bankman-Fried's net worth was $16 billion. It crashed down to ZERO in a day

Amrutha Pagad
Amrutha PagadNov 14, 2022 | 16:00

Crypto King Sam Bankman-Fried's net worth was $16 billion. It crashed down to ZERO in a day

Leading cryptocurrency platform FTX declared bankruptcy on Friday. Photo: AFP

If you had heard of FTX before November 2, you would have known the company as one of the biggest crypto exchange platforms in the world. It was the gold standard in the crypto world, highly reputable with backers such as Soft Bank, Tiger Global, tie-ups with financial services company Visa and more. 

It was right there next to Binance, the world's largest crypto exchange platform. So, even if you were very careful with your crypto investments with thorough knowledge of its volatility, you wouldn't have been concerned about investing through FTX. 

But now, the company has filed for bankruptcy in the US with a hole of nearly $8 billion in its balance sheet, an alleged theft of millions of dollars and investors' money gone in a poof. 

Its CEO Sam Bankman-Fried has lost his entire $16 billion fortune and resigned. He's gone from the "King of Crypto" to suspected of being a weird, alleged "orgy-indulging", Elizabeth Holmes-kind of a fraudster.  

The story in brief: Things have been chaotic at FTX as the volatility of the crypto world impacted the platform and its core members tried to keep the company afloat.
But amid this, a theft of several millions of dollars completely knocked FTX over. 

  • There is a $663 MILLION OUTFLOW of money at FTX, which is a combination of the company's own movement of coins and alleged theft.
  • FTX did not say it was hacked, but instead said this (a tweet by their lawyer):
Among other things, we are in the process of removing trading and withdrawal functionality and moving as many digital assets as can be identified to a new cold wallet custodian. As widely reported, unauthorized access to certain assets has occurred.
- Ryne Miller, Lawyer for FTX

 

  • According to analysts, the stolen money is worth anywhere between $338 million to $477 million. 
  • Out of this, $192 million is in one Ethereum address.
  • This address is sending small amounts of ethereum-based token, with little to zero value, to ethereum inventor Vitalik Buterin and Ukrainian cryptocurrency fundraiser accounts, mostly to throw law enforcement off its back.  
  • Currently, law enforcement and amateur crypto sleuths have their eyes firmly focused on where the money is going. 

You see the beauty of cryptocurrency is such that it is very hackable, but also VERY traceable. So it is very hard for the thief to cash out the money without revealing their identity.

Of course, it would be a bummer if it turned out that the thief is a North Korean or a Russian or a Chinese, or some other rogue state-controlled entity, with no extradition threat applying to them. 

But mostly the fingers are pointing at none other than FTX insiders including Sam Bankman-Fried.

How did the collapse take place: The downfall started on November 2, when CoinDesk published the balance sheet of another Sam Bankman-Fried entity called Alameda Research. 

  • Alameda Research is the sister company of FTX that operated as its trading firm. Alameda's balance sheet showed the $8 billion black hole.
  • Also, it turns out Alameda used FTX's own cryptocurrency called FTT to take out loans for FTX.
  • This netizen describes the financial "orgy" better:

  • Basically, FTX makes FTT tokens, Alameda buys them at a super cheap price, FTX pumps FTT and Alameda uses FTT on FTX to borrow "real" assets of FTX's customer deposits. 
  • It is like printing paper money thinking you will have a lot of money, but that's not how it works when the paper doesn't have any backup value. 
  • Now, Binance also offered to bail out FTX by buying the company, only to back out just a day later. 

That's how all hell broke loose. 

The juicy part of the story: Okay, so the above was too much number and boring investment talk. Let's get to the interesting part about the story of its founders and core members.

  • FTX was started by Wall Street investor Sam Bankman-Fried and ex-Google employee Gary Wang in 2019. 
  • Before FTX's fallout, 30-year-old SBF (short for Sam Bankman-Fried) was the charming man in the crypto world, being called stuff like King of Cryptos, Cypto's White Knight, modern-day JP Morgan, etc, etc…
  • He was so charming that he played an intense game of League of Legends battle during a high-level video conference with Sequoia Capital (which Sequoia gushed about in a now-deleted blog post) and still got $210 million in investment a while ago. 
  • Sequoia Capital has since announced that it is writing off its FTX investment as a loss.
  • Now, FTX is being described to have been run by a gang of kids in the Bahamas, 9 of whom lived together and also allegedly dated each other. 

In the eye of the storm are Gary Wang, SBF, Nishad Singh (yes, Indian-origin) and Caroline Ellison, CEO of Alameda (who dated SBF on and off).

Gary, Nishad and Sam control the code, the exchange's matching engine and funds. If they moved them around or input their own numbers, I'm not sure who would notice.
- CoinDesk quoted an unnamed person familiar with the situation
  • Reportedly, SBF had access to a "back door" built into the FTX system from which he could have moved money without alerting other employees. 
  • So, naturally, all the fingers are currently pointing toward the insiders. 
  • SBF and another company exec are currently under the supervision of the government in the Bahamas, and cannot leave the country.

Fun fact: SBF apparently offered to help Elon Musk buy Twitter, but the world's richest man felt something off about the 30-year-old and declined his offer. 

FTX had also signed a global partnership with the International Cricket Council (ICC). FTX's logos were recently displayed during the T20 World Cup. However, the company's logo was taken down from the sponsors' logo background, Dugouts and boundary triangles after the company declared bankruptcy.   

FTX has a new CEO in John Ray III, a restructuring expert. Meanwhile, Sam Bankman-Fried says he's very sorry. 

The question that remains to be answered: Will FTX's downfall create a ripple effect in the crypto world?

Last updated: November 14, 2022 | 16:05
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