FTX was considered (even a couple of days ago) by one of the more reputable and trusted cryptocurrency exchanges. Its Founder and CEO, Sam Bankman-Fried, a former Wall Street quant trader who also owns Alameda Research, is a crypto billionaire and a vocal personality.
The exchange was established in 2019 and initially offered trading services with altcoin derivatives contracts, which could not be found at other reputed crypto venues (derivatives contracts of popular cryptos like Bitcoin and Ether were only popular then). FTX eventually expanded into other areas and now even offers spot trading.
FTX: The Rise
The growth of the crypto exchange in a short time was also impressive. FTX, being a privately held company, is not required to reveal its financials. However, CNBC (based on leaked internal documents) reported that the exchange generated $1.02 billion in revenue last year, jumping from only $89 million in 2020. That was a year-over-year growth of over 1,000 percent. Further, it brought in $270 million in revenue in the first quarter of 2022, with expectations of around $1.1 billion over the entire year.
On top of that, the Bahamas-headquartered exchange was profitable, with an operating income of $272 million in 2021. The net income of the exchange jumped from $17 million in 2020 to $388 million last year.
Bankman-Fried, with a billion-dollar purse, even showed his generosity (or merely opportunistic) to the crypto industry and bailed out several troubled companies in recent months. Voyager’s lawyers called in an offer of FTX and Alameda a “low-ball bid dressed up as a white knight rescue” before selling assets to the US affiliate of FTX.
However, things have reversed as FTX needs to be bailed out. On Tuesday, Bankman-Fried and Binance’s Founder and CEO, Changpeng Zhao, revealed that Binance is fully acquiring FTX, and the two have signed a non-binding letter of intent. However, it dropped like a shock in the industry. That deal is now off the table (details later).
The Fall Begins: What Went Wrong?
The troubles of FTX started over the weekend when Zhao confirmed Binance’s decision to offload its holdings of FTX’s native FTT tokens, raising concerns over its rival’s financial stability. Binance received those FTT tokens when it sold its FTX stake.
As part of…