As a reminder, negative events in the cryptocurrency world in 2022 were plentiful. A series of high-profile crashes began in May with the death of the Terra ecosystem. At that time, the UST algorithmic stabelcoin, which was supposed to guarantee a peg to the value of the dollar without collateral, ran into problems. As a result, developers set out to print the cryptocurrency LUNA in an attempt to re-establish a peg to 1 USD, but that didn’t work.

Soon after the event, it turned out that Terra’s death affected many projects. Representatives of the latter were not only betting on the growth of LUNA, but were also holding a lot of money in UST stacking, which was yielding 20 per cent in stackablecoins at the time. Eventually, the companies’ positions faltered – and some of them did not survive the situation.

Three Arrows Capital crypto fund co-founder Su Zhu

A case in point here is the legendary Three Arrows Capital crypto fund from Soo Joo and Kyle Davies. Back in the spring, they had billions of dollars worth of crypto assets under their management, and already in the summer, the 3AC fund became part of history.

Apparently, the victim of Terra’s collapse was also the FTX exchange.

Why FTX went bankrupt

As a reminder, the FTX crypto exchange was closely linked to trading company Alameda Research, founded by its then chief executive Sam Bankman-Fried. As such, the trading platform among other things lent money – and also user funds – to liquidate various problems. And so both companies depended on what was happening in the market, and especially the collapses.

According to analysts, FTX’s major problems began precisely with the collapse of LUNA. After reviewing the data, they concluded that the death of the Terra ecosystem led to a serious drawdown in the cryptocurrency exchange’s reserves.


Earlier reports suggested that FTX, represented by its former head Sam Bankman-Friede, had been lending money to Alameda Research, including to its own users. It can therefore be speculated that some of the traders' and investors' money from FTX may have disappeared because of trading positions on LUNA.


Terra creator Do Kwon

Glassnode analysts note that they are seeing “a growing pool of onchain data that suggests FTX has been in trouble since as early as May and June”. This confirms the exchange’s notable dip in Bitcoin stocks. Here’s the relevant rejoinder from experts, cited by Decrypt.

As such, the past few months may have been a harbinger of the cryptocurrency exchange’s imminent collapse.

Glassnode experts also come to the view that FTX and Alameda saw their own balance sheets shrink in May and June amid the collapse of LUNA, crypto fund Three Arrows Capital and other serious lenders to the company. The negative effect on both companies, again, was triggered by their close association and the use of FTX money for Alameda’s needs.


At the same time, analysts point out that FTX's asset movements are quite difficult to monitor because of the exchange's "relatively complex blockchain cleansing system for Bitcoin reserves".


FTX founder Sam Bankman-Fried

This week, former FTX executive Sam Bankman-Fried sent out a letter to former colleagues attempting to explain the reasons behind the platform’s collapse. According to The Block, Sam blames a series of unfavourable events for the situation. The market crash in the spring is allegedly to blame here, followed by a weakening of user credits and a massive withdrawal of funds on their part. The reasons for the situation also include “poor margin management and risk management”.

Here’s Bankman-Fried’s rejoinder.

I never wanted this to happen. I was not fully aware of the size of the margin position, nor did I understand the magnitude of the risk associated with a hypercorrelated collapse.

As Bankman-Fried pointed out, FTX had $60 billion in collateral and $2 billion in liabilities in spring 2022. At the same time, these figures have halved since the market collapse in the spring.

FTX promo in Formula 1

He continues.

When we got together, it was obvious that the position was more than the administrator/users displayed. This was due to old fiat deposits before FTX had bank accounts.

Also Bankman-Fried traditionally said that he was very sorry because of what happened.


Funny that Bankman-Fried didn't mention the misuse of FTX users' funds here. Obviously, if their money had been there, the massive withdrawal of assets would not have led to the collapse of the platform. Still, other exchanges survived the spring crash and continue to operate, confirming their own reserves.


FTX founder Sam Bankman-Fried


We think that Bankman-Fried's comments hardly stretch to a valid reason for the platform's collapse. Yet FTX went bankrupt because it was too tightly linked to Alameda, misused users' funds and created a liquidity hole that could not be closed. Given all that, Sam's approach seems like just an attempt to escape further justice.


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