The developments with FTX this week have been very fast paced. In the end, everything came to a point where the volume of the liquidity hole, which was insufficient for the normal operation of the trading platform, reached the equivalent of $9.4 billion. It later emerged that Tron founder Justin Sun was willing to commit billions of dollars to the FTX bailout, but that was now unnecessary.

Tron founder Justin Sun

What happened to the FTX exchange

FTX has more than enough problems, but the main one was a serious loan to trading company Alameda Research. According to The Wall Street Journal, it’s about $10 billion, which is more than half of all assets at FTX’s disposal.


This amount included the assets of users, i.e. exchange traders. The funniest thing here is how former FTX chief Sam Bankman-Fried already explained the situation. As he voiced in yesterday's Twitter thread, he started using clients' money because company representatives allegedly got the names of bank accounts wrong. Consequently, Sam was taking other people's money and allegedly didn't realise it.

As the cryptocurrency community pointed out on Twitter, this is one of the most bizarre excuses they have come across.

FTX CEO Sam Bankman-Fried

As a result, there was a lack of liquidity on the cryptocurrency exchange, and when users started actively withdrawing money in response to Zhao’s decision and other news, there were not enough coins to make withdrawals.

The relevant document about the decision to declare bankruptcy under Chapter 11 of the US Bankruptcy Code has appeared on the official Twitter account of the FTX exchange. Here it is.

Cryptocurrency exchange FTX bankruptcy filing

As stated in the document, the bankruptcy filing concerns FTX Trading Ltd, FTX US, Alameda Research and about 130 other related companies that together form the FTX Group. Along with this, Sam Bankman-Fried is stepping down as FTX chief executive – his place will be taken by John Ray III.

The event was commented on by The Block’s spokesman Frank Chaparro. Here’s his rejoinder from Twitter.

In retrospect we had to wonder why FTX is made up of so many different organisations and what the hell they do. They are West Realm Shires, FTX Digital Markets, FTX Lend Inc, and FTX Trading (Antigua).

FTX’s pre-filing problems were commented on by Coinbase executive Brian Armstrong. He believes that the US authorities should use the situation to become a world leader in regulating the cryptocurrency industry. Here is his rejoinder, cited by Decrypt.

Generally Coinbase has always been a big supporter of US regulation and has contrasted our exchange’s approach with that taken by the Bahamas-headquartered “offshore exchange” FTX.


It is no coincidence that Brian Armstrong makes the point that it was the international version of FTX, which was headquartered in the Bahamas, that caused the problems. Thus, he reminds the authorities that international FTX is not a US company, and therefore it is illogical to create problems for US trading platforms and other types of companies. That is, in essence, it can be seen as a defence against possible problems from the regulators.

Armstrong also added that FTX “does not represent every cryptocurrency company” in the world, which means its practices should not be transferred to other giants within the industry. And one can indeed agree with this point of view.

Brian also recalled how Coinbase is different from FTX.

Coinbase does not invest client funds without explicitly instructing them to do so.

However, this is clearly not going to be enough now. Obviously, cryptocurrency lovers’ confidence in centralised exchanges has been seriously shaken after what happened. Therefore, the top exchanges will have to figure out how to not only show their own reserves, but also confirm that they correspond to the actual volume of users’ deposits. This way, it will be possible to regain faith in the niche much faster.

Coinbase CEO Brian Armstrong

The market reacted to the event with a brief dip. In particular, Bitcoin fell to a low of $16,365, but then returned to the $17,000 zone. Accordingly, rates are holding up relatively well so far, which may be due to over-sold crypto-assets over the past few days.

15-minute chart of Bitcoin exchange rate


Apparently, FTX users now have a long wait ahead of them. When they will all get their money and whether they will get it at all is unknown. As the hacked Mt.Gox story shows, such cases can drag on for years with no result at all.

Look for more interesting information in our millionaires cryptochat. There we will discuss other important developments from the blockchain world.