Notes

FTX Shortcuts - The Easy Way
The recent collapse of the cryptocurrency exchange FTX and the arrest of founder and ex-CEO Sam Bankman-Fried has raised many questions regarding the future of blockchain and Non-Fungible Tokens (NFTs). 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 collectID ?
Alameda Research was a quantitative cryptocurrency trading firm, co-founded in September 2017 by Sam Bankman-Fried and colleague Tara Mac Aulay. On Twitter, Mac Auley confirmed she left the company in April of 2018 due to "concerns over risk management and business ethics."

Alameda was established in 2002. Two years later, Bankman-Fried created FTX as a cryptocurrency exchange that was completely independent from Alameda. Although they were established as two separate entities, Alameda played a huge role in the growth of FTX, acting as FTX's main market maker.

To support his claim that FTX and Alameda were "wholly separate" entities, Bankman-Fried stepped down as CEO at Alameda in 2019. 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. The relationship between the companies doesn't 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 created to provide a way for traders to save on trading fees and reward loyal users. FTT holders received a better referral rate, daily ERC20/ETH withdrawals of up to 1000 and a greater probability of airdrops. The exchange token also has a central collateral pool, which means that the collateral pool will rise in value when markets become volatile. This limits transaction fees and ensures users can easily trade.

The benefits provided by FTT tokens seem appealing at first glance; however, had the token been more difficult or expensive to use as collateral, the risk to customer funds may have been reduced.

Who is the CEO of FTX?
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 Brief Timeline of FTX
Mai 2019
Sam Bankman-Fried, his roommate Gary Wang and Gary Wang founded FTX.

November 2019
Changpeng Zhao from Binance buys a 20% stake at FTX for around $100 million.

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

July 2021
FTX raises $900 Million from more than 60 investors at an $18 Billion valuation. Bankman-Fried purchases Zhao's stake for approximately 2 billion.

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

January 2022
FTX announces its $2 billion venture, FTX ventures, raising $400 million in Series C funding at a $32 billion valuation that month.

February 2022
FTX.US announced that it would soon offer stock trading to US customers.


July 2022
FTX has reached a deal that gives it the option of buying BlockFi, a digital asset lender, for approximately $240 million.

September 2022
FTX.US won the auction for digital assets of Voyager Digital, a bankrupt crypto brokerage, for $1.42 billion. (Following the bankruptcy of FTX in December of 2022, rival exchange Binance won the bid to buy the assets of Voyager for approximately $1 billion)

October 2022
Bloomberg reports about the close relationship between Almeda & FTX.

November 2022
CoinDesk releases a report further exposing Alameda and FTX's close ties and FTX files for bankruptcy in the 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. Alameda's investment fund was also in FTT tokens. This raises concerns about Bankman-Frieds' unreported 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 spurred a non-binding agreement with Binance to purchase FTX, which Binance ultimately did not move forward with after considering FTX's reported mishandling of funds and their pending investigation.

On November 10, the Securities Commission of the Bahamas froze the assets of one of FTX's subsidiaries, FTX Digital Markets Ltd. FTX Japan suspended its operations and the FTX Australian subsidiary 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 thereafter, FTX reported that an alleged hack totaling close to $500,000,000 in FTT had been transferred out of FTX accounts. Bankman-Fried blamed these transfers on an internal mislabeling issue, however, there is no clear financial reporting from the crypto exchange on why those funds were mishandled.

Bankman-Fried's balance sheets were not audited. This meant that there was no reliable record of the company's funds. This lack of tracing is obvious as FTX funneled customer funds from FTX into Almeda - a reported value of $10 billion with approximately $1-2 million not accounted 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 arrested on December 12 following a lawsuit against FTX alleging that Bankman-Fried's company was a fraudulent cryptocurrency scheme designed to take advantage of inexperienced investors across the U.S., including several celebrities and professional athletes. He was later released on a bond of $250 million to await 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
Conspiracy to commit money laundering
Commitment to commodities fraud by conspirators
Conspiracy to commit securities fraud
Conspiracy to defraud America and commit campaign finance violations
The ex-CEO pleaded not guilty to his federal fraud charges on January 3, 2023.

What does the FTX scandal mean for the future of blockchain and NFT?
It's easy to wonder about the future of other cryptocurrency exchanges, NFTs, and blockchain as the dust settles over the recent FTX flop. With blockchain and NFTs as relatively newer concepts for people, it is easy to assume that this new technology caused the downfall of the crypto exchange. 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 it 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.
While the FTX bankruptcy and collapse created doubt in the finance industry, this only appears to be a setback. NFTs in general still look bright. These are some predictions for NFT growth in the future:

Gaming and the metaverse: NFTs are expected to grow tremendously in video games and the metaverse. In-game assets (e.g. Play to Earn, Move to Earn) will elevate to new levels and their associated NFTs may be used to prove the credibility of a gamer or as a means to access virtual events. Beyond gaming, you can access metaverse events like concerts, conferences, parties, and tickets through digital avatars, assets and memorabilia via 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 musicians may use NFTs to promote their talents, interact with fans and earn royalties 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. NFTs market may have ups and downs, but overall it has bright future as more people are aware of this 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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