From $26bn to Nothing: Rise and Fall of FTX, SBF

Amid FTX’s collapse last week, its founder and CEO, Sam Bankman-Fried (SBF) has rapidly transformed from a crypto industry icon and so-called “savior” into an ignominious figure, responsible for potentially billions of dollars’ worth of customer losses. He has apparently lost his whole fortune in the process, as well.

The implosion of Bankman-Fried’s cryptocurrency exchange has already cost customers billions of dollars in lost crypto deposits, setting off law-enforcement investigations that could lead to criminal charges, the New York Times reported. But the full impact of FTX’s dramatic collapse is only beginning to take shape. In his relatively short time as a multibillionaire, Bankman-Fried built up an astonishingly broad business empire, with investments in dozens of smaller crypto firms and partnerships with businesses as varied as Anthony Scaramucci’s investment firm SkyBridge Capital and the N.B.A.’s Miami Heat. He also became an influential Democratic Party donor, promising to spend as much as $1 billion during the 2024 election cycle.

BlockFi, a crypto lending platform that Mr. Bankman-Fried had helped finance, said this past week that it was suspending operations as a result of the collapse. The price of Solana, a cryptocurrency that Mr. Bankman-Fried promoted heavily, has crashed. And the team behind the FTX Future Fund, a charitable operation bankrolled by Mr. Bankman-Fried, announced their resignations.
Bloomberg’s Billionaires Index reported that Bankman-Fried’s assets dropped in value from $16 billion at the start of the week to effectively nothing now, following news of FTX’s bankruptcy filing.

Bloomberg estimated that most of his assets were tied up in the companies, although he may have additional holdings that it doesn’t track.
SBF’s considerable crypto fortune had been valued as high as $26 billion this past spring, before the market declined. Bloomberg described last week’s personal loss as “one of history’s greatest-ever destructions of wealth.”

FTX was believed to have a several-billion-dollar hole in its balance sheet. The exchange was alleged to have used customer funds to cover losses at SBF’s trading firm Alameda Research, before suffering a liquidity crunch this week as users withdrew funds and sent the value of FTX’s FTT token crashing. SBF resigned as CEO today alongside news of the filing.

The Rise

Bankman-Fried founded Alameda in 2017, profiting greatly from arbitrage trading strategies before establishing FTX in 2019. His profile started to rise in 2020, as he was touted as a “crypto savior” for helping SushiSwap after the founder of that decentralized exchange (DEX) bolted and left the community in the lurch.
According to decrypt.co, FTX grew gradually into early 2021, but its profile and trading volume accelerated significantly as the company began courting the mainstream through sports and celebrity alliances. In a matter of months, FTX had sponsored the Miami Heat’s arena in a 19-year, $135-million deal, as well as esports club Team SoloMid in a 10-year, $210-million pact.

In 2021, crypto exchanges chose a new marketing battleground: professional sports. Binance, Coinbase, Crypto.com, and FTX all inked multiple sports sponsorship deals—but none of them went in q…
Star athletes like Tom Brady, Steph Curry, and Naomi Osaka joined up, appearing in FTX commercials and endorsing crypto to an increasingly wide audience. FTX’s Super Bowl commercial this year starring comedian Larry David only furthered that push.
Along the way, the firm raised vast troves of cash from investors: a $1 billion Series B in July 2021, another $421 million in October 2021, and $400 million more this past January. That doesn’t include fundraising for FTX US, a separate exchange serving the United States. FTX was valued at $32 billion as of its most recent raise in January.

In the Spotlight

SBF’s net worth and celebrity both surged along the way, and before long he was estimated to have a $26 billion fortune. He celebrated his success by palling around onstage with Brady and model Gisele Bündchen, then Brady’s wife, at FTX’s own Crypto Bahamas conference, which also featured the likes of Bill Clinton and Tony Blair.

Bankman-Fried subscribed to the theory of effective altruism, essentially attempting to earn as much as he could through FTX and crypto trading to eventually give it all away and benefit the world. He also said he might spend up to $1 billion on political donations in the run-up to the 2024 Presidential election, but eventually backtracked from that claim.
And when the crypto industry stumbled earlier this year, he very publicly stepped in to “bail out” insolvent firms like Voyager Digital and BlockFi who had exposure to Terra’s UST and LUNA.

In August, SBF said on Decrypt’s gm podcast that bailing out Voyager Digital was probably “$70 million down the drain.” He was nonchalant about bailing out Voyager and did not appear to expect the funds to be returned. “Basically, there’s $70 million that we knew we would maybe never see again,” he told Decrypt.
“I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion,” Bankman-Fried previously told NPR. “Even if we weren’t the ones who caused it, or weren’t involved in it. I think that’s what’s healthy for the ecosystem, and I want to do what can help it grow and thrive.”

The Fall

Behind the scenes, however, reports allege that he was improperly using FTX customer funds to stem the bleeding at Alameda. However, when FTX customers began withdrawing assets en masse and the FTT token crashed, the firm found itself in a liquidity crunch. Rival exchange Binance nearly stepped in to save the day, but changed course when it saw the size of the mess.

Now, FTX and its affiliated companies have filed for bankruptcy protection, and SBF’s estimated net worth has cratered as a result. Bankman-Fried says he’s “really sorry” for the whole mess, but Crypto Twitter isn’t having it. Neither are FTX’s users.
Potentially billions of dollars’ worth of customer assets are now largely trapped within the exchange, and may be tied up in bankruptcy proceedings for a very long time. On top of that, firms far and wide—including BlockFi—are revealing the extent of their exposure to FTX, spreading the kind of crypto contagion that SBF previously aimed to thwart.

Bankman-Fried and FTX are under investigation by at least five different U.S. regulatory entities: The Securities and Exchange Commission, the Department of Justice, the Commodity Futures Trading Commission, the Texas State Securities Board, and California’s Department of Financial Protection and Innovation.

Meanwhile, a day after it filed for bankruptcy, the collapsed cryptocurrency exchange said on Saturday that it was investigating “unauthorised transactions” flowing from its accounts, as crypto researchers documented suspicious transfers of $515 million that may have been the result of a hack or theft.

New York Times quoted John J. Ray III, the newly instated chief executive of FTX, to have said in a statement that, “unauthorised access to certain assets has occurred,” and that the company was in touch with law-enforcement officials and regulators. As part of the bankruptcy process, the company has been moving its remaining crypto funds to a more secure form of storage.

The suspicious movement of funds marked a new twist in a dramatic series of events that kicked off earlier in the week, when the exchange faced a run on deposits and was unable to meet demand. On Friday, the company filed for bankruptcy, and Sam Bankman-Fried, FTX’s founder and chief executive, announced his resignation, with Mr. Ray, a corporate turnaround specialist, replacing him.

FTX paid high yields to companies that stored assets on its platform, which led many crypto start-ups to treat it as a bank. Genesis, a trading platform, said this past week that it had $175 million in funds locked up with FTX. The company moved to secure a $140 million cash infusion from its parent company, Digital Currency Group, a spokeswoman for the firm said.

Pantera Capital, a crypto hedge fund, told investors in a letter on Friday that under three per cent of its $4.5 billion in assets had been in FTX stock and FTT, a token created by the company, before the collapse. As FTX was seeking a bailout on Tuesday, the firm moved to sell the majority of its FTT tokens and told its portfolio companies to do the same, said Paul Veradittakit, an investor at the firm.

“The safest thing right now is to hold cash or self-custody,” Mr. Veradittakit said. Self-custody means holding one’s own assets, rather than parking them with a service provider like an exchange.

After failing to meet a surge of withdrawal requests this past week, FTX was estimated to owe $8 billion, according to people familiar with the matter. Amateur investors stored their crypto savings on FTX, which was widely regarded as a safe and easy-to-use platform, even in the wild world of crypto. How much those customers are repaid will depend on the bankruptcy process. In an initial filing on Friday, FTX said it had more than 100,000 creditors.