The Whirly Wild story of SBF- Sam Bankman-Fried........... and FTX

 Last article was about a loss of $45 Billion dollars.This article talks about how Sam Bankman- Fried, hereafter referred as SBF, lost about $31 Billion dollars.

I actually don't know how I will structure this article so, please pace this read as you go.

The Beginning of a SAGAPTHAM (Not the movie of vijaykanth's son ra):

To have a deep understanding to you need to know the following concept, arbitrage.

I kind of explained it over in my previous article. ( Shameless Plug: https://pranavh.blogspot.com/2022/07/how-45-billion-was-wiped-out-in-crypto.html ).


1. How SBF made his money: He made money using the concept.

The man above is SBF.


Arbitrage:


Consider that you are buying a kilo of rice for a price X, at a friendly store next to your home. You find out that, you can sell a the rice a few blocks away for 2X. Your irrational rational mind tells you that you have an opportunity to buy the rice here and sell it a few blocks away, for 2X. This concept of taking advantage of the price parity is known as arbitrage. SBF found out this loophole in the crypto market, he bought it in the US market and sold is in Japanese markets. In the process making billions. He also started his own company Alameda Research.




2. What did Alameda Research do? Who where they?

They made these arbitrage trades, and made Billions of this. 

According to sources familiar with the matter, Alameda research ‘was run by a gang of kids in the Bahamas’.  Alameda CEO Caroline Ellison, famously promoted drugs for efficiency and said she didn't know math, as it was not need for a trading firm.


3. Creation Of FTX and Ruthless advertising:



FTX is a crypto exchange, which was founded in 2019 by SBF and, at its peak in 2021, had over one million users and was the third-largest crypto exchange by volume. 

So, What is a crypto exchange?

Crypto exchange is an entity that allows its customers to trade cryptocurrencies  for other assets, such as conventional fiat money or other digital currencies.

(In simple words, Consider Nifty, a stock exchange which allows trading in stocks for money).

The had also Introduced a Crypto Token FTT(note this).

They also started heavily advertising for Crypto, Their advertisements includes:

- Mercedes-AMG Petronas The Formula One (F1) racing team.

- Furia -Brazilian esports team.

- The NBA Golden State Warriors.

- UC Berkeley: The University of California Berkeley for its stadium.

Most of them have cut their ties with FTX now.

Reminds me of the movie Sadhuranga Vettai, To cheat a person you must first kindle his desire.


4. The Investor Saga:

SBF was playing League of Legend's during an funding meeting.

Seeing him playing the partners were stating the following comments:

The chat window on Sequoia’s side of the Zoom lights up with partners freaking out. “I LOVE THIS FOUNDER,” typed one partner. “I am a 10 out of 10,” pinged another. “YES!!!” exclaimed a third.

After that meeting, Sequoia ended up investing over $200 million in FTX. Let that Sink in.

FTX wanted to become the number 1 Exchange and even tried to lobby politician's,


5.Alameda Research the devil in disguise:

SBF began making bailing out various other crypto firms, and was making huge losses in Alameda Research's Trading. 

This raised a situation where tokens were being rotated in various wallets. This was a huge red-flag.

Rotating someone else's money, in an exchange, stating routine.  The problem was instead of moving it to FTX's wallet, SBF moved those to Alameda's Wallet.

What Alameda did was that they basically converted money to crypto tokens and used the token to borrow more money.

Cort Klippsten (CEO of the firm Swan Bitcoin) understood what was happening here and said, "It's fascinating to see that the majority of the net equity in the Alameda business is actually FTX's own centrally controlled and printed-out-of-thin-air token".


6. Coindesk Saga and In comes Changpeng Zhao(CZ):

Coindesk another firm found out that the Book's of FTX were not matching.

CZ was CEO of Binance. FTX's Competitor. Took notice of this abnormality and acted.

Binance announced that it would sell its entire position in FTT tokens roughly 23 million FTT tokens worth about $529 million. CZ said the decision to liquidate the exchange’s FTT position was based on risk management, following the collapse of the Terra (LUNA) crypto token earlier in 2022.


7. The Fall:

By the next day, FTX was experiencing a liquidity crisis. SBF attempted to reassure FTX investors that its assets were stable, but customers demanded withdrawals worth $6 billion in the days immediately following the CoinDesk report. SBF searched for additional money from venture capitalists before turning to Binance. 

The value of FTT fell by 80% in two days. On November 8th, Binance announced it had reached a non-binding agreement to buy the non-U.S. business of FTX for an undisclosed sum.Effectively the world’s largest cryptocurrency exchange bailing out its close rival.

The promise of a rescue was short-lived, as Binance backed out of the deal a day later. On November 9th, the exchange said that it would cancel the FTX deal after corporate due diligence raised concerns about the mishandling of customer funds, among other issues.

SBF later apologised the same day for the liquidity crisis and admitted on Twitter that FTX’s non-U.S. exchange had insufficient funds to meet customer demands. SBF said that “poor internal labeling” caused FTX to miscalculate leverage and liquidity. In the same thread, he said Alameda would wind down trading.

8. Adding salt to the Injury:

Within hours of filing for bankruptcy, FTX was hacked. The exchange noted “unauthorised transactions” that may have stolen close to $500 million in assets.

There are rumours that SBF might have siphoned off these funds, to make his position safe.


9. The Future:

Following 2 bug blows for crypto market. I am not sure what lie's for the crypto market.  It was alarming to see customer's money being siphoned off. 

The impact on any person who doesn’t personally own crypto will be nil. It is true that many larger investment funds, like BlackRock and the Ontario Teachers Pension, held investments in FTX, but the estimated $95 million the Ontario Teachers Pension lost through the collapse of FTX is just 0.05% of the entire fund’s investments.

The takeaway for individuals is

1. Not to invest in unregulated markets without understanding the risks.

2. In high-risk environments like crypto, it’s possible to lose everything.


If you found this interesting, share this to your friend's which motivates me to write more. I am available in comments for more clarification's.

-pd



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