Adam Hardej

Nov 10, 2022·Newsletter

FTX ngmi

FTX ngmi

This is kind of a long one so scroll to the bottom if you'd prefer a TL;DR breakdown :)

There's a lot to unpack here so let's start by setting the stage with our characters:

Sam Bankman-Fried ("SBF") is the 30 year old Founder and CEO of FTX, a cryptocurrency exchange, and FTX US, its U.S. affiliate. He also manages assets through Alameda Research, a quantitative cryptocurrency trading firm. SBF's net worth peaked at $26 billion. As of two days ago, his net worth was estimated to have dropped 94% in a day to $992M. Up until recently, everyone (including Sequoia) thought he was a benevolent genius. Using his huge MIT-educated brain to conquer the crypto market and build his wealth - all with the goal of giving it away.

Changpeng Zhao ("CZ"), is the Chinese-Canadian co-founder and CEO of Binance, the world's largest cryptocurrency exchange by trading volume as of July 2022. CZ was ranked the 30th richest person in the world with a net worth estimated at $33 billion as of October 2022. CZ was never as beloved as SBF and was generally known to be pretty shrewd - as you might expect from a billionaire in a fast-paced, highly-competitive, and largely unregulated market. He skirts regulation and taxation in a variety of ways no one is really familiar with (allegedly). Recently in talking with someone smarter than me about CZ potentially coming to Washington D.C. to discuss crypto regulations he responded: "CZ would literally have to be brain dead to step foot on US soil."

So there were our two characters. SBF, a boy genius set on saving the world. CZ, a less than cooperative crypto mega-billionaire. Who do we think ends up being the bad guy here?

The last thing I'll say to set the stage is that crypto is largely in shambles already when the crescendo of this story happens. Even if you're not someone who checks in on that type of stuff regularly I'm sure you've heard about it. If you haven't heards of it, think of it as similar to the larger market downturn - except way worse.

Here's a basic breakdown of the events as I understand them today with some color commentary mixed in. This is evolving quickly so don't fact-shame me later.

  • The SBF/CZ relationship started back in 2019 when Binance invested an undisclosed amount in FTX.
  • FTX started to get really big. SBF started to get really rich. Cover of magazines etc.
  • Binance is the #1 exchange by volume. FTX is #2. They're very much competitors.
  • Binance decides to sell their stake in FTX.
  • As a part of the deal, Binance gets $2B in "FTT" - a token that FTX created.
  • FTX uses FTT tokens for trading fees and it's a big part of their platform.

Ok, so we're in a pretty good place here. SBF and CZ are competitors, but Binance is tied to FTX through this big pile of FTT tokens it has. Crypto is going up and to the right so generally everyone's happy for a while. Then things turn. Crypto is down. Projects are failing. The regulators are knocking on doors.

  • This week, CZ hears that SBF is talking to regulators in a way that could hurt Binance.
  • CZ doesn't like this and tweets to 7M followers that he's selling his $2B of FTT.
  • Everyone starts to panic sell and the FTT price starts to fall quickly.

This is a kind of complicated part because Alameda Research - the quantitative cryptocurrency trading firm that SBF also founded - is a part of it. Alameda is technically a separate entity, but they're very intertwined. This gets emphasized in a big way when news leaks that Alameda is holding $6M of FTT. If one of FTX or Alameda goes down, they both go down. So when CZ is badmouthing FTX (the company) and causing everyone to lose confidence in FTT (the token) - Alameda steps in to try to help.

  • SBF tweets that "FTX is fine. Assets are fine."
  • Alameda tweets that they'll buy as much FTT as people will sell.
  • Everyone waits for Alameda or SBF to actually prove that things are fine.
  • 24 hours pass. No proof.
  • Everyone freaks out and starts withdrawing/selling as much possible.
  • It's a full on bank run.
  • But wait! What's this? CZ, foe turned friend, is going to buy FTX?

What a turn that was. CZ, who started this whole situation in the first place, is now going to save the day... Conspiracies immediately start to circle that this was the plan all along. CZ saw that FTX was in a position of weakness and scared the market into selling FTT to the point where FTX would need to be bailed out. To quote Byrne Hobart, writer of The Diff: "Publicly announcing plans to bet against a company in order to trigger a bank run allowing you to buy that company is some amazing robber baron stuff. Can’t really think of a modern example."

And then everyone lived happily ever after... jk:

  • SBF announces that they're entering into a "strategic transaction" with Binance.
  • CZ puts it a different way: "FTX was in trouble. We bought them to save them."
  • Meanwhile, this is a signed non-binding letter of intent.
  • Due Diligence still needs to happen. Blah blah blah.
  • People are talking about it like it's going to happen one way or another.
  • Then yesterday - November 9th - it was announced that the deal wasn't happening.

"As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX." - Binance

Well holy shit. Mishandling customer funds? The nerdy MIT guy that said he was going to give all his money away anyways? What is happening?
More will come out in the weeks to come. As it stands right this second (literally 6 hours before this got published) SBF has issued an apology and is basically saying this:

  • He says sorry a bunch of times.
  • He didn't understand how much leverage was in the system. (ironic)
  • His #1 priority is getting funds back to users.
  • FTX.US, FTX's U.S. affiliate is totally fine.
  • "well played; you won." (referring to CZ without naming names)

Pretty wild all around. If this doesn't get a book, a TV show, and a movie - likely multiple of each - I will be shocked. With Jonah Hill playing SBF in the movie, of course.


  • Binance and FTX were the two biggest crypto exchanges.
  • The founder of Binance made a move to take down FTX.
  • The move worked and FTX will likely shut down.
  • FTX got exposed for doing some extra risky stuff with people's money.
  • A lot of people lost a lot of money in a variety of ways.
  • The founder of Binance is saying this wasn't the plan.
  • The founder of FTX is saying he's sorry.
  • The founder of FTX is also saying he thinks it was the plan.

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