FTX, the cryptocurrency exchange, has faced a series of challenges and setbacks that have led to its downfall. Former employees of FTX and Alameda Research have come forward to shed light on the events that led to this spiral. Here is a timeline of what we know so far.
In 2017, Sam Bankman-Fried and Gary Wang discussed starting a cryptocurrency trading firm called Alameda Research. They intentionally used the word “Research” in the name to make it sound more prestigious. However, in February 2018, the exchange lost track of millions of dollars worth of XRP tokens due to bad accounting practices.
In May 2019, Bankman-Fried founded FTX, and shortly after, FTX launched its own cryptocurrency called FTT. In July 2019, Nishad Singh, FTX’s Head of Engineering, made a code change allowing for negative balances in Alameda’s accounts. This change was allegedly made to pay for various FTX expenses.
Throughout 2020, business seemed to be running as usual for FTX. However, in early 2021, a trader on FTX incurred significant losses on a trade, which Alameda had to absorb. Around the same time, Paradigm co-founder Matthew Huang expressed concerns about investing in FTX due to potential value leakage and preferential treatment given to Alameda.
In April 2021, Huang and another investor at Paradigm sent an email expressing these concerns to Bankman-Fried. He assured them that Alameda did not receive preferential treatment on FTX and provided data to support his claim. In July 2021, Paradigm invested $125 million in FTX’s Series B funding round.
In late 2021, bugs were discovered in FTX’s code that exaggerated Alameda’s debt by $500 million. Despite this, customer funds continued to be deposited into a bank account owned by Alameda. Additionally, Alameda took on billions of dollars in debt at the request of Bankman-Fried, using the funds for FTX’s venture funding.
In 2022, Paradigm invested another $150 million in FTX, bringing their total investment to $278 million. However, in May 2022, it was revealed that $5 billion in loans had been used for venture investments and political donations. Alameda was heavily leveraged through loans and customer funds.
In June 2022, it was discovered that there was an $8 billion hole in Alameda’s finances. Sam Trabucco stepped down as co-CEO of Alameda, leaving Caroline Ellison as the sole CEO. In September 2022, Bankman-Fried discussed the idea of shutting down Alameda with Singh and Wang.
During this time, it was also revealed that Alameda was borrowing $14 billion from FTX. The exact details of FTX’s downfall and its impact on the cryptocurrency industry are still unfolding.
Hot Take: The downfall of FTX serves as a cautionary tale for the cryptocurrency industry. It highlights the importance of transparency, proper accounting practices, and avoiding conflicts of interest. It also raises questions about the regulation and oversight of cryptocurrency exchanges to prevent similar situations from occurring in the future.
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