Yet the story here might be about old-fashioned financial fraud rather than any inherent unravelling of the underlying technology – notwithstanding the apparentfrom FTX-linked wallets – while also prompting questions about regulation needing to keep pace with financial innovation.
FTX allowed investors to use fiat currencies to buy and sell different digital coins or tokens; it made money by charging a fee on each transaction. Although called an exchange, FTX essentially took deposits much like a bank, which were meant to be invested and stored as cryptocurrencies in customers’ accounts.However, Mr Bankman-Fried – a former quant trader – also owned a side-hustle trading company, Alameda Research, which was run by his girlfriend.
FTX also issued its own FTT tokens including to Alameda, which were then posted back to FTX in return for as much as $US6 billion of its customers’ money. The beginning of the end was when co-founder of the world’s largest crypto exchange, Binance CEO Changpeng “CZ” Zhao, seemingly got wind of the money shuffling between FTX, FTT, and Alameda.
Mr Zhao’s announcement on social media that he was dumping more than $US500 million of FTT on the market triggered a run by panicked investors who sold off FTT and started to start to pull out their money from FTX. As the run escalated, FTX was caught between its exposure to its own FTT tokens, and its inability to unwind the Alameda trades fast enough to cover withdrawals.
True that, but really what is really going on. For one , how regulated is crypto and what's the story with supply and demand, how much of this is about perceived demand. Tricky really.
Obviously, the two are linked.
It was straight out fraud. Bastards should be going to jail for a long time. But as SBF as the 2nd largest donor to Biden, I doubt he will.
Crypto made it easier - but any financial instrument traded on an exchange based in the Bahamas with little control about sequestering client money could easily go the same way.