FTX is an exchange that offers cryptocurrency trading for a wide range of types, including Bitcoin and Ethereum. Located in Antigua and Barbuda and headquartered in The Bahamas, the company was founded in 2019, has over one million users, and operates FTX.US, a separate exchange available to US residents.
However, SBF is on the news with a sorry tweet, why?
The Genesis
Changpeng Zhao, founder, and CEO of Binance purchased a 20% stake in FTX Bankman-Fried’s and Wang’s company after the pair founded it six months ago.
FTX acquired Blockfolio for $150 million in August 2020. In July 2021, FTX raised $900 million at an $18 billion valuation from over sixty investors including Softbank, Sequoia Capital, and other firms.
In September 2021, FTX moved its headquarters from Hong Kong to The Bahamas.
On January 14, 2022, FTX announced a $2 billion venture fund called FTX Ventures.
In January 2022, FTX raised $400 million in Series C funding at a $32 billion valuation.
FTX.US announced on Feb 11, 2022, that they would soon offer stock trading to their US clients.
FTX announced the launch of a gaming division in February of 2022. This division will help video game developers add cryptocurrency to their games, as well as provide support for other blockchain features.
On September 26, 2022, FTX.US was announced as the winner of the bankruptcy auction for Voyager Digital’s digital assets. The value of the deal was around $1.42 billion, including $1.31 billion worth of Voyager-held cryptocurrency and $111 million in additional consideration.
In July 2021, FTX raised over $900 million at an $18 billion valuation from 60 investors, including Softbank and Sequoia Capital. Binance, a competitor was investing in the company in 2020 and divested its shares in 2021.
FTX raised $400 million in Series C funding in January 2022, a 20x increase from their previous round.
The Backstory
In the wake of the cryptocurrency exchange FTX’s collapse, many have wondered what led to the demise of the once-thriving platform. In this article, we will take a look at the backstory of FTX in order to better understand the events that ultimately led to its downfall.
FTX was founded in 2019 by Sam Bankman-Fried, a former Quantitative Trader at Jane Street Capital. He noticed that the cryptocurrency market was inefficient and saw an opportunity to create a better way to trade digital assets. To that end, he created FTX, an exchange designed for sophisticated traders.
The exchange quickly became popular with traders due to its low fees and innovative features such as margin trading and derivatives. However, it also attracted criticism for its aggressive marketing tactics and for allegedly obtaining user data from other exchanges without consent.
In 2020, FTX was one of several exchanges that experienced technical difficulties during the Bitcoin halving event. The halving caused a surge in trading activity on FTX, leading to server outages and delayed order executions. This caused many users to lose faith in the exchange and led to a mass exodus of users.
The situation was made worse by rumors that FTX was insolvent and about to go bankrupt. These rumors were exacerbated by a blog post written by an anonymous user who claimed to be a former employee of the exchange.
Broken Bricks
FTX’s exchange collapse was caused by a number of factors. However, Naabiae Nenubari in his research believes the below listed played major roles;
First, there was a flaw in the design of FTX’s order-matching system. This flaw allowed trades to be executed out of sequence, which led to some orders being filled at prices that were different from what the traders had expected.
Secondly, FTX did not have sufficient liquidity on its platform. This meant that when some traders tried to execute their orders, they were unable to do so because there were no other traders willing to take the other side of the trade.
Thirdly, FTX did not have adequate risk management procedures in place. This led to some trades being executed that were too risky for the platform, and when these trades went bad, it put further strain on the platform’s liquidity.
Fourthly, FTX did not properly communicate with its users about the problems that it was facing. This lack of communication led to many users losing faith in the platform, which exacerbated the problem of low liquidity.
Lastly, FTX used its investor money and kept its own token, FTT, to raise debt and fund its own investments. As a crypto exchange, this always leads to a liquidity risk.
All of these factors combined to create a perfect storm that led to FTX’s exchange collapse.
The Aftermath
In the days since the crash, there have been a number of class action lawsuits filed against FTX, and the company is currently under investigation by the US Securities and Exchange Commission (SEC).
Investors who lost money in the collapse are unlikely to ever see their money again, but those who were able to get out in time may be able to recoup some of their losses.
The FTX exchange was one of the most popular cryptocurrency exchanges, and its collapse has sent shockwaves through the industry. It’s still unclear what exactly led to the exchange’s collapse, but it’s clear that it will have far-reaching consequences for everyone involved.
The thin line
In the wake of FTX’s recent exchange collapse, it’s important to examine what led to the event and what lessons can be learned from it.
FTX is a cryptocurrency derivatives exchange that offers a variety of products, including futures, options, and leveraged tokens. The exchange was founded in 2019 by Sam Bankman-Fried, who also founded the crypto trading platform Alameda Research.
FTX experienced a flash crash that resulted in the loss of $150 million worth of bitcoin. The crash was caused by a large sell order that triggered a cascading effect of stop-loss orders being executed.
While the FTX team was able to quickly recover from the incident and reimburse customers for their losses, the event highlights some important risks associated with derivative trading platforms.
First and foremost, derivative exchanges are subject to extreme price volatility due to their leverage features. This volatility can result in sudden and significant losses for traders that are not prepared for it.
Secondly, derivative exchanges often require traders to post collateral in order to trade. This collateral can be in the form of cash or cryptocurrency, and if the value of the collateral falls below a certain threshold, the trader may be forced to liquidate their position.
Lastly, many derivative exchanges offer margin lending features that allow traders to borrow money from other users on the platform.
Securing the future
As the value of Bitcoin and other cryptocurrencies has increased, so has the number of people looking to cash in on the craze by launching their own crypto exchange platforms.
That’s why it’s important for anyone looking to trade cryptocurrencies to do their research and only uses exchanges that have a good reputation and a track record of security.
There are many different types of crypto exchanges, but they all share one common goal: to make it easy for users to buy and sell cryptocurrency.
However, exchanges also have a responsibility to keep their users’ funds safe. With that in mind, here are some safety measures that all crypto exchange platforms should take:
1. Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance exchanges should require their users to go through a KYC process in order to verify their identity. This helps to prevent money laundering and other criminal activities. In addition, exchanges should have strong AML policies and procedures in place. This includes monitoring transactions for suspicious activity and reporting any suspicious activity.
2. Exchanges should store user funds in secure wallets, such as cold storage wallets. Cold storage is the most secure way to store cryptocurrency, as it was offline and not connected to the internet. This makes it much harder for hackers to steal user funds.
3. Two-factor authentication (2FA)Two-factor authentication is an extra layer of security that requires users to enter a code from their phone or another device in addition to their password when logging into their account. This makes it much harder for hackers to gain access to user accounts.
The crash of FTX after Terra will certainly send shocks in the crypto space, will this be the stepping stone to asset security?