Notes

Warning: What Can You Do About FTX Right Now
Many questions have been raised about the future of blockchain and non-fungible tokens (NFTs) after the collapse of cryptocurrency exchange FTX. This scandal is not good news for NFTs, as it has raised doubts in a market that many were already skeptical of. Despite the failure of FTX, it does not mean that NFT and blockchain technology are doomed.

What is Alameda Research?
Alameda Research was a quantitative cryptocurrency trading firm, co-founded in September 2017 by Sam Bankman-Fried and colleague Tara Mac Aulay. Mac Auley stated on Twitter that she quit the company due to concerns over risk management, business ethics, and that she had left in April 2018.

Alameda was established in 2002. Two years later, Bankman-Fried created FTX as a cryptocurrency exchange that was completely independent from Alameda. Alameda was the main market maker for FTX and played a major role in its growth, even though they were two separate entities.

Bankman-Fried, Alameda's CEO in 2019, resigned to support his claim that FTX was "wholly different" from Alameda. As it turns out, the two entities were more closely tied than Bankman-Fried claimed them to be. Not only did executives at Alameda and FTX often work out of the same Bahamian penthouse, but FTX CEO Bankman-Fried and Alameda CEO Caroline Ellison were rumored to have romantic ties. Unfortunately, the relationship between the two companies does not end there.

What is FTX?
FTX Trading Ltd., commonly known as FTX or FTX Exchange, was a cryptocurrency exchange founded in April 2019 by Sam Bankman-Fried and Gary Wang. The exchange was the third largest crypto exchange in volume and had more than 1 million users before it went bankrupt in November 2022. FTX stands for Futures Exchange.


What is FTT?
FTT is the native token for FTX. FTT tokens were designed to reward loyal users and traders by allowing them to reduce trading fees. FTT holders received a better referral rate, daily ERC20/ETH withdrawals of up to 1000 and a greater probability of airdrops. Additionally, the exchange token has a centralized collateral pool meaning the collateral pool will increase in value when markets are volatile. This limits transaction fees and ensures users can easily trade.

FTT tokens offer many benefits that seem attractive at first glance. However, if the token was more expensive or difficult to use as collateral, customer funds might have been less likely to be affected.

Who is the FTX CEO?
Before the company went under, the CEO of FTX was Sam Bankman-Fried. Prior to starting his companies, Bankman-Fried graduated from the Massachusetts Institute of Technology (MIT) and worked at Jane Street Capital, a proprietary trading firm. Right before he founded Alameda, he worked at the Centre for Effective Altruism as the Director of Development.

A Short Timeline for FTX
Mai 2019
Sam Bankman-Fried, his roommate Gary Wang and Gary Wang founded FTX.

November 2019
Changpeng Zhao of Binance purchases a 20% stake in FTX for approximately $100 million.

August 2020
FTX acquires cryptocurrency portfolio tracking app, Blockfolio, for $150 million.

July 2021
FTX raises $900 million at an $18 billion valuation from over 60 investors and Bankman-Fried buys out Zhao's stake for approximately $2 billion.

September 2021
FTX moves its headquarters from Hong Kong to the Bahamas.

January 2022
FTX announces that its $2 billion venture, FTX Ventures, has raised $400 million in Series C financing at a $32 Billion valuation.

February 2022
FTX.US announce that the company would soon begin offering stock trading to its US customers.

July 2022
FTX finalized a deal giving it the option to buy digital asset lender, BlockFi, for about $240 million.


September 2022
FTX.US won the auction for digital assets of Voyager Digital, a bankrupt crypto brokerage, for $1.42 billion. (In December 2022, FTX went bankrupt and rival exchange Binance was able to bid for Voyager's assets at approximately $1 billion.

October 2022
Bloomberg reports on the close relationship between Almeda and FTX.

November 2022
CoinDesk publishes a report that further exposes Alameda's and FTX’s close ties. FTX then files for bankruptcy in days that follow.

What is the FTX Scandal?
The collapse of FTX began on November 2 when the crypto news site, CoinDesk, reported that Alameda Research, held a position valued at $5 billion in FTT. The report also revealed that Alameda's investment foundation was in FTT tokens, ultimately raising concerns about Bankman-Fried's companies' undisclosed leverage and solvency.

Binance, a rival exchange, sold all its FTT tokens to satisfy these concerns. Customers followed their lead and FTX was hit with a massive bank run that cost billions of dollars. FTX's liquidity crisis prompted Binance to make a non-binding deal with Binance to buy FTX. However, Binance did not proceed with the purchase after considering FTX’s mishandling of funds as well as their pending investigation.

The Securities Commission of the Bahamas froze the assets of FTX Digital Markets Limited, one of FTX's subsidiaries. FTX Japan then suspended operations. FTX Australia was placed under administration.

FTX filed for bankruptcy on November 11th, after it was found that they did not have sufficient assets to satisfy customer demand. Shortly after, FTX reported an alleged hack worth close to $500 million in FTT was moved out of FTX accounts. These funds were transferred by Bankman-Fried due to an internal mislabeling problem. However, no financial reporting is available from the crypto exchange as to why they were mishandled.

Bankman-Fried's balance sheets were not audited. This meant that there was no reliable record of the company's funds. It is evident that this lack of tracing was intentional, as FTX was funneling customer funds from FTX to Almeda - a reported amount of $10 billion with somewhere between $1-2 million unaccounted for. Despite Bankman-Fried's claim that FTX was an independent firm and that Alameda Research was protecting funds entrusted by the exchange, it appears that the fraudulent marketing of the exchange as well as the misuse of customer funds were deliberate.

In short, CoinDesk's report raised concerns in the cryptocurrency industry regarding Bankman-Fried's companies' leverage and solvency concerns, leading to the 10-day downward spiral and collapse of the exchange and the arrest of Bankman-Fried.

What is FTX Founder Bankman-Fried Being Charged with?

Bankman-Fried was taken into custody on 12/12/2018 after a lawsuit against FTX. The suit claimed that Bankman-Fried had a fraudulent cryptocurrency scheme to exploit inexperienced investors throughout the U.S., which included celebrities and professional athletes. Later in December, he was released on a $250 million bond pending his trial. After an investigation conducted by United States Securities and Exchange Commission and Commodity Futures Trading Commission, he is being charged with the following 8 crimes:

Two counts of wire fraud conspiracy
Two counts of wire fraud
Money laundering conspiracy
Conspiracy to commit commodities fraud
Conspiracy to commit securities fraud
Conspiracy to defraud America and commit campaign finance violations
On January 3, 2023, the ex-CEO pleaded guilty to federal fraud charges.

What does the FTX scandal have to do with NFT and blockchain?
As the dust settles on the recent FTX flop, it's natural to wonder what the future holds for other cryptocurrency exchanges, blockchain, and NFTs. It is easy to conclude that the collapse of the crypto exchange was due to the newer technology of blockchain and NFTs. However, the root of FTX's collapse was not a problem with the security and reliability of the blockchain and NFTs, but rather a problem of deceit, improper financial reporting, and the misuse of customer funds. The safety, security, authenticity, and proof they provide is what the blockchain and NFTs are all about.

Although collectID is difficult to predict what will happen, these are some predictions about where things might be heading:

Blockchain technology will continue to mature and evolve, with a greater focus on scalability and user experience.
The increasing popularity of blockchain technology in the financial sector has created scalability problems. As a result, several scalability issues have occurred such as increased transaction time, network transaction fees, and electricity usage (enough to power the entire country of Switzerland). Issues like this make systems slower and more expensive for users. Focusing on addressing these issues will be important for improving the overall user experience and tackling sustainability issues.

As a way of authenticating and monetizing digital assets such as music and art, NFTs will continue their growth.
Despite the fact that the collapse and bankruptcy of FTX have cast doubt on the financial industry, it appears this is a temporary setback. NFTs in general still look bright. Here are a couple of predictions of anticipated areas for NFT growth:

Gaming and the metaverse: NFTs are expected to grow tremendously in video games and the metaverse. In-game assets (e.g. In-game assets (e.g. Outside the gaming experience, metaverse events such as concerts, conferences, and parties will be accessed through digital avatars, assets, tickets, and memorabilia in the form of an NFT.
Ticketing. Events such as concerts and sporting events will use increasingly NFTs to allow attendees in and offer dynamic, in-event promotions and offers.
Music: More music artists may adopt NFTs for their music to showcase their talent, interact with their fans, and earn royalty from their NFTs.
The Digital Twin Over the next year, the idea of a physical item having a "digital twin", will grow. To improve sustainability, traceability, customer engagement, and experiences, companies will equip their products using NFC technology.
Like any industry, growth isn't always linear. The market for NFTs may experience ups and downs but overall has a bright future as more people become aware of and interested in this exciting new technology.

What are your thoughts? What's your take on the future of blockchain and NFTs? Share your thoughts in the comments below!


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