At the end of last year, the cryptocurrency community faced a new problem. One of the largest and top exchanges, FTX, declared bankruptcy. This event couldn't help but affect the crypto market in some way. In this article, we will briefly explain what happened to FTX.

How it all started

On November 2, CoinDesk published a piece that raised serious doubts about the stability of the FTX crypto exchange (which frankly blew some farts up). Citing a non-public document, the guys reported that about 40% of the assets of Samuel Bankman-Fried's personal hedge fund Alameda Research came from FTT tokens issued by the FTX. And that's a fraction of Alameda's total assets ($14.6 billion) - if you compare that to the company's net assets (minus $8 billion in loans), the FTT stock on its balance sheet is already nearly 90%.

An important nuance here is that such a huge amount of FTT tokens (more than $5.8 bn) is extremely illiquid: at the moment of CoinDesk article publication, only $5 bn of these tokens were in circulation, which means that in case Alameda Research has any significant need in money, an attempt to sell such a big package of FTT tokens would lead to a sharp drop of their quotations and, most likely, the bankruptcy of Alameda fund itself.

In general, after the CoinDesk article, FTT token quotes began to slide (I remind you that we are talking about the native coin of the FTX exchange): in three days, they faded almost 7%. But it was even more fun when on November 6, Changpeng Zhao tweeted that Binance was going to get rid of its FTT package worth about $500 million. As Changpeng Zhao himself later remarked, I didn't think that I would become a straw that broke a camel's back: in the next two days FTT fell another 8% and business began to take a threatening turn for SBF.

CZ declares that he did not want to rat poor Samuel at all, but was just engaged in careful risk management of his exchange.

In turn, Bankman-Fried himself hurried to declare that the negative news background around the FTX exchange is caused by false rumors spread by the competitor, and that FTX and its assets are all right.

Still: Why can't FTX just give customers their money back?

Classic exchanges rarely have problems with return of client funds: as a rule, they just act as intermediaries in the chain of asset holding and take a small percentage of commission for that. Even if all clients simultaneously want to withdraw their money - it should not in itself lead to the bankruptcy of the exchange (after all the liabilities to customers are secured by specific assets of the same customers on the stock exchange accounts).

Why then FTX faced such significant difficulties? Apparently, the exchange not only kept the assets of its clients, but also did not hesitate to use them for various questionable purposes. Previously, in similar situations of large crypto-bankruptcies (Celsius, Voyager, and so on), we have seen projects invest their clients' money in too risky ideas in the hope of earning more profits for themselves. In the case of FTX, it seems to be about the use of client funds for rescue of the Alameda fund, belonging to the same owner.